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Analysis on taking loan by LLP

GOpal Rathnam 
on 09 March 2021

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Preamble

Many professionals differ in their views for a Question as to 'Whether a Limited Liability Partnership can accept loan or deposit from an individual'? Some professionals are of the opinion that LLP can take loan/Deposit from individuals and some other says 'No'. This is an approach to remove the ambiguity. Whatever I state hereunder is my opinion and I request the reader to read corresponding Act and seek answer for the question stated above.

Applicable statues for LLP regarding taking of loan, Etc. are

  1. Limited Liability Partnership Act.
  2. The Banning of Unregulated Deposit Schemes Ordinance, 2019 & THE BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019
  3. The companies Act 2013.
  4. RBI Circulars permitting LLP to take ECB Loan.
Analysis on taking loan by LLP

Analysis

1. Limited Liability Partnership Act is silent as to whether an LLP can take loan or deposit. However, following provisions are worth considering.

  • As per section 66 of LLP Act, a partner may lend money to and transact other business with the limited liability partnership and has the same rights and obligations with respect to the loan or other transactions as a person who is not a partner.    
  • Section 71 of LLP Act states that the provisions of this Act (LLP Act) shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.
  • As per section 67 central Government has power by way of notification in the official Gazette, on applicability of any of the provisions of the companies Act to LLP. I am unable to find any circular extending provisions on deposits to LLP.
  • There is no provision to get the charges registered under the LLP act 2008 and LLP rules 2009 Unlike the Companies Act 2013. But form LLP 8 shows that annual returns to be filed by LLP can be either as 'Annual form or interim'. Further, form 8 mandates a declaration of designated partners in part A (statement of solvency) stating that creation of charge modification or satisfaction has been filed till the present financial year. This implies that LLP can borrow secured loan. It is only inference that one can draw from reading the contents of Form No-8. Therefore, when LLP takes a loan and wants to create charge, it has to file interim Form No- 8 to create charge. (please note that the declaration in statement of solvency reads as 'We have already filed a statement indicating creation of charges or modification or satisfaction thereof till the present financial year'). It is worth noting that the word' SOLVENCY' is not defined in LLP Act or The Companies Act or even in The Insolvency and Bankruptcy Code, 2016.
 

2. The Banning of Unregulated Deposit Schemes Ordinance, 2019 & THE BANNING OF UNREGULATED DEPOSIT SCHEMES ACT, 2019, (In short BUDS ACT).

  • BUDS Act covers all category of person including individual, HUF, SOCIETIES, Association of person, corporate body, firm including LLP.
  • Under Section 2 an unregulated deposit scheme means a deposit which is not included in column-3 of first schedule.
  • First Schedule to BUDS Act, indicates the type of regulated deposit scheme permitted under the act and its regulator. Please see section 2 to know the meaning of regulator and regulated deposit scheme. First schedule is silent about the regulator or permitted regulated deposit scheme in respect of LLP. Hence one can draw run inference that an LLP can take loan or deposit. Hence, there is ambiguity regarding LLP in BUDS Act.
  • Section 3 of BUDS Act prohibit deposit taker from issuing any advertisement or solicit deposits.

3. Therefore, there is no regulator or regulated deposit scheme or the regulations governing the acceptance of loan or deposit by LLP under the LLP act or Companies Act or BUDS Act.

4. To my knowledge, MCA has not issued any notification extending the provisions governing deposits under the Companies Act to LLP.

5. Therefore, there is no regulator or regulated deposit scheme or the regulations governing the acceptance of loan or deposit by LLP under the LLP act or Companies Act or BUDS Act.

 

Conclusion

  • LLP can take loan or deposits from its partners as the same is permitted under section 66 of LLP act.
  • LLP can take secured loan. This is an inference drawn from reading section 66 of LLP Act.
  • From June 2019, LLP can take loan under ECB scheme as per circular issued by RBI. Please see RBI Master Direction No.5/2018-19 March 26, 2019.
  • All other unsecured loans or deposits, if taken by LLP from friends and family members, becomes unregulated deposits the same is out of the purview of Regulated loan/deposit specified in First Schedule to BUDS Act.
  • As on date there is no specific legislation governing loans and deposits for LLP and there is no definition for 'SOLVENCY'.

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