Can LLP take loan from Partners ?

Yes, Limited Liability Partnership ( LLP) take a loan from partner. LLP is an legal entity work as an artificial person. Partners mutually take LLP decisions. As per partners decision LLP can take loan from Partner. LLP operated business as per terms and conditions of LLP deed. Before taking Loan from partner firm need to ensure that there is no negative clause in LLP deed.

As per LLP Act 2008 there is no restriction on to accept loan from Partner. Partner can decide to give loan to LLP on interest. Interest should be charged according to market loan rates. Interest paid to partner on Loan is expense for LLP.

Agreement / Contact for Loan from Partner to LLP

LLP is separate legal entity and its different from its partner. For keeping loan transaction transparent firm and partner shall execute Loan agreement. Content of Loan agreement shall be as below

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

Reporting Loan taken from Partner in LLP

Partners are responsible to maintain LLP books of account. In LLP’s annual financial statement LLP shall disclose amount received form partner under loan group in liability side of balance sheet.

In partners personal Income Tax return form , partner shall report amount given to LLP as “Loans and Advance” in asset side of Balance sheet. Interest received from LLP shall be income of partner and income tax shall be applicable.