Change in Partners/ designated partners is an important event in the life of a Limited Liability Partnership (LLP), since it alters one of the basic foundation of a LLP.
Change in Partners can be an
- Admission of a new partner
- Retirement of a partner
- Admission cum retirement of partner (2 events may happen at the same time)
- Change in partners’ designation. – This means a partner becomes designated partner or vice-versa
This topic is not covering other areas like change in terms like capital or change in profit sharing ratios since the same does not involve change in the partners.
Designated Partners in an LLP are the equivalent of Directors in a Company. Designated partners are ‘designated’ by all partners in LLP to comply with the LLP Act. 2008.
Following points need to be taken into account:
1. Director Identification Number (DIN):
√ If the partner proposed to be admitted is a ‘Designated Partner’, he or she shall acquire a Director Identification Number (DIN).
√ To do so, he or she has to file a Form DIR-3. Both the new partner and an existing partner shall attest the Form DIR-3 including the identity and residence proofs.
√ Also, the new partner and an existing partner shall digitally sign the form DIR-3.
2. Amendment Deed:
√ Change in partners happens via an amendment deed. It may be an admission deed or a retirement deed or an admission cum retirement deed.
√ IMP Note: Amendment deed is a modification of the original LLP Deed. So it is as important as the original LLP Deed. It has to be drafted with care and it should lay down, with clarity all the agreed clauses for terms of change in partners.
Some of the terms in the LLP Deed can be:
- effective date of admission/retirement
- capital contributions by partners after the admission/retirement
- Rights and duties of the partners
- Method of calculating remuneration like Salaries, interest on capital, interest on loans etc. (This is very important from the view of the income Tax Act, 1961.
- Mode of meeting of partners, taking decision, voting etc.
- Dispute resolution, jurisdiction etc.
3. Partners shall ensure that the Amendment deed is adequately stamped (as per the capital contribution and the respective rules of the state or union territory).
4. Partners have to file LLP Forms 3 and Form 4 with the Registrar of Companies within 30 days of the effective date of change in partners. These forms shall convey all details about the change in partners/ designated partners.
5. Forms 3 and 4 shall contain the Amendment deed as an attachment.
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