An Overview of Removal or Resignation of Partner from an LLP in India

A Limited Liability Partnership (LLP) is a legal entity which has an amalgamation of characteristics pertaining to a Company and a Partnership. It is governed by the LLP Act or Limited Liability Partnership Act, 2008^[1]. Just like a partnership, an LLP is formed by two or more partners. However, like a Company, an LLP is a separate legal entity separate from its partners and can own property, sue, or be sued in its name. The liability of the partners does not extend to their personal assets but is limited up to the extent of the contribution made by the partners to the LLP. Scroll down to check more information regarding the Removal or Resignation of Partner from an LLP.

Removal of a Partner from an LLP

A partner of an LLP can be removed in two ways:

1. automatic removal due to the happening of an uncertain event or
2. removal by majority voting between the partners as mentioned in the LLP agreement.

• Automatic Removal: Some of the instances where a partner is automatically removed from the LLP are:
  • On the dissolution of the LLP
  • On the death of the partner
  • On the partner being declared insolvent
  • On the partner being found mentally ill.

• Removal by Majority Voting:

A partner can be removed by majority voting only when such a removal clause mentioning the contingency is mentioned in the LLP agreement. There can be many such acts committed by a partner, mutually agreed to by the partners, on which a partner can be removed by voting:

1. Negligence of a gross nature in the conduct of the business of the LLP.
2. Fraud committed by the partner in the conduct of the business of the LLP.
3. Inability to perform obligations as provided in the LLP agreement.
4. Breach of trust
5. Breach of financial data
6. Commission of an act which is prohibited by law

Resignation by a Partner from an LLP

A partner of an LLP wishing may tender her resignation in tune with the procedure provided for in the LLP agreement. If the same is not provided for, the partner ought to inform the other partners and the LLP by notice in writing of at least thirty days, informing them of her intention to resign.

Steps involved in the Removal or Resignation of Partner from an LLP

The following are the steps involved in the Removal or Resignation of Partner from an LLP:

• Pass a resolution to remove or accept the resignation:

In case of resignation, once the resignation letter has been submitted to the existing partners of the LLP or after notice as to the removal of the partner has been given, a resolution shall be passed where the remaining partners shall provide their consent to the removal or resignation. A resolution shall be passed authorizing an existing partner to represent the LLP in any proceeding regarding the removal/resignation. The authorized partner should have a valid Director Identification Number (DIN) and Digital Signature Certificate (DSC).

• Amendments to the LLP Agreement

When a partner resigns or is removed, an amendment to the LLP agreement to that effect must be made and a supplementary agreement must be executed giving information as to, inter alia, the name of the partner, effective date, reasons, and other relevant information related to the removal or resignation. The same needs to be signed by the remaining and existing partners and executed in accordance with the law. The outgoing partner shall be provided with a relieving letter.

• Filing of Form 3 and Form 4

Form-3 (to amend the existing LLP agreement) and Form-4 (to notify the change/removal/resignation of partners) is to be filed with the MCA within thirty days of resignation or removal of the partner and the same must be certified by a Chartered Accountant/a Company Secretary.

Form-4 must be submitted with certain attachments like the notice of removal/resignation, consent of the existing partners, resolutions passed, and evidence of removal resignation. Form -3 must be filed along with the existing LLP agreement and supplementary or amended agreement.

Rights & Liabilities of an Outgoing Partner on Removal or Resignation of Partner from an LLP

Following are the rights and liabilities of an outgoing Partner on Removal or Resignation of Partner from an LLP:

• The outgoing partner is entitled to a share in the profits of the LLP in proportion to the said partner’s capital contribution after deducting the losses, if any.
• The amount equivalent to the capital contribution made by such a partner.
• The outgoing partner will be liable as for losses incurred during her time as a partner before her removal or resignation and such removal or resignation of Partner from an LLP shall not cause the partner to escape such liability.

Note: The partner can also choose to surrender the rights in the profits of the LLP in favour of other partners.

Conclusion

In the event of removal or resignation of partner from an LLP, either the procedure mentioned in the LLP agreement must be followed and it is imperative to notify the MCA and file the necessary forms, amended LLP agreement and other attachments regarding such removal or resignation and as to the new structure of the LLP, within thirty days of such removal or resignation of Partner from an LLP.

Read Our Article:What is Amendment in LLP Agreement: Rights and Duties of Partners