Removal of a Partner from LLP
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Introduction
The removal of a partner from an LLP can occur for various reasons, such as retirement, misconduct, mutual agreement, underperformance, or other valid causes. Removing a partner is a significant decision that requires careful adherence to legal protocols to ensure a smooth transition and prevent disruptions to the business. Proper compliance with the law is essential for a hassle-free process. This article provides a comprehensive guide on the removal of a partner in an LLP, covering the reasons, required documents, procedure, and key considerations.
Removal of a Partner
Any individual or body corporate can become a partner in an LLP. The minimum requirement is two partners, while there is no upper limit on the number of partners. The LLP Agreement governs the rights, duties, and obligations of the partners and should clearly outline the conditions under which a partner can be removed. A partner can only be removed in accordance with the provisions specified in the LLP Agreement. Once a partner is removed, Form-4 must be filed with the Registrar to officially notify them of the change in partnership.
Documents Required for Removal of a Partner
The removal of a partner from an LLP requires submission of certain essential documents, which include:
Existing LLP Agreement: The current LLP Agreement contains all details about the partners and the clauses governing their removal. It serves as the primary reference to ensure the removal is carried out in accordance with the agreed terms.
Evidence of Cessation: This document confirms the partner’s removal and must be approved by all other partners. It acts as proof that the decision was made in accordance with the LLP Agreement and with the majority’s consent. Additionally, a Board Resolution authorizing the removal must be signed by the designated partners or any person authorized for this purpose.
DIN & DSC of Authorized Partners: The Digital Signature Certificate (DSC) and Director Identification Number (DIN) of the designated partner filing Form 4 (intimation of partner removal to the ROC) are required for authentication and submission of the form.
How to remove a partner from LLP?
The process of removing a partner from an LLP involves several important steps:
Step 01: Conduct a Partner Meeting
Begin by convening a meeting with all partners to discuss the removal of the partner. Key points such as LLP assets, liabilities, capital contribution, and debts should be reviewed. The partner’s resignation or removal letter should be accepted, and acknowledgment of the removal must be recorded.
Step 02: Pass a Resolution for Removal
During the meeting, pass a formal resolution approving the partner’s removal. The resolution should also designate one partner to handle the legal filing with the Ministry of Corporate Affairs (MCA) on behalf of the LLP.
Step 03: Amend the LLP Agreement
Update the LLP Agreement to reflect the removal of the partner. Clearly disclose details regarding the partner’s share or contribution and outline the process of transfer or settlement after their cessation.
Step 04: File Form-4 with MCA
Submit Form-4 with the MCA within 30 days of the partner’s removal. This form officially notifies the Registrar of Companies about the cessation of the partner.
Reasons for removal of partner
A partner in an LLP can be removed for several reasons, including:
Misconduct: If a partner engages in unethical behavior or violates the terms of the LLP agreement, the majority of partners can decide to remove them.
Mutual Consent: Partners may agree among themselves to remove a partner or dissolve the partnership for mutual benefit.
Underperformance: If a partner consistently fails to meet performance expectations or contribute effectively, the majority of partners can opt for their removal.
