Start with the agreement on the particular matter
Section 23(4) of the LLP Act applies the relevant First Schedule provisions where agreement on that matter is absent. Under paragraph 11, a partner carrying on a same-nature competing business without LLP consent must account for and pay over its profits. Paragraph 12 concerns benefits obtained without consent from LLP transactions or use of its property, name or business connections. This guide was checked on 27 October 2026; it does not assume every outside activity is competing business. LLP Act: First Schedule paragraphs 1, 11 and 12.
Prove the activity before quantifying a demand
Read the agreement, amendments and consent scope, then identify the business, period, customers and actual overlap. A common customer or a similar description alone may not resolve the legal test. Separate allegations, established facts and disputed inferences. Consent to one transaction should not be casually extended to a different business or later period.
Keep profit and benefit models distinct
For a competing business, build a supported profit account rather than presenting gross turnover as profit. Record revenues, substantiated costs and disputed deductions. For a specific unauthorised benefit, identify what the partner actually derived. Do not automatically deduct any claimed expense from a benefit or demand the same economic amount twice under overlapping descriptions. The calculations below assume the stated costs and benefit character are accepted solely for illustration.
Reconcile accountability with actual recovery
Separate the amount potentially accountable, any amount already paid over, and the balance sought. A partner’s ordinary profit share does not by itself authorise retaining an unauthorised benefit. Equally, a working-paper estimate does not establish a final enforceable debt or authorise unilateral seizure, expulsion or capital-account set-off. Obtain the proper agreement-based or legal resolution.
Preserve an independent dispute file
Keep source contracts, customer invoices, bank records, cost support, consent communications and the competing-business timeline. Distinguish a paragraph 11 profit claim from fraud damages or other remedies. Do not infer an automatic penalty, interest rate or limitation period from these paragraphs; those issues require separate authority.
Applicable primary references
LLP Act: First Schedule paragraphs 1, 11 and 12 Official statutory library: LLP Act section 23
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Accepted competing-business profit
Assume the default rule applies, consent is absent and the business qualifies. Revenue is ₹8,00,000 and accepted attributable costs are ₹5,00,000. The profit account is ₹3,00,000, not ₹8,00,000 turnover. Cost acceptance is a model assumption, not a statutory deduction formula.
Illustrative example 2: Part already paid over
An accepted accountable profit is ₹2,40,000 and ₹90,000 has already been paid to the LLP against that claim. The unrecovered balance is ₹1,50,000. Verify allocation of the receipt before subtracting it.
Illustrative example 3: Separate benefit streams
A partner derives an accepted ₹40,000 referral benefit through the LLP’s connection and a separate ₹25,000 benefit from use of its property, both without consent. If neither overlaps, the benefit working totals ₹65,000, subject to establishing the paragraph 12 facts.
Illustrative example 4: Avoid overlapping claims
A ₹1,00,000 competing-business profit already includes a ₹30,000 fee that is also listed as an unauthorised benefit. Adding ₹30,000 again would produce ₹1,30,000. The unique economic amount in this assumed overlapping model is ₹1,00,000; any distinct legal relief requires its own analysis.
Illustrative example 5: Consent period
A six-month outside-business working shows ₹20,000 accepted profit in each month. Assume valid consent covers the first two months only and the remaining four meet paragraph 11. The no-consent profit population is ₹80,000 out of ₹1,20,000 total, without deciding any other contractual obligation.
Illustrative example 6: Disputed cost sensitivity
Revenue is ₹5,00,000, accepted costs ₹3,00,000 and another ₹50,000 of costs is disputed. Profit is ₹2,00,000 before that disputed deduction or ₹1,50,000 if accepted. Present the ₹50,000 issue openly rather than describing either model as a final adjudication.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Read the agreement on this matter | Agreement and amendments |
| 2 | Confirm the relevant default provision | Section 23(4) and First Schedule |
| 3 | Identify the outside activity | Contracts and activity timeline |
| 4 | Assess nature and competition | Customers, services and factual comparison |
| 5 | Check consent scope and timing | Authorised consent evidence |
| 6 | Trace revenue or benefit | Invoices and bank evidence |
| 7 | Review supported and disputed costs | Profit account and assumptions |
| 8 | Remove overlap between claim heads | Transaction-level reconciliation |
| 9 | Deduct allocated recoveries | Receipt evidence and balance working |
| 10 | Resolve and retain the position | Agreement process, advice and final record |
Sixteen practitioner FAQs
1. Does the First Schedule override every agreement?
Section 23 makes the relevant absence of agreement material; read the actual terms first.
2. Is any second business automatically prohibited?
The default competing-business rule requires its specified facts, including same nature and competition.
3. Whose consent matters in paragraph 11?
The text refers to consent of the LLP; verify how valid consent is given under the governing arrangements.
4. Does consent to one contract cover every later contract?
Do not assume that; document its scope and period.
5. Is turnover the same as accountable profit?
No. Prepare a supported profit account and identify disputed costs.
6. Can every alleged cost be deducted automatically?
No. The article’s cost figures are expressly assumed accepted or disputed.
7. What does paragraph 12 examine?
Benefits from LLP transactions or use of its property, name or business connections without consent.
8. Is an LLP loss essential to every benefit model?
Do not replace the paragraph 12 benefit test with an assumed damages calculation.
9. Can one fee appear in two claim heads?
Show the overlap and avoid demanding the same economic amount twice without a distinct supported basis.
10. Does the partner’s profit-sharing percentage reduce the claim automatically?
It does not itself establish consent or a right to retain the benefit.
11. What if part was already returned?
Match the receipt to the particular claim before reducing the outstanding balance.
12. Does this working authorise expulsion?
No. Expulsion and other remedies require their own legal and agreement review.
13. Can the capital account simply be debited?
Do not infer an unrestricted unilateral set-off power from these paragraphs.
14. Is a fixed interest rate prescribed here?
No such rate is calculated or claimed in this guide.
15. How should uncertain costs be shown?
Separate accepted costs and a clearly quantified sensitivity for disputed costs.
16. What is the key final output?
A consent-and-activity analysis linked to a nonduplicated profit or benefit and recovery reconciliation.
Conclusion
Check the LLP agreement and consent evidence before measuring competing-business profits or benefits obtained through the LLP’s property, name or connections.