Use the agreement before the statutory default
When an LLP partner ceases, section 24(5) of the LLP Act, 2008 provides a settlement entitlement unless the LLP agreement provides otherwise. Its default refers to the capital contribution actually made and the former partner’s share in accumulated profits after accumulated losses, determined at the cessation date. Do not automatically substitute the promised contribution, the LLP’s gross assets or a negotiated enterprise valuation. Bombay High Court: LLP Act, sections 24 and 25.
Separate cessation, settlement and notice
Section 24 permits cessation according to agreement, with a written-notice route of not less than thirty days where there is no agreement about cessation. It also identifies specified cessation events such as death and insolvency. Section 25 separately requires an LLP notice to the Registrar within thirty days of becoming or ceasing to be a partner. This guide, checked on 26 October 2026, concerns the settlement working; complete the applicable notice and filing procedure rather than treating payment as proof that partner records have changed.
Prepare a cessation-date capital and results bridge
Establish the contribution actually made through supported cash, property or other valid contribution records. Reconcile accumulated results to the cessation-date accounts, applying the partner’s supported rights. Amounts labelled capital can include unpaid commitments or unposted adjustments, so compare the ledger with underlying evidence. Where the agreement specifies a different settlement basis, document that valid contractual basis rather than presenting the default formula as mandatory.
Do not infer a release of obligations
Section 24(4) says cessation does not by itself discharge obligations incurred while a partner to the LLP, other partners or another person. Preserve those obligations beside the entitlement schedule. A settlement receivable and an outstanding contribution obligation are not automatically legally set off: obtain the relevant contractual and legal basis before netting. Section 24(3) also addresses when a former partner remains regarded as a partner in dealings with third persons, depending on notice to that person or delivery of notice to the Registrar.
Keep rights after cessation precise
The former partner or person entitled through death or insolvency has no right to interfere in LLP management under section 24(6). A settlement claim should therefore not be treated as continuing management authority. Tax, withholding, stamp duty, valuation disputes and creditor rights require their own analyses. The examples use the statutory default only on explicit assumptions of no contrary agreement and supported entitlements; they calculate gross settlement amounts before any independent deductions, taxes or valid set-offs.
Applicable primary references
Bombay High Court: LLP Act, sections 24 and 25 Gazette: LLP Amendment Act, 2021, reproduced by PRS; section 25 penalty amendments kept separate
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Actual contribution is less than the commitment
A promised ₹10,00,000 contribution but actually made ₹6,00,000. Assume the default applies and A’s supported accumulated-profit entitlement is ₹1,50,000. Gross entitlement is ₹7,50,000, not ₹11,50,000. Keep the ₹4,00,000 unpaid commitment for separate obligation analysis.
Illustrative example 2: Deduct accumulated losses before applying the share
Accumulated profits are ₹12,00,000 and accumulated losses ₹4,00,000. B’s supported share is 25%, giving ₹2,00,000 of net accumulated results. Adding actual contribution ₹5,00,000 gives gross default entitlement ₹7,00,000.
Illustrative example 3: Cessation-date results differ from the last year end
Assume net accumulated results were ₹8,00,000 at year end and supported further net profit to cessation is ₹2,00,000. C’s 30% entitlement is ₹3,00,000 of the ₹10,00,000 total. With actual contribution ₹4,00,000, gross entitlement is ₹7,00,000, ₹60,000 above the year-end-only calculation.
Illustrative example 4: Track payment separately from entitlement
D’s supported gross settlement entitlement is ₹9,00,000. Payments made are ₹3,00,000 and ₹2,50,000. Total settled is ₹5,50,000 and the outstanding gross settlement is ₹3,50,000. Payment history does not alter the original cessation-date entitlement.
Illustrative example 5: An agreement may specify another valid basis
Assume the LLP agreement validly fixes the exit settlement at ₹8,00,000. A comparison under the default would have been actual contribution ₹5,00,000 plus results entitlement ₹2,00,000, or ₹7,00,000. The contractual figure differs by ₹1,00,000; do not replace the agreement simply because the default is lower.
Illustrative example 6: Keep an obligation visible beside the receivable
E has gross settlement entitlement ₹6,50,000 and a separately established ₹80,000 obligation incurred while a partner. The file should show both amounts. A cash settlement of ₹5,70,000 follows only if a valid set-off is independently established; cessation alone does not authorise that netting or discharge.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Establish the cessation event | Agreement, resignation or other applicable event and effective date. |
| 2 | Read settlement provisions | Identify whether the agreement overrides the section 24(5) default. |
| 3 | Verify actual contributions | Cash, property or other contribution evidence and ledger reconciliation. |
| 4 | Identify unpaid commitments | Separate outstanding obligations from capital actually made. |
| 5 | Close cessation-date accounts | Accumulated profits, accumulated losses and cut-off adjustments. |
| 6 | Apply supported rights | Partner’s agreed entitlement and relevant calculation base. |
| 7 | Review continuing obligations | LLP, other-partner and third-party obligations incurred during tenure. |
| 8 | Complete notice controls | Third-party notice analysis and applicable Registrar filings. |
| 9 | Reconcile settlement payments | Gross entitlement, separately valid deductions and unpaid balance. |
| 10 | Retain final evidence | Agreement, accounts, notices, payment records and independent tax review. |
Sixteen practitioner FAQs
1. Is section 24(5) always mandatory?
Its settlement default applies unless the LLP agreement provides otherwise.
2. Does the default refer to promised capital?
It refers to capital contribution actually made.
3. Should gross accumulated profits be used without losses?
No. The default refers to accumulated profits after deduction of accumulated losses.
4. Which date controls the default results working?
The date the former partner ceased to be a partner.
5. Can last year’s accounts always be used unchanged?
No. Reconcile intervening activity and cut-off to cessation.
6. Does cessation automatically release an unpaid obligation?
No. Section 24(4) preserves the stated obligations incurred while a partner.
7. Does a receivable automatically permit set-off?
No. Establish a valid independent basis before netting.
8. Does payment itself update Registrar records?
No. The applicable notice process is separate.
9. What is the section 25 notice period for the LLP?
The Act requires notice within thirty days of becoming or ceasing to be a partner.
10. Does a former partner automatically keep management rights?
Section 24(6) denies the stated right to interfere in management.
11. Can the agreement use another settlement basis?
Assess and apply a valid contrary provision rather than imposing the statutory default.
12. Does the default guarantee a share of every asset’s market value?
It does not substitute a general enterprise-valuation formula for the stated entitlement.
13. Why record unpaid contribution separately?
It distinguishes an actual contribution from a surviving commitment or obligation.
14. Can a third party still regard a former partner as a partner?
Section 24(3) provides the relevant notice-based rule; examine the actual facts.
15. Does this calculation determine income tax on retirement?
No. Tax consequences require separate analysis.
16. What proves the settlement has been fully paid?
A gross-to-net entitlement bridge, valid adjustment evidence and traced payments.
Conclusion
An LLP exit settlement starts with the agreement. Section 24 supplies a default capital-and-accumulated-results entitlement without automatically releasing old obligations.