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Unlike private limited companies, LLPs cannot raise money through equities. You can raise funds only its partner. However debt funding such term loans and other options are available.
LLP registration has become popular among startups and entrepreneurs. You need money to start and grow any business. At starting phase many partners get worried about raising “How to raise funds for a LLP company in Chennai” .No worries. We are here to guide with details about LLP partners’ contribution and Minimum contribution requirement.
Partner contribution in LLP fundraising
Partner contribution is the amount brought in / invested by partner in an LLP. Section 32(1) of LLP Act 2008 spells out about the ways in which a partner can contribute or fund an LLP. LLP contributions can be in different methods . LLP contribution by partners’ can be both monetary and non-monetary. including
- Monetary contribution
- Promissory notes
- Contracts for services performed or to be done
- Agreements to provide cash or property
- Tangible assets- movable or immovable
- Intangible property
In case of non-monetary LLP partner contribution, the relevant value must get accounted. As per LLP rules 2009 – An LLP partner who is making non-monetary contribution like agreement to contribute property; intangible property; or contract for services performed or to be performed, tangible, movable, or immovable property must get its valuation done through any one of the following methods
- A Practicing Chartered Accountant
- A Practicing Cost accountant
- Approved valuers from central govt.
The amount certified by the above professionals gets accounted in LLP accounting. Furthermore, for easy fund raising of LLP, the LLP agreement must give information about each partners’ participation and contribution.
Different ways of LLP fundraising by Partners
- Fundraising by partner loan – LLP can raise money from Loan from partners. A complete loan agreement must be drawn up between LLP and loan-giving-partner/s about repayment, interest and other clauses.
- Fund raising by LLP partner addition -Adding a new partner to an LLP is another way to raise contribution of funds to the firm. A LLP resolution gets passed for new partner addition. LLP agreement must get updated reflecting new partner addition, contribution, profit sharing and other conditions. Notification of ROC must get filed in appropriate forms.
- Fundraising by additional capital contribution from existing partners– one of the best ways to raise funds. Each or any of the existing LLP partner may additional funds to LLP as a capital investments. This avoids external loans and liabilities and interest payment. Any increase in LLP contribution must get informed to MCA. LLP resolution must get passed by capital contribution increase. Amend the LLP agreement. Submit MCA form about the changes within 30 days.
External funding to an LLP
- Bank Loans- approach banker for extern funds in terms of Term Loan, Machine Loan, Cash Credit etc. This loan comes with interest component and monthly EMI
- Venture Capital Fund raising – external investor. Fund raising via Venture capital in LLP is risky as well as huge potential to grow.
Minimum contribution requirement of an LLP
Section 33(1) of LLP Act 2008 clearly states that ‘the partners’ financial and non-financial contribution must be in accordance with LLP agreement ‘. It means that no minimum contribution is necessary to form an LLP. Contribution is not a requisite in forming an LLP. In addition, a person need not invest cash or money to be considered a LLP partner.
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LLP gets is first and initial funds from partners as capital contribution. LLP registration defines duties and responsibilities, capital contribution, profit or loss share ratio and other important aspects of the firm and its partners. LLP agreement records the initial capital investment by partners. Funds get transferred from partners to LLP bank account after registration.
FilingPoint is one of the best rated LLP consultants in Chennai. FilingPoint consultants in Chennai have many years of experience in company registration and can assist you in all aspects of the LLP registration and management of your LLP. Seek their professional help to establish the best possible company structure for your particular company.