• Disadvantages of being a minority owner in an LLP

A, B & C decided to start a manufacturing business. They registered an LLP in India with a profit sharing ratio of 40:20:40 respectively. A & B are cousins but C is A's friend. B is a non-performing partner, its just that B is putting a lot of non-monetary resources like land, machines etc. The business is to be run by A & C only.

1. What is the downside for C being a minority owner?(as they now own 60% of the company)

2. Can they ever overpower C, if Yes, then how?

3. Is C legally bound to contribute only 40% of the expense? Can he contribute 50%?

PS: I am C here. Company is yet to be registered.
Asked 4 years ago in Business Law from Mumbai, Maharashtra
1) you own 40%of share in LLP .no down side of being a minority owner . all decision have to be taken with the presence of all partners . 
 Ownership rights are not transferable easily without obtaining consents of all partners of the LLP. If any partner wishes to transfer some portion of ownership, he has to obtain consent of all partners. 

2) . C cannot be over powered . one partner is not responsible for misconduct  or negligence of other partners . Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud.

3) The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice.
Ajay Sethi
Advocate, Mumbai
45611 Answers
2680 Consultations

5.0 on 5.0

Minority interest in the net assets of the company is nothing but the proportionate share of aggregation of share capital, reserve surpluses funds etc. proportionate share of all assets should be deducted from the minority interest.
Thus, minority interest is the share of outsider in the following.
1) Share in share capital in subsidiary.
2) Share in reserves (Both pre and post acquisition of subsidiary).
3) Share in accumulated losses should be deducted.
4) Proportionate share of profit or loss on revaluation of assets.
5) Preference share capital of subsidiary company held by outsiders and dividend due on such share capital, if there are profits.

They can't have a large say in the appoint of new members and major decisions taken in the company
You can't transfer your share and ownership without prior permission of other owners
Yes other partners can over power c in making major decision and in appoint new members .liability is limited to the extent they contribute to the extent of each partners contribution only
They can buy only lesser share while compared to other investors but can receive many of the same monetary benefits compared to other investors
Minority share holders interest may not be properly protected.

The minority interest and cost of control should be ascertained on the basis of number of shares held by the holding company and the minority on the date of consolidated balance sheet
 Yes he can contribute must it must be changed in the LLP in the partnership deed that c can contribute and increase his contribution when he needs to do so while forming the company
Jeshma Mohandas KP
Advocate, Kozhikode
567 Answers
1 Consultation

4.5 on 5.0

Limited Liability Partnership is a partnership in which some or all partners(depending on the jurisdiction)  have limited liability.It therefore exhibits elements of partnership and corporations.In an LLP , one ortner is responsible or liable for another partner's misconduct or negligence.This is an immportant difference from unlimited partnership.
In an LLP some partners have a form of limited liability similar to that of the shareholders of a corporation.
There is no downside of you being a 40% holder as although the other 2 partners combined hold 60% stake as you will be treated individual holders.
Apart from this the liability and rights of individual partners is determined on basis of the partnership Deed you have drawn up.So no danger of your being overpowered.
You are only bound to contribute your share of 40%
Get the parnership registered as soon as you can.It is important in  your interest as that will pave way for enforcing your rights legally.
S J Mathew
Advocate, Mumbai
2241 Answers
110 Consultations

5.0 on 5.0

1. There is no down side for you. The relationship between A & B is irrelevant in so far as their rights and obligations are concerned. That they are cousins does not empower them to gang up against you and defeat your rights. Once LLP is brought into inception the rights of all the partners will flow out of the partnership agreement made between them at the time of formation LLP. All the decisions of business will have to be taken in accordance with the manner laid down in LLP. In the event there is any violation of LLP agreement by A & B you can bring the necessary legal action against them.

2. C can under no circumstances be over powered. The limited liability partnership differs in one important way from general partnerships. Each partner is not liable for the other partner's debts or obligations as they would be in a general partnership. It is a partnership in which all partners are limited partners to the extent of their own contribution to LLP. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence.

3. You are not obligated to contribute more than 40%. If you intend to contribute more than 40% then partnership deed would have to be amended which is possible only if A & C consent to it.
Ashish Davessar
Advocate, Jaipur
22977 Answers
634 Consultations

5.0 on 5.0

Dear Querist
My opinion on your queries are as under:

1. What is the downside for C being a minority owner?(as they now own 60% of the company)
Opinion: There is no downside for you being a minority owner.

2. Can they ever overpower C, if Yes, then how?
Opinion: No, they can not became overpower.

3. Is C legally bound to contribute only 40% of the expense? Can he contribute 50%?
Opinion: yes, You are legally bound to contribute only 40% of the expense or as per the constitution of LLP.
Nadeem Qureshi
Advocate, New Delhi
4856 Answers
221 Consultations

4.9 on 5.0

1. The conduct of A, B & C will be governed by the partnership agreement executed by all of them,

2. While taking any decision, if the matter goes for voting and if A & B agree for a certain business decision against the wish of C, the decision will be legally valid due to majority support,

3. Contributions in a company is not made like subscription. Money is paid as equity capital and if Cwants to put more  money in the business, he can either buy share from either A or B or the Comoany may decide to restructure its share capital where in the share of C will be increaded for his infusing more capital to the Company.
Krishna Kishore Ganguly
Advocate, Kolkata
18510 Answers
448 Consultations

5.0 on 5.0

Ask a Lawyer

Get legal answers from top-rated lawyers in 1 hour. It's quick, easy, and anonymous!
  Ask a lawyer