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 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.
