Change in Partner profit Ratio

After Registration of the LLP the partner can change the Profit sharing ratio without any admission or retirement of the partner.

After Registration of the LLP the partner can change the Profit sharing ratio without any admission or retirement of the partner. This may result in the gain to a few partners and loss to others. The partners who are in profit due to this change should compensate the sacrificing partner/partners in the profit sharing ratio

The LLP need to follow the procedures mentioned in the LLP agreement. Usually, with the consent of partners, LLP can change profit ratio by an amendment to LLP agreement.Since, proft right in an LLP is a transferable commodity, proper assignment/transfer document need to be executed to effect transfer of profit ratio to another partner.


What is the Procedure for Changing the Profit Ratio?

  • Existing LLP Agreement: Before effecting transfer among the partners (profit ratio), terms and conditions of LLP agreement regarding transfer of rights among the partners and procedures taken in to consideration.
  • Partner meeting: Before any change the existing partners, LLP call a meeting for approval of the proposed change.
  • Pass resolution to affect the change: To effect the changes in the LLP, the partners shall pass a resolution at the meeting of the partner. The resolution shall be authorised the existing designated partner.
  • File an Application for approval of change: After executing transfer deed, LLP agreement need to
    be amended to reflect the changes and a copy of the amended LLP agreement shall be filed
    with ROC

Documents Required:

  • Existing LLP Agreement
  • New Resolution
  • DSC for filling the form

FAQ

The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This Agreement would be known as “LLP Agreement”.
As per provisions of the LLP Act, in the absence of any LLP agreement, the mutual rights and liabilities shall be as provided for under Schedule I to the Act. Therefore, in case any LLP proposes to exclude provisions/requirements of Schedule I to the Act, it would have to enter into an LLP Agreement, specifically excluding applicability of any or all paragraphs of Schedule
Partner’s contribution may consist of both tangible and/or intangible property and any other benefit to the LLP. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed in the rules.
A partner may lend money to and transact other business with the LLP and shall have the same rights and obligations with respect to the loan or other transactions as a person who is not a partner
A partner’s economic rights (i.e. rights of a partner to a share of the profits and losses of the LLP and to receive distribution at the time of winding up) in the LLP shall be transferable. However, such a transfer shall not by itself cause the partner’s disassociation or a dissolution and winding up of the LLP
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