Limited Liability Partnership (LLP) is a registered business entity governed by the Limited Liability Partnership Act, 2008. LLP offers a combination of the flexibility of a partnership and the limited liability of a company. Every LLP must have a minimum of two partners at all times to remain in compliance with legal provisions. Now during operations there may be requirement of addition of new partner of removal of partner in LLP, this guide is focus on statutory compliances for the same.
The LLP Act, 2008, recognizes the following types of partners:
Designated partners are responsible for regulatory and compliance matters of the LLP. As per the LLP Act, at least two designated partners must be present, and they must be individuals (not corporate entities).
General partners are involved in the day-to-day operations of the LLP but do not necessarily take on additional compliance responsibilities.
Sleeping partners contribute to the LLP’s capital and share in its profits but do not actively participate in its operations.
A nominee partner is appointed by a corporate entity to represent its interests in an LLP.
A new partner can be added to an LLP either voluntarily or due to business expansion needs. The procedure involves compliance with both the LLP Act, 2008 and the LLP Agreement.
a. Expression of Interest: The individual willing to become a partner submits an application.
b. Approval from Existing Partners: The current partners review and approve the admission in a formal meeting.
c. Amendment of LLP Agreement: A supplementary LLP Agreement is drafted to incorporate the new partner’s details.
d. Financial Considerations: The final accounts of the LLP must be prepared to determine the pre-existing capital balance before admission.
e. Filing with Registrar of Companies (ROC): Within 30 days of the change, the LLP must file:
a. Form LLP-3: To update changes in the LLP Agreement.
b. Form LLP-4: To notify the addition of a new partner.
Upon admission, the new partner shares in profits/losses as per the LLP Agreement and assumes liabilities accordingly.
A partner may exit an LLP either by voluntary resignation, by agreement, or due to legal/statutory reasons.
a. Submission of Resignation: A written resignation must be given to the LLP, following the notice period prescribed in the LLP Agreement.
b. Settlement of Accounts: The financial rights of the outgoing partner are settled.
c. Amendment of LLP Agreement: A supplementary agreement reflecting the change must be executed.
d. Filing with ROC:
o Form LLP-3: To notify changes in the LLP Agreement.
o Form LLP-4: To notify the removal/resignation of the partner.
A partner may be removed if:
• They are found guilty of misconduct.
• They breach LLP Agreement provisions.
• They are declared insolvent.
The LLP Agreement must contain clauses for removal of a partner. If not, partners must mutually agree on the removal in a meeting. The same filing procedures (LLP-3 and LLP-4) apply for removal.
Failure to comply with these procedures may attract penalties under the LLP Act, 2008. Thus, adherence to the 30-day timeline for filing necessary forms is crucial.
Scenario: XYZ LLP, based in Mumbai, decides to induct a new partner, Mr. A, and simultaneously remove an existing partner, Mr. B. The LLP follows these steps:
• Conducts a partner’s meeting.
• Updates the LLP Agreement to reflect the changes.
• Prepares final accounts.
• Files LLP-3 and LLP-4 within the prescribed timeframe.
This ensures a smooth transition and compliance with the law.
Managing the addition and removal of partners in an LLP requires strict adherence to the LLP Act, 2008, and the LLP Agreement. By ensuring timely filings and proper documentation, LLPs can avoid penalties and maintain seamless business operations.
For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to ensure all statutory obligations are met on time.
The Limited Liability Partnership Act, 2008 recognizes different categories of partners: Designated Partners: These partners are responsible for the compliance and legal formalities of the LLP. They are similar to directors in a company and are accountable for filings and other regulatory requirements. Every LLP must have at least two designated partners, and at least one of them must be a resident of India. Partners: These are the members of the LLP who contribute capital, share in the profits and losses, and participate in the management of the LLP. They may or may not be designated partners.
Designated partners are responsible for: Filing various forms and returns with the Ministry of Corporate Affairs (MCA). Maintaining the books of accounts and other records. Ensuring compliance with the LLP Agreement and the LLP Act. Acting as the point of contact for the LLP with regulatory authorities.
All designated partners are partners, but not all partners are designated partners. Designated partners have greater responsibilities and are specifically designated for compliance. Partners have the right to participate in the management and share profits/losses as per the LLP agreement.
A new partner can be added to an LLP as per the terms of the LLP Agreement. Generally, it requires the consent of the existing partners.
The process typically involves: Consenting to the addition of the new partner by the existing partners (as per the LLP Agreement). Executing a supplementary LLP agreement (if required). Filing Form LLP-4 with the MCA within 30 days of the change. Updating the LLP’s records.
Form LLP-4 is the key form required for notifying the MCA about changes in the partners, including additions.
Form LLP-4 requires information about the new partner, including their name, address, PAN, and other details. It also needs to specify whether the new partner is a designated partner.
A partner can be removed from an LLP as per the terms of the LLP Agreement. The agreement may specify grounds for removal and the procedure to be followed.
Common grounds may include: Breach of the LLP Agreement Misconduct Insolvency Persistent disagreement with other partners
The process generally involves: Following the procedure laid down in the LLP Agreement. Giving the partner an opportunity to be heard (if required). Executing a supplementary LLP agreement (if required). Filing Form LLP-4 with the MCA within 30 days of the change.
The LLP Agreement usually governs this aspect. In the absence of specific provisions, the majority of partners may be able to remove a partner, but it’s essential to comply with principles of natural justice.
A partner can resign by giving notice to the other partners as per the terms of the LLP Agreement.
The LLP Agreement usually specifies the notice period required for resignation.
The LLP Agreement should specify how the capital contribution will be returned to the outgoing partner.
Changes in partners can have implications for the LLP’s management, finances, and legal standing.
No, an LLP must have at least two designated partners. If all designated partners are removed or resign, the LLP must appoint new designated partners within a specified time.
An outgoing partner remains liable for the LLP’s obligations incurred before their resignation or removal.
An LLP agreement should be drafted with the help of a legal professional.
Changes to the LLP agreement require the consent of the partners and should be filed with the MCA.
This information is available on the MCA website.
Partners have various responsibilities, including contributing capital, sharing profits/losses, and participating in management.
You need to update the PAN details with the Income Tax Department.
Minors cannot be partners in an LLP directly, but they can be admitted to the benefits of the LLP with the consent of all partners.
Failure to file Form LLP-4 can lead to penalties.
The LLP agreement may provide for dispute resolution mechanisms. Mediation or arbitration are also options.
The MCA website is the official source for notifications and circulars.
