Limited Liability Partnerships (LLPs) have gained tremendous popularity in India for their unique blend of flexibility and limited liability. As per data, till 31st August 2022, there were 2,52 460 Limited Liability Partnerships (LLPs) in India. LLP partners bear significant responsibility for compliance and governance because they must ensure adherence to statutory regulations, financial disclosures, and reporting requirements. By the end of this blog, you will be able to understand how a person can become a Designated Partner in an LLP, what is the eligibility criteria to become a Designated Partner, and how a person can be disqualified from becoming a Designated Partner.
What is an LLP?
LLP originated in the United States of America in the early 90s in response to the financial liabilities faced by traditional partnerships in professional services. In India, LLPs were introduced through the Limited Liability Partnership Act of 2008. Currently, LLPs in India are a hybrid structure that combines the elements of traditional partnerships and corporations. LLPs offer flexibility in managing business operations and allow partners to directly oversee management.
Designated Partners
However, there is no limit to the maximum number of partners in a Limited Liability Partnership. Partners in an LLP do not have legal obligations for compliance unless specifically assigned. Still, a Designated Partner is a person appointed by the partners in an LLP who is responsible for managing the day-to-day business operations of the firm. Designated Partners are held personally liable for any failure to meet the firm’s legal obligations. Section 7 of the Limited Liability Partnership Act, 2008, mandates that every LLP must appoint at least two (2) designated partners. The Act makes it compulsory for one of the designated to be a resident of India.
Key Responsibilities of Designated Partners
The Designated Partner of the LLP is responsible for doing all the acts that are required to be done by the LLP to be compliant with the provisions of the LLP Act, 2008. Following are the key responsibilities of the Designated Partner in the Partnership firm:
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Compliance:
The Designated Partners ensures legal compliance that includes:
The Designated Partners have to ensure that the Annual Return, Statement of Account & Solvency, and Income Tax Return are filed within the prescribed timeframe. The timely filing of the Annual Return (Form 11) and (Form 8) with the Registrar of the Compliance (RoC). The Designated Partners of the LLP have to ensure the timely filing of the Tax Returns within the prescribed time as mandated by the Government of India.
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Centre Point of Contact:
The Designated Partner is the main contact with the RoC and tax authorities and is thus responsible for liaising with the authorities and ensuring that all the notices, communications, and requirements from such authorities are complied with.
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Legal Representation:
The Designated Partners is responsible for representing the LLP in the legal proceedings and litigation matters where the LLP is either party or performa party to comply with statutory obligations.
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Adhering to the Partner Duties:
The Designated Partner is responsible to perform his duties, to act in a good faith for the best interests of the LLP. Partners are required to act honestly in all the dealings of the business to promote the growth of the business and to ensure that LLP runs on the lawful operations.
Eligibility Criteria for Designated Partners in India
Under the Limited Liability Partnership Act of 2008, specific criteria must be met to become a Designated Partner (DP) in an LLP. The criteria are designed to ensure that only individuals and entities with the appropriate legal standing can assume the role of a designated partner.
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Eligibility for Individuals
Individuals who want to become a Designated Partner in an LLP must satisfy the following requirements:
- A person must be at least 18 years old to qualify as a Designated Partner. This age requirement aligns with the Indian Contract Act of 1872, which mandates that individuals must be above the age of 18 to be legally competent to enter into a contract. Since Designated Partners take on contractual and fiduciary obligations within the LLP, the age threshold ensures they possess the legal capacity to perform these duties effectively, consistent with the contractual laws in India.
- Both Indian citizens and foreign nationals are eligible to become designated partners in an LLP. However, Section 7(2) of the Act requires that at least one of the Designated Partners must be a resident of India. A resident, as defined by law, is someone who has stayed in India for at least 182 days during the preceding calendar year.
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Eligibility for Corporate Entities
The LLP Act also permits corporate entities to act as Designated Partners. It is mandated under Section 7(3) of the LLP Act, 2008 that an individual must be appointed by the company to represent the company as a Designated Partner in the Partnership Firm. The Act provides that in the case where all the partners in an LLP are a corporate body or one or more partners are individuals and bodies corporate, then at least two (2) individual partners or nominees of the body corporate shall act as Designated Partners.
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No Educational Qualifications Required:
Interestingly, the LLP Act does not provide any specific educational qualifications to become a Designated Partner in a Partnership firm. Any individuals without formal educational qualifications are eligible to become a Designated Partner.
Prior Consent is Essential
An individual cannot become a Designated Partner in an LLP unless such an individual gives prior consent to act as a Designated Partner.
Obtaining DPIN or DIN
Designated Partner Identification Number (DPIN) or Director Identification Number (DIN) is a unique identifier that is assigned to the Designated Partners in a LLP. DPIN or DIN is obtained by the individuals or company before they are appointed as Designated Partners. DPIN or DIN is obtained through the Ministry of Corporate Affairs (MCA) website by submitting an online application.
Documents Required to become a Designated Partner
The following documents are required to be submitted to the Ministry of Corporate Affairs (MCA) website to become a Designated Partner and to obtain:
- An attested or certified copy of an identity proof that includes a recent photograph, along with details of your date of birth and the name of your father or husband.
- An attested or certified copy of your residential address proof.
- If you are applying as a nominee from a corporate entity, include a copy of the authorization or resolution on the company’s letterhead, specifying the name and address of the individual.
- If you are a foreign national, a copy of your valid passport will be sufficient.
Disqualifications for Designated Partners
There are certain conditions that can disqualify an individual from becoming a designated partner, and these are outlined in the Limited Liability Partnership Act, 2008.
- Unsound Mind:
An individual cannot serve as a Designated Partner if they have been declared of unsound mind by a competent court. According to Section 11 of the Indian Contract Act of 1872, a person deemed mentally unsound is not legally able to enter into contracts. Since Designated Partners are responsible for making contractual commitments on behalf of the LLP, it’s crucial that they possess mental soundness. This ensures they can comprehend their responsibilities and effectively meet their obligations.
- Undischarged Insolvents:
Any individual who is an undischarged insolvent cannot be appointed as a Designated Partner. It means is not eligible to become a designated partner. It means an individual who has been declared insolvent by a court but has not settled their debts.
- Criminal Convictions:
Individuals who are convicted of any offence, specifically the offences that involve moral turpitude cannot become a Designated partner in LLP. Additionally, individuals who are sentenced to imprisonment for 6 months or more are also disqualified from becoming a Designated Partner.
Common Misconceptions About Designated Partners
Misconception 1: All Partners are Designated Partners
A common misunderstanding is that all partners in an LLP are automatically designated partners. In reality, while all partners share in the profits, losses, and general management of the LLP, only designated partners have specific legal and compliance responsibilities, such as ensuring the filing of annual returns, maintaining proper financial records, and meeting other statutory requirements under the Limited Liability Partnership Act, 2008.
Misconception 2: Designated Partners Have Unlimited Liability
Another frequent misconception is that designated partners in an LLP bear unlimited liability for the firm’s debts and obligations. This is incorrect. Just like other partners in an LLP, designated partners enjoy limited liability, meaning they are only liable to the extent of their capital contribution to the LLP.
Conclusion
In conclusion, the role of designated partners in Limited Liability Partnerships (LLPs) in India is important to ensure compliance with legal and regulatory requirements. The Limited Liability Partnership Act of 2008 prescribes specific eligibility criteria that include being at least 18 years old and a resident of India. While both individuals and corporate entities are eligible to become the Designated Partner, certain disqualifications, such as insolvency, criminal convictions, and mental incapacity, are strictly enforced to maintain the integrity of the partnership. As LLPs continue to gain popularity, understanding the responsibilities and requirements of designated partners remains crucial for fostering sustainable business practices and enhancing accountability within the framework of Indian corporate governance.
FAQs
1. How many designated partners are required in an LLP in India?
An LLP must have at least two designated partners, with one atleast one being a resident of India.
2. Can a corporate entity be a Designated Partner?
Ans. Yes, corporate entities can serve as designated partners, but they must appoint an individual who shall represent the company.
3. What is the age requirement to be a designated partner?
According to the LLP Act, an individual must be a minimum of 18 years old to become a partner or a Designated Partner.
4. What disqualifies someone from being a Designated Partner?
Disqualifications include being an undischarged insolvent, having a criminal conviction, or being declared mentally unsound.
5. Do Designated Partners have limited or unlimited liability?
Designated Partners have limited liability, which means that they are only responsible for the amount/capital that they have invested in the partnership.
Reference
[1] Section 7(1) of the Limited Liability Act, 2008
[2] Section 6 of the Income Tax Act, 1961
[3] Section 7 (3) of the Limited Liability Partnership Act, 2008
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