A Designated Partner is appointed during the registration of an LLP firm. The Designated Partner’s post is more significant than that of a partner as the former has more duties and liabilities to be dispensed with, in an LLP firm.
Introduction
The post of a designated partners in a company was brought forth by the Limited Liability Partnership Act, 2008. The position of a designated partner is analogous to that of a director in a private limited company, except that the designated partner enjoys more rights and privileges than the Director. What are the liabilities of a Designated Partner
Who Can Hold the Post of a Designated Partner?
While there can be two or more designated partners in an LLP (Limited Liability Partnership) firm, it is a mandate that at least one of them is a resident of India. Further, only individuals can hold the post of a Designated Partner, and corporate bodies are abstained from the same.
Who is Restrained from Holding the Post of a Designated Partner?
The following persons are not qualified to hold the posts of a partner or a designated partner in an LLP:
- Undischarged insolvent person or if a person has applied to be adjudged as insolvent, or if a person is concluded to be of unsound mind by a Court of a competent jurisdiction
- A minor
- A person who has withheld the due payment to the creditors in the preceding 5 years
- Any person who has been subjected to imprisonment for the commission of immoral acts, wherein the person was sentenced for a period of at least 6 months
- Co-operative societies
- Trusts
- Partnership firms
- Hindu Undivided Family
- Unregistered Business Entities.
Penalty Levied for Not Appointing a Designated Partner
While it is compulsory for an LLP firm to have at least 2 Designated Partners, failing to comply with the same could result in a penalty of ₹10,000 being levied. Also, if a standing Designated Partner exits and if the post remains unoccupied for a period of 30 days, a penalty is levied on the LLP.
Key Differences Between a Partner and a Designated Partner
| No | Partner | Designated Partner |
| 1 | The post of a ‘Partner’ is common in both partnership and LLP firms | The post of a designated partner is created only in the case of LLP firms |
| 2 | A partner executes the duty as an agent in a partnership firm | A designated partner acts as an agent while executing the duties of a director |
| 3 | A person or a body corporate is eligible to become a partner | Only individuals can hold the post of a designated partner |
| 4 | Partners are not held liable for the payment of penalties or for not complying with the provisions of an LLP | A designated partner is held accountable with respect to the filing of documents, statements of accounts, etc. The designated partners are also personally and severally liable |
| 5 | A partner is not required to acquire an identification number from any authorised officer | It is mandatory that a designated partner holds a DPIN (Designated Partner Identification Number) |
DPIN (Designated Partner Identification Number)
Persons intending to hold the position of a designated partner are required to obtain the DPIN. The DPIN can be held only by natural living persons and not by corporate entities like private limited companies, partnership firms, etc. The DPIN and DIN (Director Identification Number) are the same and are often used analogously.
The DPIN can be obtained by furnishing the PAN (Permanent Account Number) in the case of Indian nationals and the passport in the case of foreign nationals. The applicant has to submit the passport size photographs and address proofs mandatorily to acquire the DPIN. A class 2 digital signature is required to obtain the same .
Every partner in an LLP is equally authorised to hold the position of a designated partner. The incorporation document of an LLP usually specifies the names of the designated partners. In some cases, the document mentions the rotation schedule taken up by the partners to act as the designated partner of the LLP firm, thus ensuring every standing partner gets a chance to be the designated partner.
Eligibility For a Designated Partner
- The individual must be legally and adult of 18 years age
- The individual must hold Indian citizenship
- The individual must possess sound mental faculties and comprehension of their actions’ nature and repercussions
- The individual must not have any convictions related to fraud or dishonesty
- The individual must have successfully completed the 10th grade or an equivalent level of education
- The individual must not face disqualification from partnership under any prevailing laws.
What is the Required Number of Designated Partners?
Each Limited Liability Partnership (LLP) must have a minimum of two partners. Within six months of any event causing the partner count to fall below two, the LLP must restore this minimum requirement. The number of designated partners required in an Indian partnership firm varies by type. In a general partnership, there must be at least two designated partners. In an LLP, there must be at least two designated partners, with at least one being an Indian resident. If an LLP fails to maintain at least two designated partners within the specified six-month period, the sole partner during the subsequent period may face personal liability for all LLP affairs during the mismanagement period exceeding six months.
Designated Partner Identification Number
All partners within a partnership must possess a Designated Partner Identification Number (DPIN). This identifier, also known as a Director Identification Number (DIN), is essential and interchangeable despite its varying names. Obtaining a class 2 digital signature is necessary to obtain the DPIN.
During the registration process, the incorporation documents must specify individuals as Designated Partners for the Limited Liability Partnership (LLP). The role of a Designated Partner may undergo assessment and rotation as outlined in the partnership deed. Approval from other partners and the LLP is required for any individual to become a designated partner.
Duties of a Designated Partner
- Annually, the Limited Liability Partnership files the Statement of Account and Solvency with the registrar, at year-end, which necessitates the signature of the Designated Partner
- Within 60 days after the financial year concludes, the LLP must submit annual returns to the registrar following the prescribed method. Failure to comply may result in a fine of up to ₹10,000 for each Designated Partner
- The obligation to cover expenses linked to an investigation falls on the shoulders of a Designated Partner.
Appointment of a Partner as a Designated Partner
An LLP must have at least 2 persons as designated partners. In case, one of the partners leaves the firm, the first must seek to replace that partner within a period of 30 days failing on which all the standing partners will be considered as designated partners. The following forms are to be enclosed for the appointment of a designated partner:
- Form 4: Gives the details of the partners who have granted their consent to act as the designated partner
- Form 5: Details of individual partners who have consented to act as designated partners, which is to be submitted to the registrar, within 30 days from the date of appointment of the designated partner
- Form 9: Holds the consent of an assessee to become the designated partner
- Form 10: Records the changes, if any, made by the designated partners.
Duties and Liabilities of a Designated Partner
Unlike a partner, a designated partner is expected to keep up with various compliances laid out by the Limited Liability Partnership Act, 2008, such as the filing of annual returns and other documents. But, the duties and liabilities of a Designated Partner do not stop with that and are more exhaustive:
- A Designated Partner is required to sign the Statements of Accounts and Solvency and all the e-forms with respect to the LLP
- A Designated Partner is accountable to file the annual returns of the LLP with the Registrar within 60 days from the end date of the financial year, failing on which a fine would be imposed
- If there should be any changes in the LLP, like the names of the partners or their addresses, the same should be notified to the Registrar by the Designated Partner
- A Designated Partner is duly required to file the returns of documents or statements
- If the need arises to conduct an inquiry or inspection, a Designated Partner is required to assist the process by providing the necessary documents for examination to the inspector
- A Designated Partner is required to offset the inspector for the expenses incurred during the investigation
- A Designated Partner liability in private company for all the acts, wrongful or otherwise, and other matters that are required to have complied with the Limited Liability Act, 2008
- A Designated Partner is liable for the penalties levied on the LLP, when the stipulated provisions are not duly fulfilled.
Frequently Asked Questions
What is the Difference Between Partner and Designated Partner?
A partner in a Limited Liability Partnership (LLP) refers to any member, while a designated partner holds specific responsibilities under the LLP Act 2008. Designated partners are accountable for statutory compliance and represent the LLP. Both share profits and liabilities but differ in managerial duties.
What is a Limited Liability Partnership?
A Limited Liability Partnership (LLP) is a business structure combining elements of partnerships and corporations, offering limited liability to its partners. It allows professionals and entrepreneurs to operate as a partnership but with limited personal liability, shielding personal assets from business debts.
What is the main advantage of a limited liability partnership?
The primary advantage of a limited liability partnership (LLP) is the protection of personal assets. Partners' liability is limited to their investment, safeguarding personal property from business debts and legal actions. This structure also offers flexibility in management and taxation benefits.
Is the liability of designated partners in LLP limited or unlimited?
In a Limited Liability Partnership (LLP), the liability of designated partners is limited. They enjoy the same limited liability protection as other partners, shielding personal assets from business debts and obligations, except in cases of fraud or negligence.
What are the role and responsibilities of a designated partner?
Designated partners in an LLP are responsible for ensuring compliance with statutory requirements, representing the LLP, maintaining records, and filing necessary documents. They oversee day-to-day operations, manage finances, and execute decisions in line with the LLP agreement and relevant laws.
What are the rules for designated partners?
Designated partners must adhere to the LLP agreement, ensuring compliance with the LLP Act 2008 and other applicable regulations. They must maintain accurate records, submit annual filings, and act in the best interest of the LLP. Failure to fulfill duties may lead to penalties or legal consequences.
