Comprehensive Guide on Types of Partners and Addition/Removal of Partners in LLP in India

1. Introduction to Limited Liability Partnership (LLP)

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.

 

2. Types of Partners in an LLP

The LLP Act, 2008, recognizes the following types of partners:

2.1. Designated 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).

2.2. General Partners

General partners are involved in the day-to-day operations of the LLP but do not necessarily take on additional compliance responsibilities.

2.3. Sleeping Partners

Sleeping partners contribute to the LLP’s capital and share in its profits but do not actively participate in its operations.

2.4. Nominee Partners

A nominee partner is appointed by a corporate entity to represent its interests in an LLP.

 

3. Addition of Partners 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.

3.1. Process of Adding a Partner

1. Expression of Interest: The individual willing to become a partner submits an application.
2. Approval from Existing Partners: The current partners review and approve the admission in a formal meeting.
3. Amendment of LLP Agreement: A supplementary LLP Agreement is drafted to incorporate the new partner’s details.
4. Financial Considerations: The final accounts of the LLP must be prepared to determine the pre-existing capital balance before admission.
5. Filing with Registrar of Companies (ROC): Within 30 days of the change, the LLP must file:
   
   1. Form LLP-3: To update changes in the LLP Agreement.
   2. Form LLP-4: To notify the addition of a new partner.

3.2. Rights and Responsibilities of New Partners

Upon admission, the new partner shares in profits/losses as per the LLP Agreement and assumes liabilities accordingly.

 

4. Removal or Resignation of a Partner in an LLP

A partner may exit an LLP either by voluntary resignation, by agreement, or due to legal/statutory reasons.

4.1. Resignation by a Partner

1. Submission of Resignation: A written resignation must be given to the LLP, following the notice period prescribed in the LLP Agreement.
2. Settlement of Accounts: The financial rights of the outgoing partner are settled.
3. Amendment of LLP Agreement: A supplementary agreement reflecting the change must be executed.
4. Filing with ROC:

1. • Form LLP-3: To notify changes in the LLP Agreement.
   • Form LLP-4: To notify the removal/resignation of the partner.

4.2. Removal of a 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.

 

5. Compliance and Regulatory Filings

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.

 

6. Case Study: Practical Example

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.

 

7. Conclusion

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.

8. Additional Resources

For further reading, explore the following topics:

• How to Register an LLP in India: Step-by-Step Guide.
• Addition or Removal of Partner in LLP: Process, Legal Requirements, and Compliance.
• Change in LLP Agreement/Supplementary LLP Deed: Process, Legal Requirements, and Compliance.
• LLP Name Change: Process, Legal Requirements, and Compliance.

Frequently Asked Questions (FAQs) related to Types of Partners and Addition/Removal of Partners in an LLP

Types of Partners in an LLP

1.       What are the different types of partners in an LLP?

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.

2.       What is the role of a Designated Partner?

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.

3.       What is the difference between a Designated Partner and a Partner?

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.

Addition of a Partner

4.       How can a new partner be added to an LLP?

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.

5.       What is the process for adding a new partner?

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.

6.       What forms are required for adding a partner?

Form LLP-4 is the key form required for notifying the MCA about changes in the partners, including additions.

7.       What information needs to be included in Form LLP-4?

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.

Removal of a Partner

8.       How can a partner be removed from an LLP?

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.

9.       What are the common grounds for removing a partner?

Common grounds may include: Breach of the LLP Agreement Misconduct Insolvency Persistent disagreement with other partners

10.   What is the process for removing a partner?

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.

11.   Can a partner be removed without their consent?

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.

Resignation of a Partner

12.   How can a partner resign from an LLP?

A partner can resign by giving notice to the other partners as per the terms of the LLP Agreement.

13.   Is a notice period required for resignation?

The LLP Agreement usually specifies the notice period required for resignation.

14.   What happens to a partner’s capital contribution upon resignation or removal?

The LLP Agreement should specify how the capital contribution will be returned to the outgoing partner.

Other Considerations

15.   What are the consequences of adding or removing a partner?

Changes in partners can have implications for the LLP’s management, finances, and legal standing.

16.   Can an LLP continue to exist if all designated partners are removed or resign?

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.

17.   What happens to the liability of an outgoing partner?

An outgoing partner remains liable for the LLP’s obligations incurred before their resignation or removal.

Other generally asked questions related to additional or removal of partner in LLP

18.   How do I draft an LLP agreement?

An LLP agreement should be drafted with the help of a legal professional.

19.   What is the process for changing the LLP agreement?

Changes to the LLP agreement require the consent of the partners and should be filed with the MCA.

20.   How can I find information about the partners of an LLP?

This information is available on the MCA website.

21.   What are the responsibilities of a partner in an LLP?

Partners have various responsibilities, including contributing capital, sharing profits/losses, and participating in management.

22.   How do I update the PAN details of an LLP after a change in partners?

You need to update the PAN details with the Income Tax Department.

23.   What are the regulations regarding the admission of a minor as a partner in an LLP?

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.

24.   What are the consequences of not filing Form LLP-4 with the MCA?

Failure to file Form LLP-4 can lead to penalties.

25.   How can I resolve disputes among partners in an LLP?

The LLP agreement may provide for dispute resolution mechanisms. Mediation or arbitration are also options.

26.   Where can I find the latest MCA notifications and circulars related to LLPs and their partners?

The MCA website is the official source for notifications and circulars.