Can LLP Give Loan to its Partners ?

Yes, Limited Liability Partnership ( LLP) Can give loan to its partner. Since LLP is an legal entity and it is distant from the partners. Means LLP is different from its partners. Where partners mutually decide , LLP Can given loan to its partner. LLP is artificial entity created by Law and LLP Deed is governing document for LLP operation. Before giving loan to partner form LLP , firm must check that there is no restriction in LLP agreement to give loan. Designated partner act on half of LLP to make legal formalities and reporting of loan given to partner.

As per LLP Act 2008 there is no restriction of Loan amount. Partner can mutually decide about loan amount. The loan shall be given to partner on interest.  interest should be charged according to loan rates. Interest received on loan given to partner is Interest income of firm. As appropriate income tax provisions and tax rate shall apply.

Agreement / Contact for Loan from LLP to Partner

LLP is separate legal entity and its different from its partner. LLP Can enter into contract with partner for processing loan. LLP and desired partner shall enter into contact for loan processing. This loan contact helps to keep LLP and partners transaction transparent. Content of Loan agreement shall be as below

• Date of agreement
• Parties involved
• Loan Amount
• Rate of Interest
• Repayment schedule
• Fine , Penalties if any

Income Tax Impact on Loan from LLP to Partner

When LLP give loan to partner it charges interest on loan as per loan contact. This interest is additional income of LLP form loan given to partner. On this income tax is applicable. While filing LLP income tax return LLP should book this interest as Interest income and calculate income tax and pay same.

Reporting Loan Given to Partner From LLP  

LLP is separate legal entity. LLP partners are responsible for maintaining its books of account. While preparing financial statement of LLP , partner need to report under asset side of LLP as Loan and advance given. Such report also get filed in LLP Annual income tax return.

As a LLP partner , where partner is preparing his / her person income tax return then loan taken from LLP shall be reported. In Partner person balance sheet loan taken from LLP , shall be shown as  “ Unsecured Loan” in liability side of balance sheet. Partner and LLP need to ensure that Loan amount is tally in both books of account.