Fundraising in LLP — Partner Contribution in LLP Fundraising and Minimum Contribution Requirement

Introduction

In April 2009, the notion of a Limited Liability Partnership, or LLP, was initially proposed. LLP registration has quickly acquired popularity among entrepreneurs and start-ups because to its unique features. The most basic prerequisite for beginning and running a business is money. As a result, during the initial phase, partners are concerned about “How to raise funds for an LLP?” But don’t worry, this post will provide you with information about a partner’s participation in LLP Fundraising as well as the Minimum participation requirement.

Before we get into the many ways to contribute to fundraising in a Limited Liability Partnership, let’s take a quick look at what an LLP (Limited Liability Partnership) is.

Features of an LLP (Limited Liability Partnership)

A Limited Liability Partnership (LLP) is a legal entity with its own legal identity, which means the LLP and its partners are separate legal entities.

It will continue indefinitely.

A Limited Liability Partnership (LLP) is a cross between a partnership and a corporation. It combines the freedom of a partnership firm with the limited liability of a corporation.

More importantly, the LLP’s partners are not liable for each other’s activities.

A Partner’s Contribution to LLP Fundraising

In an LLP, contribution refers to the amount brought in/invested by each partner. Section 32 (1) of the Limited Liability Partnership Act, 2008 stipulates how partners can join in a Limited Liability Partnership. Contributions to an LLP can be made in a variety of ways, including:

• Contracts for services delivered or to be delivered
• Promissory Notes
• Monetary contribution
• Tangible movable or immovable property
• Intangible property
• Agreements to donate property or money

The preceding list covers both monetary and non-monetary donations. Section 32 (2) of the LLP Act, 2008, and Rule 23(1) of the LLP Rules, 2009 govern contribution declarations under LLP.

The LLP shall account for and declare the monetary value of each partner’s contribution in the LLP accounts in accordance with the aforementioned regulations and guidelines.

Furthermore, non-monetary contributions made by the partners must be accounted for in the LLP records. As a result, rule 23 (2) of the LLP Rules, 2009 states that contributions of partners in the form of tangible, movable, or immovable property; intangible property; an agreement to contribute property; or a contract for services performed or to be performed can be valued using any of the following methods:

• A valuer approved by the Central Government’s panel; or
• A Chartered Accountant in practice; or
• A cost accountant in practice.

Any of the valuers listed above would assess the appropriate value of the non-monetary contribution, which would then be accounted for in the LLP accounting.

Furthermore, the agreement should include information about each partner’s participation as well as the way of contribution for an optimal fund-raising in an LLP.

Partners’ various methods of fundraising in an LLP

LLP can raise capital by requesting a loan from a partner

An LLP is a corporate partnership that owns and runs a company. LLP partners contribute to the company’s growth by investing monies in LLP. However, in rare situations, if an LLP has a temporary need for finances, a partner may invest cash in the LLP for a brief time under the conditions of a loan arrangement.

A Loan Agreement allows an LLP to accept/raise funds from partners as a loan as needed. A Limited Liability Partnership is a separate legal entity from its participants that can accept debts from them. The material listed below is what LLP Partners must include in an LLP Agreement.

1. Finish the loan agreement.
2. Mention the repayment strategy.
3. Mention any additional clauses (if applicable).

Fundraising in an LLP by bringing on a new partner

Another option to raise funds in an LLP is to add a new partner who will contribute more. Follow these procedures to boost your donation by adding a new partner:

1. A resolution is passed to include the new partner.
2. The LLP agreement will be revised to reflect the addition of a new partner and a change in contribution %.
3. Forms 4 and 3 are used to notify the Registrar of changes.

Raising Capital Contribution in a Limited Liability Company Partnership

Businesses employ capital to develop new products, expand their operations, and so on. The LLP’s existing capital contribution may not be sufficient in this scenario. Partners may elect to invest extra funds in the LLP as a method for LLP fund raising. When each partner decides to enhance their investment in the LLP. By raising the amount of money in their LLP, partners can avoid external loans, obligations, and monthly EMIs. LLP capital contribution increases must be reported to the MCA. It is the partners’ responsibility to keep MCA informed of the LLP’s capital contribution.

1. Pass a resolution proposing an increase in capital contributions.
2. Adopt an amendment to the LLP agreement.
3. Add a fresh capital contribution to the LLP agreement.
4. Submit MCA will receive a new agreement within 30 days.

Minimum Contribution requirement in an LLP

One fundamental question concerning the requirement of a minimum contribution arises when examining the concept of partner contribution in an LLP. In this scenario, the requirements of Section 33(1) of the LLP Act 2008 must be followed.

Section 33(1) expressly states that the partners’ financial and non-financial contributions must be in conformity with the LLP agreement. As a result, it’s worth noting that no minimum contribution is required under LLP law.

To put it another way, making a contribution is not required in order to form a Limited Liability Partnership. Furthermore, there is no necessity for partners to deposit a certain amount of money in order to be considered partners in a Limited Liability Partnership.

Conclusion

The first phase in LLP fundraising is the initial capital commitment by partners. Partners agree on profit and loss proportions, roles, duties, and capital contributions throughout the LLP registration procedure. The LLP Agreement formalizes the LLP’s initial capital contribution. Once the LLP is registered, partners transfer their first funds to it.