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A Limited Liability Partnership (LLP) is a flexible legal and tax entity wherein each partner has a limited liability when it comes to the debts and claims of the partnership. The LLP’s partners can benefit from the economies of scale by working collaboratively while also reducing their liabilities for other partners’ actions.
Partners can contribute to the LLP in either of these two forms: tangible and/or intangible property such as cash, promissory notes and agreements/contracts. If the LLP’s contribution is received in a form other than cash, it must be valued by a registered valuer. It is necessary to keep in account the monetary value of each partner’s contribution, and the same must be disclosed to all the partners of the LLP.
If any partner of the LLP wants to make any changes in his contribution, it is mandatory to make amendments to the LLP agreement. Unless it is specifically mentioned in the LLP agreement, a change in the LLP’s contribution does not lead to any changes in the partners’ profit-sharing ratio. Partners can change the contribution in the LLP provided that there are pre-defined conditions for the same in the LLP agreement or as per the mutual consent of all the partners. A change in capital contribution in LLP can lead to either an increase or a decrease in the capital of the LLP.
Every business entity wants to manage its funds requirements according to its objectives, aims and business policies. The easiest way to meet the capital requirement of an LLP is by changing the contribution in the LLP. But for this, the LLP has to follow the regulations which are provided in the LLP agreements for change in contribution in the LLP.
The need for change in contribution in LLP can arise due to the following factors:
When a partner or a designated person of an LLP is in the need of extra funds or at the time of introduction of a new partner, the contribution in the LLP can be increased. The capital clause can provide that if it is necessary, then the increase in contribution in LLP is possible.
Partners need to amend the existing LLP agreement with a supplementary LLP agreement before increasing the capital in the LLP. A supplementary LLP agreement is like an original LLP agreement’s extension and is considered to be a crucial document for any LLP. The supplementary LLP agreement’s validity is the same as that of the original agreement of an LLP. A supplementary agreement for LLP for change in contribution must have all the details regarding the amount of change in contribution, effect with respect to each partner, etc. It is crucial for all the partners of the LLP to sign this document.
As per the provisions of the Limited Liability Partnership Act, 2008, an LLP does not require any minimum capital amount to be established. There is no mandatory requirement for a minimum capital contribution for the formation of an LLP. Hence, if an LLP wants to decrease its capital contribution due to its circumstances, need for funds, etc. it is permissible to do so by fulfilling the legal compliance requirements.
For this, the LLP must file Form 3 to the registrar with a prescribed fee. The registrar is not obligated to pay for the difference between the fees which was paid on the higher capital and now, on reduced contribution in the LLP.
To be able to make any changes in the LLP contribution (whether it’s for decrease or increase in LLP contribution), it is mandatory for the LLP agreement to have provisions for the amendment in LLP contribution.
The steps involved in the process of change in contribution in LLP are as follows:
Here are a few pointers which you must keep in mind when it comes to the change in contribution in LLP:
If any partner of the LLP wants to make any changes in his contribution, it is mandatory to make amendments to the LLP agreement. Unless it is specifically mentioned in the LLP agreement, a change in the LLP’s contribution does not lead to any changes in the partners’ profit-sharing ratio. If you need assistance for a change in contribution of LLP, get in touch with the Registrationwala team.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.