A limited liability partnership or an LLP is regulated by the limited liability partnership act of 2008. It is a unique business structure which has characteristics of a partnership and a private limited company. An LLP how to separate and distinct legal entity which is separate. It has perpetual existence, which means that an LLP shall continue to exist irrespective of its partners’ change, removal, or resignation. It can own assets, incur liability, sue, and be sued in its own name. There is no minimum paid-up capital requirement to start an LLP. When compared to a company, an LLP is required to meet very few compliances and requires minimal expenses to be formed. Just like the shareholders of a company, the liability of the partners of an LLP is restricted to the extent of the contribution to the partnership’s assets, is not unlimited, and shall not extend to the partners’ personal assets. For an LLP to be duly residing in India, it must have at least two directors, and one of them must have been living in India period of 182 days. In this article, we will discuss change in partners of an LLP.
A change in partners of an LLP can occur either by the removal or resignation, appointment or death, insolvency, or insanity of any of the partners of the LLP. Any change in partners often LLP can only be carried out by following the norms prescribed by the ministry of corporate affairs.
Section 25 of the Limited Liability Partnership Act, 2008 deals with “LLP registration of Change in Partners”. To add or remove partners from the LLP or make any change in the name or address of any partners requires taking the consent of the other partners present and then making the necessary changes in the LLP agreement.
Change in Partners in an LLP
The Limited Liability Partnership Act of 2008 provides for change in partners of an LLP by the addition of a new partner or by the resignation or removal of a partner. Any change in an existing partner’s name or address also counts as a change in partners, which is required to be intimated to the Registrar of companies.
Appointment of new partners in the LLP
Certain documents are required to be filed with the Registrar of companies by the new designated partner. These documents include the following:
- The Director Identification Number or DIN of the partner.
- The PAN of the director.
- proof of name and proof of address of the appointed person and PAN of such person.
- Consent to act as such partner, which is to be filed under Form 6.
- Details of any other partnership in which the incoming partner might be involved or any other directorship in another entity.
Form-4 Must be filed within 30 days of the addition of the new partner. The form must be attached with the consent of the new partners as provided under Form-6 and a copy of the LLP resolution appointing such partners. If changes have been made in the LLP agreement due to change in partners or designated partners, Form-4 must be filed along with Form-3 within 30 days from the date when the amendments were made in the LLP agreement. A supplementary agreement is also required to be executed by preparing an addendum to the original LLP agreement to provide effect to the appointment of the new partner. The supplemental agreement shall be attached to Form LLP-3.
Resignation of Partners from the LLP
Resignation of a partner from an LLP can occur due to a specific event or any circumstance that has already been mentioned in the LLP agreement. A partner can also resign by giving a notice in writing to the other partners informing them of her decision to retire. The notice should be at least that 30 days after the resignation of the partner of an LLP is filed under Form-13.
Form-4 must be filed within 30 days from the date on which the resignation was tendered. The form should be attached to the resignation letter. If changes have been made in the LLP agreement due to change in partners or designated partners, Form-4 must be filed along with Form-3 within 30 days from the date when the amendments were made in the LLP agreement. A supplementary agreement is also required to be executed by preparing an addendum to the original LLP agreement to provide effect to the resignation of the partner. The supplemental agreement shall be attached to Form LLP-3.
Retirement of Partners from the LLP
Retirement of a partner from an LLP can occur due to the happening of a specific event or any circumstance (generally reaching a particular age) which has already been mentioned in the LLP agreement. There are certain forms and documents pertaining to the outgoing partner that the LLP must file. Form-4 must be filed within 30 days from the date on which the retirement came into effect. The form should be attached with valid proof of retirement. If there have been changes made in the LLP agreement due to change in partners or designated partners, Form-4 must be filed along with Form-3 within 30 days from the date when the amendments were made in the LLP agreement. A supplementary agreement is also required to be executed by preparing an addendum to the original LLP agreement to provide effect to the retirement of the partner. The supplemental agreement shall be attached to Form LLP-3.
Removal of Partners from the LLP
Removal of a partner from an LLP can occur due to a specific event or any circumstance already provided for in the LLP agreement. A partner of the LLP can be removed by majority voting when such a removal clause has been provided for in the LLP agreement. The removal can occur due to a breach of trust or due to gross negligence by the partner in the conduct of the LLP’s business or due to the inability to perform the obligations of the LLP as is provided for in the LLP agreement or due to any fraud on the part of the partner committed while conducting the LLP’s business.
There are also situations when a partner can automatically be removed from the LLP. This can happen on the death of the partner or when the partner has been declared insolvent, or the partner has been declared insane or on the dissolution of the LLP.
Section 25 of the LLP Act – Change in Partners
Section 25 of the LLP Act states that any change in the address or name of a partner must be reported to the LLP within 15 days of such change. Every partner is required to update the change in their name or address by filling out Form 6 of the LLP. The provision also states that when a person becomes a new partner or ceases to be a partner, the partners are required to file a notice within 30 days of such change with the Registrar. Any change in the partner’s name or address shall be notified to the Registrar within 30 days of such change.
The notice required to be sent as mentioned above shall be submitted with the prescribed fee and in such form as is prescribed. The notice must also be signed by the designated partner of the limited liability partnership and shall be authenticated in the prescribed manner. If the notice pertains to an incoming director, it shall contain a statement by the partner that she consents to become such partner and shall be signed by her and authenticated in the prescribed manner.
Section 25 also provides for the penalty for non-compliance with the provisions of this section. If any limited liability partnership does not comply with the provisions of the section pertaining to notice regarding a new person becoming a partner or any person ceasing to be a partner or when there is any change in the part in a partner’s name or address, such limited liability partnership and every designated partner will be liable to pay a penalty which shall not be less than ₹2000 and can extend up to ₹25,000.
Section 25 also provides for an outgoing partner or any person who ceases to be a partner of a limited liability partnership to file notices with the Registrar herself if she has reason to believe that the LLP will not comply with the provisions of this section and file a notice with the Registrar as mandated. Suppose any such notice is filed personally by such partner, in that case, the onus is on the Registrar to obtain a confirmation from the limited liability partnership in this regard unless the limited liability partnership has already filed notice. However, suppose the limited liability partnership grants no confirmation to the Registrar within 15 days pertaining to the person ceasing to be a partner, in that case, the Registrar is required to register the personal notice sent by the outgoing partner or the person ceasing to be a partner.
Conclusion
A Limited Liability Partnership is governed by The Limited Liability Partnership Act of 2008[1]. Any LLP partner change must be registered with the Registrar of companies as is provided for in Section 25 of the LLP Act. Non-compliance with the mandates of Section 25 can lead to incurring fines of up to ₹25,000 both by the LLP and the designated partners.
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