All About Partner and Designated Partner in LLP

Introduction

Starting a business can be exciting, and a Limited Liability Partnership (LLP) offers a blend of flexibility and protection. Understanding the roles of partners and designated partners in an LLP is crucial for anyone considering this business structure. This guide breaks down these roles simply and clearly.

What is a Limited Liability Partnership (LLP)?

A Limited Liability Partnership (LLP) combines features of both a company and a partnership firm. It provides partners with limited liability, meaning their personal assets are generally protected from the business’s debts and obligations. At the same time, it offers the flexibility of a traditional partnership regarding internal management. The LLP Act, 2008, governs LLPs in India. You can find more details on the Ministry of Corporate Affairs (MCA) website: www.mca.gov.in.

Who is a Partner in an LLP?

A partner in an LLP is an individual or a body corporate who has agreed to share the profits and losses of the business. They contribute capital, effort, or expertise to the LLP. Every LLP must have at least two partners.

Rights and Responsibilities of a Partner

• Sharing Profits and Losses: Partners share the profits and losses of the LLP as per the LLP Agreement.
• Management Participation: Partners have the right to participate in the management and operations of the LLP, unless specified otherwise in the LLP Agreement.
• Access to Records: Partners can inspect the books of accounts and other records of the LLP.
• Contribution: Partners are required to contribute capital to the LLP, which can be in the form of money, property, or services.
• Acting on Behalf of LLP: A partner can bind the LLP by their actions, but their personal liability is limited to their agreed contribution.

Who is a Designated Partner in an LLP?

While all partners contribute to the LLP, designated partners hold a special position. They are primarily responsible for ensuring that the LLP complies with all legal requirements and filings under the LLP Act, 2008. Every LLP must have at least two designated partners who are individuals, and at least one of them must be a resident in India.

Key Roles and Responsibilities of a Designated Partner

• Filing Annual Returns: Ensuring timely filing of Form 11 and Form 8 with the Registrar of Companies (ROC).
• Maintaining Records: Overseeing statutory records and books of accounts.
• Compliance with Laws: Ensuring compliance with LLP Act, Income Tax laws (www.incometax.gov.in), and GST laws (www.gst.gov.in).
• Legal Proceedings: Representing the LLP and handling notices from authorities.
• Applying for DIN: Obtaining a Director Identification Number before appointment.
• Signing Documents: Authorised to sign LLP-related documents.

Importance of Designated Partners

Designated partners are the legal face of the LLP. Non-compliance with regulations can result in penalties or personal liability, highlighting the importance of their role.

Key Differences Between Partners and Designated Partners

How to Appoint a Designated Partner?

• Obtain DIN: Apply for Director Identification Number via MCA.
• Consent to Act: Provide written consent to act as designated partner.
• LLP Agreement Amendment: Update the agreement if needed.
• File Form 4: Submit Form 4 to ROC within 30 days of appointment.

What are the Benefits of an LLP Structure?

• Limited Liability: Protects personal assets from LLP debts.
• Flexibility in Management: LLP Agreement allows flexible internal structure.
• Lower Compliance Burden: Easier to manage than private limited companies.
• No Cap on Partners: Unlimited number of partners allowed.
• Perpetual Succession: Continues irrespective of partner changes.

Understanding the LLP Agreement

The LLP Agreement outlines the rights, duties, profit sharing, and internal operations of the LLP. A well-drafted agreement ensures clarity and prevents disputes.

Key Clauses in an LLP Agreement

• Name and Business
• Capital Contribution
• Profit and Loss Sharing
• Management Rights
• Designated Partners
• Admission and Exit of Partners
• Dispute Resolution

Consequences of Non-Compliance for LLPs

• Financial Penalties: Late filing and non-compliance incur monetary fines.
• Disqualification: Persistent non-compliance can disqualify designated partners.
• Prosecution: Severe violations may lead to legal actions.
• Loss of Credibility: Affects reputation with customers and investors.
• Strike Off: In extreme cases, the LLP may be struck off by the ROC.

Steps to Register an LLP

• Name Reservation: File Form RUN-LLP on MCA portal.
• Obtain DIN: Required for designated partners.
• DSC: Obtain Digital Signature Certificate (Class 3).
• Incorporate LLP: File Form FiLLiP with partner details.
• LLP Agreement Filing: File Form 3 within 30 days of incorporation.

Important Compliance Filings for LLPs

• Annual Return (Form 11): File by May 30 each financial year.
• Statement of Account & Solvency (Form 8): File by October 30 annually.
• Income Tax Return (ITR-5): Due by July 31 or October 31 depending on audit.
• GST Returns: Periodic filing if registered under GST.

Conclusion

Understanding the distinct roles of partners and designated partners is fundamental to navigating the legal landscape of an LLP. While all partners contribute to the business, designated partners bear the primary responsibility for ensuring legal compliance. The LLP structure offers limited liability and flexibility, making it an attractive option for many businesses. By adhering to the legal requirements and regular filings, LLPs can operate smoothly and enjoy the benefits this business structure provides.

Suggested Read :

Types of Audit of LLP

How to Download LLP Registration Certificate?

LLP annual filing for startups

Importance of LLP Certificate of Registration

How to Register an LLP?

FAQs