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Who can be a Partner/Designated Partner in a Limited Liability Partnership

April 18, 2020

Limited Liability Partnership- Background

Limited Liability Partnership (LLP) entities are world wide recognized form of Business Organization. LLP’s in India are regulated by the Limited Liability Partnership Act, 2008 along with LLP Rules, 2009 as amended from time to time. LLP combines the advantages of both the Company and Partnership into a single form of organization.

The LLP structure exists in countries like the United Kingdom, United States of America, Australia, Singapore etc., The Indian LLP Act is broadly based on UK LLP Act, 2000 and Singapore LLP Act 2005.

Partners/designated partners in LLP

There should be a minimum of two partners in an LLP. Although the Act is silent on the maximum number of partners in an LLP, there appears to be no restriction on the same unlike in the case of traditional partnership firms and private limited companies.

The below can act as partners in an LLP

An Individual unless disqualified.

A Body Corporate which includes:

  • Indian Company
  • Companies incorporated outside India
  • LLP registered in India
  • LLP incorporated outside India

The below cannot act as partners/designated partners in an LLP as they are not covered in the definition of Individual/body corporate

  • An individual, if he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; he is an undischarged insolvent; or  he applied to be adjudicated as an insolvent and his application is pending.
  • A Minor
  • Corporation sole
  • Co-operative society
  • Trust (subject to certain exceptions as mentioned in the article)
  • Partnership firm
  • Association of person
  • Hindu Undivided family.
  • Other forms of unregistered business entities.

MCA Clarifications on who can be a partner in an LLP

Hindu Undivided Family (HUF)/ its Karta

As per MCA Circular No. 13/2013 it has been clarified that pursuant to Section 5 of the LLP Act, 2008 only an Individual or a Body Corporate may be a partner in a Limited Liability Partnership. A HUF cannot be treated as a Body Corporate for the purposes of LLP Act, 2008. Therefore, a HUF or its Karta cannot become a designated partner in an LLP.

Trust

As per MCA Circular No. 37/2014, it has been clarified that in case of a Trust which is registered under the regulations prescribed under the Securities & Exchange Board of India Act, 1992 viz. "Real Estate Investment Trust" (REIT) or "Infrastructure Investment Trust" (lnvlTs) or such other Trusts, it is not barred for a trustee, being a body corporate, to hold partnership in an LLP in its name without the addition of the statement that it is a trustee.

It shall be noted that all other trusts, not formed pursuant to the regulations prescribed by SEBI Laws do not qualify as a body corporate and hence cannot become a partner in LLP.

Partners and their relations

In LLP, one partner is not responsible or liable for another partner's misconduct or negligence; this is an important difference from that of an unlimited partnership. In an LLP, all partners have a form of limited liability for each individual's protection within the partnership, similar to that of the shareholders of a corporate/company. However, unlike corporate shareholders, the partners have the right to manage the business directly. LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP's employees or other agents.

  • The mutual rights and duties of partners‟ inter se and mutual rights and duties of LLP and its partners would be governed by the LLP
  • In absence of the LLP agreement, mutual rights and duties of partners would be governed by the provisions set out in Schedule I to the LLP Act, some of which are mentioned below:
  • All partners of a LLP would be entitled to share equally in the capital, profits and losses of the
  • No partner would be entitled to remuneration for acting in the business or management of the
  • Every partner may take part in the management of the LLP. No person may be introduced as a partner without the consent of all the existing
  • Any matter relating to LLP shall be decided by a resolution passed by majority of partners and each partner shall have one vote for this purpose. However, no change can be made in the business of the LLP without consent of all the
  • Every LLP shall ensure that decisions taken by it are recorded in the minutes within thirty days of taking such decisions and are kept and maintained at the registered office of the
  • The LLP agreement alongwith any changes made therein shall be filed with the
  • A person may cease to be a partner of an LLP in accordance with an agreement with the other partners or in the absence of agreement, by giving a notice of not less than thirty days to the other partners. A person may also cease to be a partner of an LLP by his death or dissolution of the
  • A partner of an LLP would be entitled to an amount equal to his capital contribution along with his share in accumulated profits of the LLP on cessation of his
  • The cessation of a partner from the LLP does not by itself discharge the partner from any obligation to the LLP or to the other partners or to any other person which he incurred while being a
  • An LLP being an independent legal entity separate from its partner, it can also have business transactions with its

Designated Partner

  • Appointment of at least two“Designated Partners” shall be mandatory for all LLPs. “Designated Partners” shall also be accountable for regulatory and legal compliances, besides their liability as ‘partners, per-se. There must be two designated partners‟ who are individuals and at least one of them should be a resident in India. If a body corporate is the partner of an LLP, it can nominate an individual as a designated partner.
  • Every designated partner needs to obtain Designated Partner Identification Number (DPIN) from the Central Government. The designated partners are responsible for all compliances as required under the LLP Act and are liable to a penalty for contravention of those provisions.

Rights and Duties of a Designated Partner

The duties of designated partners are given below

  • Responsible for all compliance’s under applicable laws including Income Tax, GST, LLP Act, 2008 etc.
  • Responsible for signing all the e-forms filed with the Registrar of Companies.
  • Maintenance of proper books of accounts, filings annual statement of account, audit of LLP accounts.
  • Produce documents before inspector as and when required.

Liabilities of designated partners.

As per Section of the LLP Act, 2008, the following are the Liabilities of designated partners.

(a) responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and

(b) liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Fines imposed on Designated partners 

Carrying Business with fraudulent intention

  • Minimum Rs.50,000/-
  • Maximum Rs.5,00,000/-
  • Imprisonment up to 2 years

False statements in any returns, statements or documents

  • Minimum Rs.1,00,000/-
  • Maximum Rs.5,00,000/-
  • Imprisonment up to 2 years

Failing in filing annual return with the Registrar within 60 days of closure of its financial year

  • Minimum Rs.10,000/-
  • Maximum Rs.1,00,000/

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Disclaimer: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

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