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

Ravi, Sunita and Mohan are partners in 'RSM Advisors LLP'. The LLP agreement is silent on the right of partners to share profits. Ravi contributed Rs 6 lakh, Sunita Rs 3 lakh and Mohan Rs 1 lakh as capital. A dispute arises on how the profit of Rs 1,50,000 should be divided. What is the correct legal position under the LLP Act, 2008?

Profit is shared equally, giving each partner Rs 50,000. Where the LLP agreement is silent, the First Schedule default rules apply, and they provide that all partners share capital, profits and losses equally irrespective of the amount of capital each contributed.

  1. AProfit is shared in the ratio of capital contributions, so Ravi gets Rs 90,000
  2. BProfit is shared equally, so each partner gets Rs 50,000Correct
  3. CProfit is shared as decided by the majority of partners in a meeting
  4. DProfit is shared in proportion to the time each partner devotes to the business

Explanation

Under the LLP Act, in the absence of an agreement, the mutual rights and duties of partners are governed by the First Schedule, which provides that all partners are entitled to share equally in capital, profits and losses. So Rs 1,50,000 is divided into three equal shares of Rs 50,000. Dividing by capital is the Partnership Act style approach many assume, but it is not the default rule here.

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