What is the role of a designated partner? When does it apply? Let Vakilsearch answer all your questions!
A designated partner as per the LLP Act, 2016 is a person who is an individual or an entity that has entered into a partnership agreement with an LLP and is either the sole manager of the LLP or one of its partners. To qualify as a designated partner, one must have been in business for at least two years and must have contributed at least 10 percent equity in the business.
A designated partner is not to be confused with a member who is also known as an initial or primary member of an LLP. A member is only entitled to vote on matters relating to their personal affairs. In contrast, other members are only entitled to attend and speak at meetings. Other than that, members are treated equally under the provisions of the LLP Act.
What Is a Designated Partner (DP)?
As per the definition mentioned above, a designated partner is a person who is appointed by an LLP to manage the business of the entity. In other words, it is an individual who has been appointed by the LLP to act as a partner in the entity. The role of a DP is not limited to just managing the business activities; it also involves some other roles as well.
How to Become a Designated Partner in an LLP?
To become a designated partner in an LLP, one must first enter into a partnership agreement with the LLP. Then, one must contribute 10 percent equity in the business and be in business for at least two years to qualify as a designated partner. A Dp is not to be confused with a member who is also known as an initial or primary member of an LLP. A member is only entitled to vote on matters relating to their personal affairs. In contrast, other members are only entitled to attend and speak at meetings. Other than that, members are treated equally under the provisions of the LLP Act.
Tax Benefit of Being a Partner in an LLP
A designated partner is a person who is also known as an initial or primary member of an LLP. This person enjoys several tax benefits compared to other members of the firm. First, they enjoy a 20 percent deduction on their income and capital gains, with no ceiling on the number of deductions. They also enjoy the benefit of carrying forward losses incurred in other years and deducting them from their income and capital gains later in future years. Additionally, certain conditions must be fulfilled for this individual to enjoy these tax benefits. For example, They must not be a director or manager of any other LLP. They must contribute at least 10 percent equity in the business before being considered for designation as a DP. Our team of experts can tell you more about the tax benefits of being a designated partner in an LLP if you contact Vakilsearch
The Benefits of Becoming a Partner in an LLP
By becoming a designated partner in an LLP, you will have more power over the business and its decisions. You are also entitled to vote on all matters concerning the partnership or the company. To become a Dp one must have been in business for at least two years and must contribute at least 10 percent equity in the business.
Disadvantages of Becoming a Designated Partner in an LLP
There are no disadvantages to becoming a designated partner in an LLP. The LLP Act, of 2016 ensures that all partners have equal rights and responsibilities.
Role of a Partner in an LLP
A designated partner is expected to be the bridge between the investors and the other partners within the LLP. The designated partner is likely to act as an impartial voice between the investors and the other partners in the LLP. It is also the role of a DP to manage investor relations and respond to queries received by the entity. The p should be available to the other partners and act as a conduit between the investors and the other partners.
Objectives of Having a Partner in an LLP
Specifically, a designated partner’s responsibilities are as follows: –
Provide financial management: A designated partner is expected to oversee the financial affairs of the LLP. Ensure that all financial records of the LLP are updated regularly and at the prescribed intervals. – Oversee the legal affairs of the Limited Liability Partnership in India. A DP must ensure that the company’s policies and practices are being followed and that all statutory obligations are met. A designated partner is responsible for managing the administrative affairs of the LLP. The DP is responsible for hiring and appointing the employees of the LLP. The dp is expected to act as a mentor to other partners of the LLP. The DP is expected to guide the other partners on various topics, such as financial management, law, and administration.
A Designated Partner Under The LLP Act
As per the LLP Act, a designated partner is an individual who has been appointed by the LLP to manage the business of the entity. The role of a DP is not limited to just managing the business activities; it also involves some other roles as well.
Essential Requirements to Be Met by a Designated Partner
A designated partner must be an individual who is at least 18 years of age. The person must be a resident of India for at least three years. The person must also have been a partner in any private company for at least three years. The person must not have any criminal charges against them.
A candidate must have a valid
- PAN card,
- SSC certificate,
- Passport.
A designated partner must not have more than 35 equity shares in the LLP. The Dp must not be a permanent employee of the LLP.
Key Takeaways
A designated partner is a person who is legally empowered to act on behalf of the LLP. A DP’s duties include
- Receiving and holding funds as an agent on behalf of the LLP,
- Signing and issuing LLP’s bank statements,
- Preparing financial statements for the LLP,
- Signing LLP’s audit report,
- Signing LLP’s tax returns.
To become a designated partner in an LLP, one needs to fulfill certain conditions:
- One needs to be a member of the LLP for at least two years before applying for the designation,
- One needs to have a personal net worth of at least ₹ 2 crores
- One needs to have at least 20% shareholding in the LLP.
