A partner can also transact as a lender
Section 66 of the LLP Act permits a partner to lend money to, and transact other business with, the LLP, with the same rights and obligations for those transactions as a non-partner. Partner status therefore does not automatically convert a genuine loan into capital or erase its contractual obligations. This guide, checked on 26 October 2026, focuses on documenting that separate relationship; it does not determine insolvency ranking, security validity or tax deductibility. LLP Act, 2008: section 66, official Bombay High Court repository.
Identify the legal transaction before posting the receipt
Under section 66, retain the loan agreement or other transaction terms, actual fund transfer, purpose, repayment obligations and authority under the LLP’s governance documents. A ledger title alone is not conclusive. Distinguish promised contribution, contribution actually made, loan principal, interest and profit/current-account movements; each can affect a different relationship even where the counterparty is the same partner.
Permission does not prescribe loan terms
The section does not fix an interest rate, repayment period, mandatory security or a contribution-based borrowing cap. Agree lawful terms and preserve approvals and amendments. The numerical rates below are fictional contractual assumptions, not LLP Act rates or income-tax deduction limits. A right to transact does not by itself validate every term under other applicable law.
Keep other business invoices independently supported
Where a partner supplies goods, rents premises or provides another service, identify the actual counterparty, transaction, invoice and performance. Section 66’s general permission does not settle GST, withholding, valuation, related-party disclosure or professional-conflict questions. Assess each of those separately rather than claiming a blanket exemption because the supplier also owns an LLP interest.
Reconcile principal, interest and settlement instructions
Prepare a lender statement showing opening principal, additional lending, repayments, interest accrual and payments allocated under the actual terms. Do not assume all money paid to a partner is profit distribution or that all repayments reduce principal first. A contribution conversion, waiver or set-off needs its own valid documentation and legal/tax review, not a silent reclassification at year-end.
Do not invent priority from the partner’s position
The same-rights language is not an automatic first charge or a promise that a partner lender outranks every outsider. Security, enforceability, insolvency and recovery rules require separate analysis. Keep gross balances visible unless a supported settlement or permitted presentation basis justifies a different result. The examples establish arithmetic only on the stated valid-contract assumptions and exclude withholding/tax unless separately specified.
Applicable primary references
LLP Act, 2008: section 66, official Bombay High Court repository
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Capital and loan are different balances
A partner has ₹2,00,000 of valid contribution and separately lends ₹5,00,000 under a genuine repayment agreement. Funding totals ₹7,00,000, but the separate loan principal is ₹5,00,000. Do not label all ₹7,00,000 as capital merely because it came from one partner.
Illustrative example 2: Principal roll-forward
Opening partner loan principal is ₹4,00,000; further lending is ₹1,50,000 and a documented principal repayment is ₹1,00,000. Closing principal is ₹4,50,000, before separately tracked interest. The contribution ledger is unaffected on these assumptions.
Illustrative example 3: Contractual simple interest
Assume a lawful agreement for ₹6,00,000 at 10% simple annual interest for exactly six months, calculated on a six-twelfths basis. Interest is ₹30,000 and principal plus unpaid interest is ₹6,30,000. The 10% is purely assumed and is not a statutory rate or deduction cap.
Illustrative example 4: Allocate a payment as agreed
Principal is ₹3,00,000 and valid unpaid interest ₹20,000. A ₹1,00,000 payment is expressly allocated ₹20,000 to interest and ₹80,000 to principal. Remaining principal is ₹2,20,000 and interest is nil. Calling the whole ₹1,00,000 a principal repayment would misstate the contractual working.
Illustrative example 5: Separate a supplier balance
The LLP owes the same partner ₹2,50,000 under a loan and ₹75,000 on a separately valid goods invoice. Gross obligations total ₹3,25,000. Keep the invoice and loan references separate; tax or disclosure treatment cannot be inferred merely from their combined total.
Illustrative example 6: No unsupported netting
The LLP owes a partner ₹4,00,000 loan principal, while the partner separately owes the LLP ₹1,00,000 under another transaction. A mathematical net is ₹3,00,000, but without an established lawful set-off or settlement basis the reconciliation should retain ₹4,00,000 payable and ₹1,00,000 receivable. Arithmetic alone does not establish a right to net.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify partner and counterparty capacity | Partner record and lender/supplier identity. |
| 2 | Classify the funding | Contribution, loan, profit/current account or other transaction. |
| 3 | Retrieve agreed terms | Loan contract, rate, repayment and amendments. |
| 4 | Verify actual governance authority | LLP agreement and relevant approvals. |
| 5 | Trace funds or performance | Bank transfers, invoices and delivery/service evidence. |
| 6 | Maintain separate ledgers | Principal, interest, capital and other invoices. |
| 7 | Recalculate contractual movements | Opening, additions, allocated settlements and closing. |
| 8 | Review proposed conversions or set-offs | Valid documentation and independent consequences. |
| 9 | Complete other-law checks | Tax, withholding, GST, disclosure and security as applicable. |
| 10 | Confirm balances and unresolved issues | Counterparty statement and supported closing classification. |
Sixteen practitioner FAQs
1. Can a partner lend money to the LLP?
Section 66 expressly permits it.
2. Does every partner funding receipt become capital?
No. Establish the actual transaction and obligation.
3. What does section 66 say about transaction rights?
The partner has the same rights and obligations for the loan or other transaction as a non-partner.
4. Does it fix a mandatory interest rate?
No rate is prescribed in that provision.
5. Are the example rates income-tax limits?
No. They are fictional contractual assumptions.
6. Does section 66 itself establish tax deductibility?
No. Apply the relevant tax conditions separately.
7. Can a partner conduct other business with the LLP?
Yes, under the stated general permission, subject to applicable obligations.
8. Does that remove GST or withholding checks?
No. The actual transaction needs its own tax analysis.
9. Why separate contribution and loan ledgers?
They represent different legal and financial relationships.
10. Does every payment to a partner represent profit?
No. It may be principal, interest, invoice settlement or another supported category.
11. Must a payment reduce principal first?
Use the actual valid allocation terms; do not assume a universal order here.
12. Can an accountant silently convert a loan into contribution?
A reclassification needs a valid substantive basis and supporting process.
13. Does partner status grant automatic repayment priority?
Section 66 does not itself create a universal priority or first charge.
14. Does the same counterparty justify netting all balances?
Not automatically. Establish lawful set-off and applicable presentation requirements.
15. Does this article resolve insolvency ranking?
No. Security and insolvency rules require their own analysis.
16. What is the key closing deliverable?
A transaction-wise statement separating contribution, principal, interest, other invoices and actual settlements.
Conclusion
Document a partner’s loan as a separate transaction, distinguish it from capital and profit distributions, and reconcile the contractual balance without inventing priority or tax relief.