Adding or Removing a Partner in an LLP: Form 3, Form 4 and the LLP Agreement

Partners join and leave LLPs all the time. A new investor comes in, a co-founder moves on, or a partner's role changes. Each of these changes has to be reflected in the LLP agreement and reported to the Registrar, usually within 30 days. This guide explains how admission and exit work under the LLP Act, which forms to file, and what to watch for so the LLP stays compliant and the departing partner's liability actually ends.

The Rules That Always Apply

• An LLP must always have at least two partners. If it has fewer than two for more than six months, the remaining partner becomes personally liable for the LLP's obligations incurred after those six months.
• It must have at least two designated partners who are individuals, and at least one of them must be resident in India, meaning they stayed in India for at least 120 days in the previous financial year.
• If a designated partner leaves, the vacancy must be filled within 30 days.
• The LLP agreement governs how partners are admitted and how they leave. Where the agreement says nothing, the default rules in the LLP Act apply.

Admitting a New Partner

1. Check the LLP agreement for how new partners are admitted, usually with the consent of all existing partners.
2. Agree the new partner's contribution, their share of profits, and whether they'll be a designated partner.
3. Sign a supplementary LLP agreement, or a fresh agreement, recording the change. Pay stamp duty on it according to the rates in the state where the LLP is registered.
4. If the new partner will be a designated partner and doesn't have a DIN, apply for one.
5. Get the new partner's written consent to become a partner or designated partner.
6. File Form 4 with the ROC within 30 days of the change.
7. File Form 3 within 30 days of signing the supplementary agreement.

When a Partner Leaves

A partner can leave the LLP in line with the LLP agreement. If the agreement is silent, the partner has to give the other partners at least 30 days' written notice of their intention to resign.

A person also stops being a partner if they die, if a court declares them of unsound mind, or if they're declared insolvent.

Their liability doesn't end automatically

A former partner stays liable for obligations the LLP took on while they were a partner. And until the ROC is notified of their exit, outsiders dealing with the LLP can treat them as still being a partner. That's why filing Form 4 promptly matters to the person leaving as much as to the LLP.

If the departing partner has reason to believe the LLP won't file the notice, they can file it with the ROC themselves.

Settling their share

Unless the agreement says otherwise, a departing partner, or their legal representative, is entitled to the capital they actually contributed and their share of the accumulated profits, after deducting any accumulated losses, as on the date they leave. The LLP agreement should set out how this is valued and when it's paid.

Payments to a retiring partner can have tax consequences for the LLP. Sections 9B and 45(4) of the Income Tax Act can tax an LLP on money or assets it distributes to a partner when they leave or when the LLP is reconstituted, so take advice before agreeing a payout.

Changing a Designated Partner

A partner can be made a designated partner, or step down from the role while staying a partner, with the consent of the other partners. Each of these changes is reported in Form 4. If a designated partner steps down, check that the LLP still has two designated partners, including one resident in India. If not, appoint a replacement within 30 days.

The Forms

• Form 4 reports the appointment, cessation or change in designation of a partner or designated partner, along with the person's consent. It's due within 30 days of the change.
• Form 3 reports the LLP agreement and any change to it, including changes in contribution or profit-sharing ratios, and is filed with a copy of the supplementary agreement. It's due within 30 days of the change.

Both forms carry an additional fee of ₹100 per day if they're filed late, with no upper limit.

Changing a Partner's Contribution

A partner can increase or reduce their contribution without anyone joining or leaving. The change has to be recorded in a supplementary agreement and reported in Form 3. Increased contribution also increases the LLP's filing fees and can take it past the limits for a mandatory audit (₹25 lakh) or CS certification of Form 11 (₹50 lakh), so check those thresholds after any change.

After the Forms Are Filed

The ROC filings are the core of the process, but other records need updating too.

• Bank accounts: give the bank the supplementary agreement and the filed forms, and update the authorised signatories.
• GST: changes to partners have to be reported through an amendment to the GST registration, generally within 15 days.
• Other registrations: update any shop and establishment, professional tax, import-export or industry registrations that list partners.
• Annual return: the next Form 11 has to reflect the change, which it will only do if Form 4 was filed first.

Common Mistakes

• Signing a supplementary agreement but never filing Form 3, so the MCA record still shows the old terms.
• Letting a partner leave without filing Form 4, which leaves them exposed to the LLP's later debts.
• Dropping below two designated partners, or losing the only resident designated partner, without appointing a replacement in time.
• Not paying stamp duty on the supplementary agreement.
• Paying out a retiring partner without considering the tax impact on the LLP.

Getting Help

Think Filing handles partner changes for LLPs from start to finish: drafting the supplementary agreement, arranging DINs for new designated partners, filing Forms 3 and 4 on time, and updating GST and other registrations. If earlier changes were never reported, we'll bring the MCA record up to date first.