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CA Intermediate · Corporate and Other Laws · The Limited Liability Partnership Act, 2008

Gupta and Rao LLP has a partnership agreement that is silent on the rights of partners to receive remuneration and to share profits. The partners are Nisha, Imran and Joseph, who contributed capital of Rs 5 lakh, Rs 3 lakh and Rs 2 lakh respectively. The LLP earns a profit of Rs 9 lakh. Which statement is correct under the LLP Act, 2008 as to the default position?

Profits are shared equally, so each partner receives Rs 3 lakh, and no partner is entitled to remuneration. The LLP Act applies this default only when the agreement is silent, and it does not link profit share to capital contributions. It also gives no automatic interest on capital.

  1. AProfits are shared in proportion to capital: Nisha Rs 4.5 lakh, Imran Rs 2.7 lakh, Joseph Rs 1.8 lakh
  2. BProfits are shared equally, Rs 3 lakh each, and no partner is entitled to remuneration for taking part in the businessCorrect
  3. CProfits are shared equally and each partner is entitled to a salary decided by majority vote
  4. DProfits are shared in proportion to capital and each partner gets interest at 6% on capital

Explanation

If the LLP agreement is silent, all partners are entitled to share equally in the capital and profits of the LLP, and no partner is entitled to remuneration for taking part in the business. So each gets Rs 9 lakh / 3 = Rs 3 lakh. Option A applies a capital-ratio rule, which is not the LLP default. Options C and D invent entitlements.

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