A reimbursement claim starts with the agreement and the underlying payment
Section 23(4) of the LLP Act makes the relevant First Schedule default applicable where agreement on that matter is absent. Paragraph 3 requires the LLP to indemnify a partner for payments made and personal liabilities incurred in the ordinary and proper conduct of its business, or for necessary preservation of its business or property. This guide, checked on 27 October 2026, concerns that internal claim and its evidence, rather than a third party’s general right to sue a partner. LLP Act, 2008: section 23 and First Schedule paragraphs 3, 4 and 6.
Read the agreement matter by matter
Find the agreement and amendments governing reimbursement, authority, emergency spending, supporting documents and approval. An agreement on profit sharing does not necessarily answer reimbursement. Conversely, do not invoke a default while ignoring an operative agreed reimbursement provision. Section 23(1) recognises the agreement’s role subject to the Act, and subsection (4) addresses absence of agreement on a matter. LLP Act section 23 and First Schedule paragraph 3.
The default has two routes, not an unlimited expense allowance
For the ordinary-business route, establish both the business connection and that the conduct was proper. For the preservation route, show why the act was necessarily done to preserve the business or property. Keep invoices, payment proof, supplier confirmation and contemporaneous explanation of urgency. A partner’s personal benefit or assertion that expenditure was helpful does not automatically meet these descriptions.
Distinguish paid amounts from personal liabilities still outstanding
The wording covers personal liabilities incurred as well as payments already made. Record which obligation exists, who owes the supplier and whether the partner has paid it. An internal indemnity claim is not evidence that the supplier was discharged. If the LLP later pays the supplier directly, update the indemnity working so that the same obligation is not also reimbursed in full to the partner.
Separate remuneration, loans and reimbursement
First Schedule paragraph 6 provides a separate default of no entitlement to remuneration for acting in the business or management. An adequately proved reimbursement is not simply a management fee with a new label. A partner loan, capital contribution, profit distribution and expense settlement also need separate accounts. This article does not decide tax deductibility, withholding or GST from the fact that an internal reimbursement right exists. First Schedule paragraphs 3 and 6.
Reconcile advances and recoveries before releasing cash
Prepare a claim-wise bridge from supported expenditure and incurred liabilities to prior advances, direct supplier settlements, refunds, previous reimbursements and the balance remaining. Mixed personal and business spending needs a supported allocation; do not reimburse the whole card statement. Preserve a disputed portion separately rather than manufacturing a final entitlement through an accounting entry. Paragraph 4 addresses a partner’s indemnity to the LLP for fraud-caused loss; it is not a general shortcut for netting every disputed claim. First Schedule paragraphs 3–4.
Applicable primary references
LLP Act, 2008: section 23 and First Schedule paragraphs 3, 4 and 6
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Ordinary business payment
A partner properly pays an LLP supplier ₹1,20,000 personally. The LLP has already reimbursed ₹75,000. Assuming paragraph 3 applies and no dispute, the unpaid reimbursement is ₹45,000, not another ₹1,20,000.
Illustrative example 2: Necessary preservation expenditure
Assume ₹32,000 emergency removal costs and ₹8,000 protective storage were necessarily incurred to preserve LLP property. With ₹10,000 already reimbursed, the outstanding supported claim is ₹30,000. Necessity must be evidenced independently of this arithmetic.
Illustrative example 3: Mixed personal spending
A ₹40,000 payment contains ₹6,000 clearly personal expenditure. On the assumed proved facts, eligible business spending is ₹34,000. The partner’s single payment reference does not make the personal component an LLP reimbursement.
Illustrative example 4: Liability and direct settlement
A partner incurs a qualifying personal supplier liability of ₹90,000 without yet paying it. The LLP then pays the supplier ₹30,000 directly. The remaining obligation in the indemnity working is ₹60,000. Do not treat ₹90,000 plus the direct settlement as two costs or reimburse the original liability again in full.
Illustrative example 5: Supplier refund after reimbursement
The LLP reimbursed a partner ₹50,000 for a qualifying payment. The supplier later refunds ₹20,000 to the partner. The final net expenditure is ₹30,000. Track the ₹20,000 refund for return or appropriately authorised adjustment so that the LLP does not bear an unsupported excess.
Illustrative example 6: Unused expense advance
The LLP advances ₹60,000. The partner proves qualifying expenses of ₹47,000 and no other authorised use. Unused funds are ₹13,000, to be returned or otherwise dealt with under the valid arrangement. An advance is not itself proof that all ₹60,000 was spent.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Locate the agreement | Relevant reimbursement terms and amendments |
| 2 | Identify any default matter | Section 23(4) applicability analysis |
| 3 | Identify the claimant and payee | Partner and supplier records |
| 4 | Classify the legal route | Ordinary proper conduct or necessary preservation |
| 5 | Verify the underlying obligation | Invoice, contract and purpose |
| 6 | Distinguish payment from liability | Bank proof or unpaid obligation evidence |
| 7 | Separate personal and fee elements | Allocation and remuneration terms |
| 8 | Reconcile prior settlements | Advances, direct payments and reimbursements |
| 9 | Trace later refunds | Supplier credits and returned funds |
| 10 | Approve and close the balance | Claim-wise ledger and settlement evidence |
Sixteen practitioner FAQs
1. Does the First Schedule override every LLP agreement?
No. Read section 23 and the agreement on the particular matter before applying a default.
2. What are paragraph 3’s two main routes?
Payments or personal liabilities in ordinary and proper business conduct, and acts necessarily done to preserve LLP business or property.
3. Must the partner already have paid cash?
Not invariably. The text also covers qualifying personal liabilities incurred; establish the obligation and prevent duplicate settlement.
4. Does an internal indemnity discharge the supplier?
No. Verify whether the supplier’s obligation has actually been settled.
5. Does every emergency expense qualify?
No. Prove why it was necessarily incurred for preservation on the facts.
6. Is a payment statement enough evidence?
It proves a payment trail but not necessarily its purpose, propriety or ultimate beneficiary.
7. Can mixed personal expenditure be claimed in full?
No automatic entitlement follows. Identify and exclude unsupported personal components.
8. Is reimbursement the same as remuneration?
No. Paragraph 6 contains a separate remuneration default and the underlying rights must be distinguished.
9. Can a partner claim a management fee by calling it expenses?
A label cannot establish reimbursement. Examine actual expenditure and the agreed fee entitlement separately.
10. What if the LLP pays the supplier directly?
Reduce the corresponding unsettled claim appropriately and retain the supplier discharge evidence.
11. How do advances affect the claim?
Reconcile the supported expenditure against advances rather than reimbursing it a second time.
12. What happens to an unused advance?
Account for the remaining funds and settle them under the valid arrangement; do not deem them spent.
13. Why retain supplier refund evidence?
A later refund can change the final economic cost and require recovery or an authorised ledger adjustment.
14. Does LLP indemnity prove income-tax deduction?
No. Internal entitlement and tax treatment require separate analyses under their respective rules.
15. Can disputed amounts simply be offset?
Do not assume a general automatic set-off right. Establish the relevant rights and any valid adjustment authority.
16. What should the closing statement show?
Supported costs and liabilities, payments by each party, advances, refunds, reimbursements and the balance with its supporting documents.
Conclusion
Apply the LLP First Schedule indemnity default to business payments and personal liabilities, separating reimbursement, remuneration and outstanding balances.