Legal AdviceLLP

Removal or Resignation of Partner from LLP

For a myriad of purposes, a partner in an India Limited Liability Partnership (LLP) may need to be removed or may prefer to resign. The mechanism for removing or resigning a Partner from an LLP is discussed in this article.

Introduction

Removal of Partner from LLP: The Limited Liability Partnership (LLP) is a cross between a partnership and a corporation. It’s a partnership, although with limited liability, meaning that in the event of a business failure, the personal assets of the partners aren’t at risk; only the business’s assets are. It was first introduced in India in 2008. Many events occur during the course of a limited liability partnership’s activity, due to certain alterations happening within the LLP, such as: 

  • Admission of a new partner
  • Resignation or removal of a partner
  • Change in capital contribution
  • Partner’s death, etc.

The removal or resignation of a partner must be properly documented, and the necessary filings with the Ministry of Corporate Affairs must be made in order to affect the partner’s dismissal or resignation

Exit of a Partner from LLP by Way of Resignation

In line with the LLP agreement between the partners, a partner in an LLP may cease to retain his post. If the LLP agreement has no restrictions, a partner in an LLP can withdraw from the LLP by giving notice of resignation in writing to the other partners in the LLP for at least 30 days.

Enumerating the Procedure for Resignation 

1.First, the LLP has to take a note of the resignation letter that has been received by the surviving partner(s)

  1. Next, a meeting has to be presided over for the purpose of addressing and finalising other significant issues of the departing partner’s liability, assets, debts, and so on.
  2. Supplementary limited liability partnership agreement must be drafted and executed

Within thirty (30) days after the incident, and simultaneously, LLP Form 3 and LLP Form 4 must be filed.

Form LLP 3 is used to alter the LLP agreement, while Form LLP 4 is used to change the partners/designated partner.

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Documents Applicable for Resignation

  • Supplementary limited liability partnership agreement 
  • Resolution for taking notice of partner 
  • Resignation letter 
  • Proof of firm’s acceptance of partner resignation letter

Once the LLP 3 and 4 forms are completed, the registrar will take notice of them and approve the forms, provided everything is in order.

Automatic Removal of a Partner

A LLP partner would automatically cease to be a partner in the LLP in the following circumstances:

  • When the partner passes away
  • When the LLP is dissolved,
  • If the partner is found to be mentally ill,
  • If the partner is declared insolvent or is adjusted as an insolvent.

Unless other partners have received written notice of the partner’s intention to resign or a notice has been provided to the registrar, a partner in an LLP will be deemed a partner. 

Partner’s Rights and Obligations in the Event of Removal or Resignation

Any partner who leaves the LLP due to death or insolvency is entitled to the following benefits from the LLP:

  1. Any amount equal to the previous partner’s actual capital contribution; 
  2. Rights to share in the accumulated earnings after subtracting accumulated losses (if any), as of the date the partner ceases to be a partner.

A partner of an LLP can also surrender his right to share in the LLP’s profits and losses and receive distribution according to the LLP agreement. In the event of a partner’s expulsion or resignation from the LLP, the LLP partnership agreement may contain different terms regarding the existing partner’s rights.

Any liability incurred while the person was a partner in the LLP will not be dismissed and will exist if the person is removed, resigns, or ceases to be a partner in the LLP.

Removal of an LLP Partner by Way of Majority Voting

Unless the LLP agreement clearly allows it, a partner in an LLP cannot be dismissed by a majority of the other partners. A partner can be withdrawn from an LLP if the LLP agreement allows for it, and Form 4 must be filed to do so.

Form 4 of the Limited Liability Partnership (LLP)

LLP Form 4 must be filed within 30 days following a partner’s removal, resignation, or termination from the LLP to be effective. Form 4 must be signed by an LLP partner designate and filed with a certificate from a Practising chartered accountant, company secretary, or cost accountant.

The Limited Liability Partnership (LLP) Has Many Benefits, For Example:-

  • The internal structure of LLP can be organised more easily. In comparison, organising a company’s internal structure is difficult
  • The number of partners in an LLP has no upper limit. The number of shareholders in a private limited business is limited to 200 people
  • The ability to raise and use finances is contingent on the willingness of the partners. Funds can only be purchased and used in accordance with the Companies Act of 2013
  • Dividend distribution tax is not applicable to LLPs (DDT). A firm, on the other hand, must pay DDT on dividend distribution
  • There is no necessity for a mandatory audit: All firms, whether private or public, are required to have their financial statements audited, regardless of their share capital. However, there is no such obligation in the case of LLPs
  • Formation and compliance fees are negligible.

 

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