Learn Fundraising in LLP

LLP is a body corporate having a separate legal entity, i.e. both LLP and the partners are distinct from each other. LLP have unique feather as like a Private Limited company. LLP is combination of Corporate structure and partnership firm. LLP is more simple as compared to companies. For running and expanding business basic requirement is funds. Funds work as fuel for business. As a LLP partner you must having question about fundraising in LLP ? Can LLP Accept Loan from partners ? Can LLP take loan from bank ? etc. In this article we explaining about fundraising in LLP.

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Capital Contribution in LLP

First Fundraising in LLP starts with initial capital contribution by partners. In process of LLP registration partners mutually decide there profit and loss ration, roles, responsibilities, capital contribution. The first capital contribution of LLP get recorded in LLP Agreement. Once LLP is registered partners transfer there initial funds in LLP. This is first Fundraising of LLP. On this funds Partners are eligible to take upto 12% interest PA.

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Increase Capital Contribution in LLP

Capital is fuel for business to develop new product , expand business etc. In such situation existing capital contribution of LLP may be not sufficient. Partner may mutually take decision to invest more funds in LLP as solution of fund raising in LLP. Where each partner decide to add more funds in LLP. By adding more funds in LLP , partners avoid external loans, liabilities , monthly EMI. Increasing capital contribution of LLP need to be reported to MCA. Its partners responsibility to keep updated records with MCA about LLP’s capital contribution.

• Pass Resolution for Increase in Capital contribution
• Pass Resolution to amend LLP agreement
• Amend LLP agreement with new capital contribution
• Submit New agreement to MCA with in 30 days

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Add New Partner for New Funds in LLP

Where existing partner fees suitable then they can choose option of Fund raising in LLP by adding a new partner in LLP. By adding new partner in LLP , as per terms of LLP Deed funds get invested in LLP. However by adding new partner , existing partner may diverse there existing profit and loss sharing ration. Below is procedure to add new partner in LLP.

• Pass resolution in LLP to add New Partner
• Prepare new LLP agreement with clauses
• Execute LLP agreement on Bond with partner sign
• Submit form No. 4 & 3 to MCA
• Deposit fund in LLP current account

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Loan from Partner

LLP is business owned and managed by partners. LLP partners work towards growth of company by investing funds in LLP. However in certain situation where there is temporary need of funds in LLP , partner invest amount in LLP for temporary purpose with Loan agreement. As needed with Loan agreement LLP can accept/ raise Funds from Partners as Loan. LLP is an legal entity and it is distant from the partners and it can accept loan from partners. Making such fund raising transaction transparent with other partners , LLP and partner can execute Loan from Partner in LLP agreement.

• Execute Loan agreement
• Mention repayment schedule
• Mention other clauses

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Bank Loan

Fundraising in LLP via bank loan is one of suitable option. For startups where business have limited sources of funds, they can approach banker for extern funds in terms of Term Loan, Machine Loan, Cash Credit etc. This loan comes with interest component and monthly EMI.  Banker have there on methods to approve or reject loan. Under mudra loan scheme banker can give loan of upto Rs. 10 lac as unsecured loan. LLP can borrow loan form bank. For LLP fund raising form banker , below is initial check list of documents.

• Prepare Project report
• LLP Agreement , Certificate
• LLP Shop Act certificate
• LLP PAN Card
• MSME Certificate
• Partner KYC
• Financial statements of LLP
• Bank statement of LLP

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Venture Capital Fund raising

VCs stands for Venture Capitalist , this is external investor. Fund raising via Venture capital in LLP is risky as well as huge potential to grow. The people who invest in business are called as Venture capitalist. There aim of making investment is earn via share in profit , take share in ownership , sell owner ship etc. Venture capital funding is suitable for LLP who have solid product or service where there is huge demand / scope in future. Below are features of Venture capital funds raising.

• High Risk
• Result diversification of ownership
• Participation in Management by VC
• May have funds repayment schedule
• May have other financial cost

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Conclusion :

Fund raising in LLP is possible with internal and external sources. Fund raising with internal sources is increase capital contribution , add new partner etc. And in external fund raising its apply for bank loan , approach venture capital for funding. LLP partners duty is to keep information of funds raising , loan accepted to MCA.

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