WHAT ARE THE DOCUMENTS REQUIRED FOR CHANGE IN CONTRIBUTION OF LLP?
What is LLP?
LLP known as Limited Liability Partnership is a new form of business entity. It is a form of partnership in which all partners have limited liability. Therefore, LLP combines the advantage of a corporate structure as well as traditional partnership structure. In LLP, partners are not responsible for each other’s misconduct or negligence.
Change in Contribution
Increase in contribution means to contribute new capital in the LLP by new partners or by existing partners. The easiest way an LLP can meet its capital requirement is by increasing the contribution limit of each partner. Since, the contribution of partners is in line with the LLP agreement; increase in partner’s capital may require alterations in LLP agreement.
When we can increase contribution in LLP
The need for extra capital forces the partners to increase contribution in LLP at any time. The new partners entering into the LLP are also required contribute in the LLP. If the contribution of the partners are directly related to partners profit, then changes needed to be made in partners account by making necessary entries before allowing contribution.
Reasons to Increase Contribution in an LLP
An LLP needs to increase contribution of the partners due to the following reasons:
- Introduction of new partner.
- In order to expand the business.
- An LLP, to increase the business activities.
- Any other requirement according to the partners.
PROCESS OF CHANGE IN CONTRIBUTION OF PARTNERS
In order to increase the contribution of partners not much documentation is required. The following are the documents of prime importance:
- Present LLP Agreement
In the case of change in capital of an LLP, an amendment of LLP agreement is required. The present LLP agreement is essential to know the procedure of alteration.
- Consent of Partners
Partners consent are required in almost every procedure. For the process of increase in contribution, the partners should give in writing or hold a meeting for modifying the agreement.
- Amended LLP Agreement
Once the consent of partners are obtained the next step is to get the revised LLP agreement signed by all the partners whether you are a new partner or an existing partner.
Procedure of Change
- Present Contribution of Profit Share
The profit share of the partners is to be verified along with their present contribution.
- Accounting Entries
An adjustment entry is made if the LLP changes the proportion of the contribution by each partner. The present partners account is adjusted in order to reflect the changes till date of increase.
- Amendment of LLP Agreement
The increase in contribution will always amount to change in LLP agreement. The changed capital of the partners are required to be shown in the new agreement of an LLP.
- Files to be Presented to the Registrar
All the amendments to the LLP agreement need filings with ROC. E-Form LLP-3 has to be filed within 30 days from the date of alteration of the agreement. The E-Form should be filed with the initial LLP agreement, consent of partners and the amended LLP agreement.