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Admission or Resignation of Partner in LLP

Admission or Resignation of Partner in LLP

Admission or Resignation of Partner in LLP

In a Limited Liability Partnership (LLP), Partners can be admitted or removed easily without any changes to the constitution or substance of the LLP. When compared to a traditional partnership firm, one of the major advantages of an LLP is its separate legal identity, which allows for an easy change in the ownership while maintaining business continuity. In this article, we look at the procedure for admission or resignation of a partner in an LLP.

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Admission of Partner

In most LLP Agreements and as per the First Schedule to LLP Act, no person can be admitted as a partner in an LLP without the consent of all existing partners. However, the LLP Agreement can authorize one or more partners to approve the admission of a new partner without having to obtain the approval of all Partners. Hence, before starting the process for admitting a new partner, its important to read the LLP agreement carefully on the requirements for admitting a new partner. If the LLP agreement is silent on the procedure for admission of new partner, then the consent of all existing partners would be required as per the first schedule to the LLP Act.

Requirements for New Partner

Any person who wishes to become a Partner in an LLP must be above the age of 18. He/she must also have a valid PAN or Passport. Before initiating the procedure for admission, the partner to be admitted must obtain digital signature (DSC) and Director Identification Number (DIN). Once DSC and DIN is obtained, then the formalities for an appointment can be initiated by the LLP.

Filing of Form 4

After admitting the partner, the LLP should file Form 4 within 30 days from the date of admission. Form 4 must be signed by the Designated Partner. The Form should contain a statement of consent by the newly inducted partner.  The form should be accompanied by a certificate from a Company Secretary/Charted Accountant/Cost Accountant in practice stating that he/she has verified the necessary particulars, including the books and records of the Limited Liability Partnership and found them to be true and correct.

Government Fee for Admission of Partner

The Government fee for filing Form 4 to admit a Partner in an LLP is as below:

  • Limited Liability Partnership whose contribution is limited to Rs 1,00,000 -Rs 50.
  • Limited Liability Partnership whose contribution exceeds Rs 1,00,000 but is limited to Rs 5,00,000 – Rs 100.
  • Limited Liability Partnership whose contribution exceeds Rs 5,00,000 but is limited to Rs 10,00,000 – Rs 150.
  • Limited Liability Partnership whose contribution exceeds Rs 10,00,000 – Rs 200.

Resignation of a Partner

In case a partner decides to vacate his/her position as a partner in accordance with the LLP agreement and the consent of other partners, then the procedure mentioned or decided by the partners can be adopted. In the absence of an agreement, a partner can resign by intimating the other partners with a notice. Such a notice must be issued 30 days prior to the date of resignation.

Resignation from a LLP will not automatically discharge the liabilities of the Partner with respect to the LLP. The partner can be held responsible for his/her actions and liabilities prior to resignation – even after the date of resignation.

In case of removal or resignation of a partner, he or she is entitled to his/her share of the LLP. The amount of monies to be paid to the resigning partner can be decided mutually by the partners. In case of death or insolvency of the partner he/she should receive the following:

  • An amount that is equivalent to the capital contribution of the former partner actually made.
  • His/her ‘right to share’ in the accumulated profits after deduction of accumulated losses, which is determined based on the date of resignation of the former partner.

Process for filing resignation of Partner from LLP.

Transfer of Partner’s Rights

A partner may transfer his/her right to share the profits and losses to any other person, and to receive distribution in accordance with the LLP Agreement. The transfer of rights will not by itself lead to the dissolution and winding up of the LLP.  A mere transfer of right would not permit the transferee to participate in the affairs of the business. In addition to it, he/she wouldn’t be provided with access to any information pertaining to the transactions of the LLP.

Removal of Partner by Voting

In a LLP, a majority of Partners will not be able to remove a partner by voting unless the LLP agreement contains such a provision. Hence, while drafting the LLP agreement, the partners must read through and ensure that their rights are protected.