Everything about Designated Partner and LLP Partner

In India, a Limited Liability Partnership (LLP) combines the benefits of both partnerships and companies. An LLP gives both protection and flexibility to its members. It is important to clearly understand the different roles of partners and designated partners. Understanding these roles also helps maintain legal compliance, making daily management easier and more efficient for everyone involved in the business. In this blog, you will learn everything about a designated partner and LLP Partner. 

Who is an LLP Partner?

An LLP partner, also known as a member, is an individual or entity that shares ownership of the business. They are involved in managing daily operations and making key decisions. Partners benefit from limited liability. This ensures that their personal assets are not at risk from the LLP’s debts or legal claims. This provides security and peace of mind while working together.

Who is a Designated Partner?

In a Limited Liability Partnership (LLP), a designated partner is an individual selected to manage the daily activities of the firm. They are responsible for ensuring that the LLP meets all its legal requirements. This includes filing important documents on time, submitting annual returns, and managing both financial and legal obligations. Designated partners act as the primary contact for the LLP. They also play a crucial role in keeping the business legally compliant and well-organized.

Eligibility Criteria for Becoming an LLP Partner

Here are the eligibility criteria for becoming an LLP partner:

1. Minimum Number of Partners

An LLP must always have at least two partners to operate legally. There is no maximum limit on the number of partners. This allows the LLP to add many partners as needed to support its growth and success.

2. Who Can Be a Partner?

Anyone of sound mind and legally eligible can become a partner in an LLP. Organizations like companies, LLPs, and foreign firms can also join as partners by appointing a nominee to represent them in the partnership.

3.  Age Requirement

Individuals must be at least 18 years old to become a partner in an LLP. This age requirement ensures that they are legally capable of understanding and entering into binding contracts.

4. Disqualifications

A person cannot become a partner in an LLP if a court has declared them mentally unsound.  They are also disqualified if they are an undischarged insolvent. Additionally, anyone convicted of a serious crime and sentenced to six months or more in prison cannot become a partner. These rules ensure reliable and trustworthy partners.

5. Consent and Documentation

An individual must provide prior written consent to act as a partner. Designated partners are required to obtain a special identification number, either a DPIN or DIN. This is possible through an online application on the Ministry of Corporate Affairs (MCA) portal.

Eligibility Criteria for Becoming a Designated Partner

Here is the eligibility criteria for becoming a designated partner:

1. Minimum Number of Designated Partners

 Every Limited Liability partnership (LLP) must have at least two Designated Partners.

2. Individual or Body Corporate

A Designated Partner in an LLP can be either an individual or a company. When a corporate body is chosen, it must appoint a person to represent it and act on its behalf within the LLP.

3. Resident in India Requirement:

An LLP is required to have at least one Designated Partner who is an Indian resident. As per Section 7(1) of the LLP Act, 2008, a resident is defined as a person who has stayed in India for at least 120 days in the financial year. This helps ensure proper local accountability and compliance.

4. Designated Partner Identification Number (DPIN)

Each Designated Partner is required to apply for a Designated Partner Identification Number (DPIN) through the MCA portal. This unique identification number is essential and must be obtained by all Designated Partners for legal compliance.

5. Consent to Act as Designated Partner

A person must provide their consent to become a designated partner. This can be done by submitting Form 9 to the Registrar of Companies. This formal step confirms their agreement to take on the role.

6. Disqualifications

A person cannot be appointed as a Designated Partner if a court has declared them mentally unsound. They are also disqualified if they are currently undischarged insolvents. Additionally, if someone has applied for insolvency and the application is still pending, they cannot be appointed. These rules ensure only trustworthy individuals manage the LLP.

7. Compliance with Other Laws

A person cannot be appointed as a Designated Partner if convicted of crimes involving moral dishonesty. They are also disqualified if found guilty of offenses under the Companies Act, 2013, or LLP Act, 2008. This helps maintain integrity in LLP management.

8. Age Requirement

The individual must be at least 18 years old to become a Designated Partner. This ensures that they are legally capable of managing responsibilities.

Rights and Responsibilities of LLP Partners

As per the Limited Liability Partnership (LLP) Act, 2008, the rights and responsibilities of LLP partners are primarily governed by the LLP agreement. Here is a detailed explanation:

1. Rights of LLP Partners

• Management Participation: Partners in an LLP have the right to participate in managing the business. They also help to make important decisions. However, this can change if the LLP agreement specifies different rules. This keeps involvement clear and fair.
• Profit Sharing: According to the LLP agreement, partners in an LLP have the right to receive a share of the profits and assets. This ensures fair distribution according to their terms.
• Access to Information: Partners have the right to review the LLP’s financial records and important documents. This access ensures transparency. It helps partners stay informed about the business’s operations and overall performance.
• Indemnification: Partners can be protected by the LLP from losses or liabilities they face while working for the business. This protection applies only if their actions were done honestly and within the limits of the LLP’s business activities.
• Assign Interest: A partner may assign their economic interest (profits and losses), but not the management rights, unless the agreement allows.

2. Responsibilities of LLP Partners

• Compliance with Legal Provisions: Partners are responsible for ensuring the LLP follows all legal rules. This includes the timely filing of annual returns and financial statements with the Registrar of Companies. This ensures that businesses remain compliant and do not face any penalties.
• Act in Good Faith: Partners have a fiduciary duty to act honestly and loyally towards the LLP and each other. This responsibility means they must always prioritize the LLP’s best interests. They should put the business’s success above any personal gain.
• Contribution to Capital: Partners must contribute the agreed capital to the LLP. If needed, they may be required to provide additional funds as per the LLP agreement. This support helps the business grow steadily and successfully.
• Liability for Debts: Partners are generally liable only up to the amount they have invested in the LLP. However, if they act beyond their authorized limits or engage in fraudulent activities, they can be personally responsible for any resulting debts or legal problems.
• Winding Up and Dissolution: When an LLP is winding up, partners must work together to close the business properly. This includes paying off all debts and fairly distributing any remaining assets among the partners.

Rights and Responsibilities of Designated Partners

According to the Limited Liability Partnership (LLP) Act, 2008, Designated Partners hold significant responsibilities and rights to ensure the LLP's compliance with legal and regulatory frameworks. Here is a detailed explanation:

1. Rights of Designated Partners

Few of the rights of a designated partners are listed below:

• Management and Decision-Making: Designated Partners have the authority to participate in the management and decision-making processes of the LLP, as specified in the LLP agreement.
• Access to Information: They are entitled to access the LLP's financial records and other pertinent information necessary for fulfilling their duties.
• Indemnification: Designated Partners can be protected by the LLP from personal liability in some situations. This protection is known as indemnification. This can apply when they act honestly, in good faith, and within the limits of their assigned duties and authority.

2. Responsibilities of Designated Partners

A designated partner has a lot of responsibility. Few of them are as follows:

• Compliance with the LLP Act, 2008: Ensuring that the LLP adheres to all provisions of the Act, including filing requirements and maintenance of statutory records.
• Filing Obligations: Timely submission of necessary documents, such as the Statement of Accounts and Solvency, to the Registrar of Companies (RoC).
• Maintenance of Books of Accounts: Designated Partners must ensure that the LLP’s financial records are maintained properly. These records should be accurate and must follow the legal rules and accounting standards set by the authorities.
• Disclosure of Interest: Designated Partners must openly disclose any personal interest they have in deals or arrangements involving the LLP. This requirement is stated in the LLP agreement. This helps to maintain trust and transparency in business operations.
• Liability for Penalties: Designated Partners can be held responsible for paying penalties if the LLP fails to meet legal requirements under the LLP Act. This ensures they stay accountable for proper compliance.

Legal Framework and Compliance for LLP Partners

Here is a detailed explanation of the Legal Framework and Compliance for LLP Partners in India:

1. Legal Framework

• Governing Legislation: The primary legislation for LLPs is the Limited Liability Partnership Act, 2008. This Act defines the structure, rights, and obligations of LLPs and their partners.
• Regulatory Authority: In India, Limited Liability Partnerships (LLPs) are governed by the Ministry of Corporate Affairs (MCA). The Registrar of Companies (RoC), which functions under the MCA, is responsible for registering LLPs. This ensures that they meet all compliance requirements as per the law.
• LLP Agreement: Partners are required to enter into an LLP agreement. It outlines the mutual rights and duties among partners and between the LLP and its partners. In the absence of such an agreement, the provisions of the LLP Act apply by default.

2. Compliance Requirements for LLP Partners

• Annual Return (Form 11): Every LLP must file its Annual Return using Form 11 within 60 days after the financial year ends, usually by 30th May. This return includes information about all partners and any changes made during the year.
• Statement of Account & Solvency (Form 8): LLPs must file the Statement of Account and Solvency using Form 8 within 30 days after six months from the financial year-end, typically by 30th October. This filing includes the financial statements and a declaration confirming the LLP’s solvency.
• Audit Requirements: An audit is required for an LLP if its yearly turnover is over Rs. 40 lakhs or capital contribution exceeds Rs. 25 lakhs.
• Designated Partner Identification Number (DPIN): Every designated partner must have a Designated Partner Identification Number (DPIN), and they are also required to complete annual KYC compliance to keep it active.
• Maintenance of Books of Accounts: LLPs must maintain proper books of accounts on a cash or accrual basis.
• Taxation: LLPs are taxed similarly to traditional partnership firms. They do not have to pay Dividend Distribution Tax (DDT), and the distributed profits are taxed directly in the hands of the individual partners.

3. Penalties for Non-Compliance

Failure to comply with the statutory requirements can lead to penalties. It includes:

• Late Filing Fees: If LLPs delay filing Forms 8 or 11, they must pay extra fees. The late fee is Rs. 100 per day.
• General Penalty: If a specific penalty is not mentioned for a violation, a general penalty of Rs. 5,000 can be charged. In case of a continuing default, an additional fine of ?100 per day applies, subject to a maximum limit of ?1,00,000 per person/entity.

Legal Framework and Compliance for Designated Partners

The legal framework and compliance obligations for Designated Partners in Indian Limited Liability Partnerships (LLPs) are governed by the Limited Liability Partnership Act, 2008, and the Limited Liability Partnership Rules, 2009, as amended. Here is a detailed explanation:

1. 1. 1. 1. Legal Framework
2. Appointment and Eligibility: Every Limited Liability Partnership (LLP) must appoint at least two Designated Partners and at least one of them must be a resident of India. This means they have lived in the country for at least 120 days in the previous year. Only individuals can be Designated Partners, and each one must get a Director Identification Number (DIN) from the MCA.
3. Roles and Responsibilities: Designated Partners play a key role in managing a Limited Liability Partnership (LLP). They are responsible for ensuring that the LLP follows the LLP Act, 2008, and other legal requirements. Their duties include submitting necessary filings to the Registrar of Companies, keeping accurate financial records, preparing annual financial reports, arranging audits when required, and representing the LLP in legal or regulatory matters. Essentially, they help keep the LLP compliant and well-managed.

2. Compliance Obligations

1. Maintenance of Register of Partners (Rule 22A): As per Rule 22A of the LLP Rules, 2009 (amended in 2022), every LLP must maintain a Register of Partners in Form 4A at its registered office. This register must include key details such as each partner’s name, address, PAN, date of joining, contribution, and profit share ratio. In case of any updates or changes, the LLP must update the register within seven days to ensure legal accuracy and compliance.
2. Declaration of Beneficial Interest (Rule 22B): According to Rule 22B, if a registered partner does not hold the actual beneficial interest in their contribution, they must declare the details of the real beneficial owner using Form 4B within 30 days
3. Significant Beneficial Ownership (SBO) Compliance: LLPs must follow the rules for Significant Beneficial Ownership (SBO) compliance. They need to identify individuals who hold 10% or more of the contribution and have them declare their ownership in Form LLP BEN-1. Once this declaration is received, the LLP must file Form LLP BEN-2 with the Registrar of Companies within 30 days and maintain a separate register in Form LLP BEN-3.
4. Annual Filings:  LLPs are required to file two key annual forms with the Registrar of Companies. Form 11 (Annual Return) must be submitted within 60 days after the financial year ends. Form 8 (showing the Statement of Account and Solvency) must be filed within 30 days after six months from the financial year-end.
5. Statutory Audit: If an LLP’s turnover exceeds Rs. 40 lakhs or its contribution goes beyond Rs. 25 lakhs, it must get its accounts audited by a qualified professional.
6. Penalties for Non-Compliance

An LLP must maintain at least two Designated Partners at all times. Failure to comply may lead to fines between ?10,000 and ?5 lakh for the LLP and its responsible partners. Additionally, missing filing deadlines for key documents such as the Annual Return (Form 11) or the Statement of Accounts & Solvency (Form 8) results in a daily penalty of ?100 per form, without any cap—leading to potentially large financial exposure.

Can a Partner Be Both: LLP Partner and Designated Partner?

Yes, in India, a partner in an LLP can also serve as a designated partner simultaneously. This is allowed under the LLP Act, 2008. Many LLPs choose this option because it simplifies the management of duties and responsibilities within the partnership.

Conclusion

Understanding the roles of Designated Partners and LLP Partners is crucial for the smooth functioning of a Limited Liability Partnership (LLP). Designated Partners hold specific legal responsibilities and ensure that LLP follows the rules.  Whereas, LLP Partners focus on business operations and profit sharing. Both create a balance between responsibility and management. This helps to make LLPs a smart and flexible choice for business owners and professionals. If you have any queries about company registration, contact Online Legal India. They have professionals to guide you.