Rule 23 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 23 is short but practical. It says every partner's contribution must be shown in the LLP's accounts with its nature and amount, and that a contribution made as property, benefits or services must be valued by a prescribed type of professional. This article explains it as notified in 2009.
Each partner's contribution must be accounted for and disclosed in the LLP's accounts, with its nature and amount (rule 23(1)). A contribution made as tangible or intangible property, movable or immovable, or other benefits, or by an agreement or contract for services, must be valued by a practising Chartered Accountant, a practising Cost Accountant or an approved valuer from the Central Government's panel (rule 23(2)). Cash contributions are not mentioned in sub-rule (2). The Rules have been amended since 2009; check the current text.
Read this first: the 2009 text and later amendments
This article reports what rule 23 provided as notified on 1 April 2009. The Rules have been amended several times since, and the persons who may value, the manner of valuation and the forms for any related filing may be different. Check the MCA portal or the current Rules before acting. This article states no fee amount and no portal step.
Rule 23 implements the Act's provisions on the form of contribution and the obligation to contribute; see Sections 32-33 of the LLP Act. For a practical overview of what can be contributed, see our guide on tangible and intangible contributions. If you are forming an LLP and deciding what each partner brings in, our LLP registration service can help you set it out correctly.
Rule 23(1): accounting and disclosure
"The contribution of each partner shall be accounted for and disclosed in the Accounts of the LLP along with nature of contribution and amount."
Three elements:
- Each partner. The rule applies to every partner's contribution, not only to large ones.
- Accounted for and disclosed in the Accounts. The contribution must appear in the LLP's accounts, not only in the LLP agreement.
- Nature and amount. The accounts must say what kind of contribution it is and how much.
The rule does not say which statement of the accounts carries the disclosure, and it does not prescribe a layout. The text is silent on both.
Example. Ritu Sharma, Sandeep Nair and Tarun Bose form Sharma Nair Bose LLP. Ritu brings cash, Sandeep brings a delivery van and Tarun brings the right to use a software tool. Under rule 23(1), the accounts must show each partner's contribution with its nature (cash, a vehicle, a software right) and its amount.
Rule 23(2): who values non-cash contributions
Rule 23(2) covers a partner's contribution "consisting of":
- tangible, movable or immovable property;
- intangible property;
- other benefits brought; or
- contribution "by way of an agreement or contract for services".
Such a contribution "shall be valued by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government".
| Type of contribution | Covered by rule 23(2)? | Who values |
|---|---|---|
| Cash | Not mentioned in sub-rule (2) | The text names no valuer |
| Tangible property, movable or immovable | Yes | Practising CA, practising Cost Accountant, or approved valuer from the Central Government's panel |
| Intangible property | Yes | Same |
| Other benefits | Yes | Same |
| Contract for services | Yes | Same |
Points to note:
- Three kinds of valuer. The rule offers a choice: a practising Chartered Accountant, a practising Cost Accountant, or an approved valuer on the Central Government's panel. The word "practicing" qualifies the first two. The text does not say the partners must prefer one over another.
- Services count. A promise of services is a valid contribution under the Act, and under this rule it must be valued like property. That is a notable feature for professional LLPs where a partner brings skills or an engagement contract.
- Intangibles. Intellectual property, licences and know-how fall under "intangible property", though the rule does not list examples.
- Cash is not in sub-rule (2). The rule does not discuss cash, because the valuation requirement is for the other forms. Cash is still covered by sub-rule (1), as it must be accounted for and disclosed.
Example. Tarun Bose agrees to provide marketing services to the LLP for three years in return for a stated contribution. Under rule 23(2) the value assigned to that agreement is to be fixed by a practising Chartered Accountant, a practising Cost Accountant or an approved valuer from the panel. The partners cannot simply agree a number among themselves and treat it as valued under the rule.
What the rule does not say
The 2009 text of rule 23 is silent on several matters, and this article does not supply them:
- the time by which the valuation must be done;
- whether the valuation report must be filed with the Registrar or only kept;
- what consequence follows if a non-cash contribution is not valued as the rule requires;
- how a later change in the value of a contribution is treated;
- the format of the valuation.
The Act's provisions on contribution (sections 32 and 33) set out the form and the obligation to contribute; read the Act article for those. The Act has been amended since, but those sections are explained there.
How rule 23 links to other rules
Rule 23 sits in Chapter VI, "Form of Contribution". It leads directly into Chapter VII on financial disclosures. The accounts that rule 24 deals with must show the contributions rule 23(1) requires; see the article on books of account and the Statement of Account and Solvency. The thresholds for audit exemption, which are linked to contribution, are in rule 24(8) (covered in the second article on rule 24).
That link is a good reason to take rule 23 seriously. The value at which a non-cash contribution is recorded feeds into the figure for the LLP's contribution that other rules look at.
Practical points
- Decide at the start whether each partner's contribution is cash, property, other benefits or services, and write it into the LLP agreement.
- For anything other than cash, engage a qualified valuer from the three categories in the rule and keep the report with the LLP's records.
- Show each contribution in the accounts with its nature and amount.
- When partners bring in more capital later, treat the new contribution the same way.
Need help structuring partner contributions?
How contributions are described and valued affects the accounts, the agreement and later compliance. Our LLP registration team can help you set up the contributions properly under the current rules.
Key takeaways
- Every partner's contribution must be accounted for and disclosed in the LLP's accounts with its nature and amount (rule 23(1)).
- Contributions in property, intangibles, other benefits or contracts for services must be valued (rule 23(2)).
- The valuer is a practising Chartered Accountant, a practising Cost Accountant or an approved valuer from the Central Government's panel.
- The 2009 text does not say when the valuation must be done, whether it is filed, or what follows if it is skipped.
- Everything is as notified in 2009; check the current Rules.
Read next
- Rule 24: books of account and the Statement of Account and Solvency
- Rules 21-22: LLP agreement filing and changes in partners
- How to increase capital contribution in an LLP
Disclaimer: Based on the Limited Liability Partnership Rules, 2009 as notified on 1 April 2009. The Rules have been amended several times since; current forms, fees and time limits must be checked before acting. This article is general information, not legal advice; check the official text before acting.