Extent of liability of an LLP; eligibility of designated partners

(i) Extent of liability of an LLP. Each partner acts as the LLP's agent for its business, but not as the agent of the other partners (s. 26). The Act then fixes where liability falls:

1. Acts without authority (s. 27(1)): the LLP is not bound by a partner's dealing with someone if the partner had no authority to act for it and the other person knew that, or did not know or believe him to be a partner.
2. Wrongs in the business (s. 27(2)): where a partner incurs liability to someone through a wrongful act or omission in the course of the LLP's business or with its authority, the LLP is liable too.
3. The LLP's own obligations (s. 27(3), (4)): an obligation of the LLP, whether it arises in contract or otherwise, is the LLP's alone, and it is met out of the LLP's property.
4. Partners' position (s. 28): a partner is not personally liable, directly or indirectly, for the LLP's obligations just because he is a partner, nor for another partner's wrongful act or omission; he remains liable for his own.

(ii) Eligibility of designated partners:

1. Number and residence (s. 7(1)): an LLP needs a minimum of two designated partners who are natural persons, one or more of them resident in India. "Resident" meant, when this paper was set, a person who had stayed in India for at least 182 days during the immediately preceding one year (Explanation to s. 7); the requirement is now 120 days during the financial year.
2. Corporate partners (proviso to s. 7(1)): where all the partners are bodies corporate, or some are individuals and some bodies corporate, at least two individuals who are partners, or nominees of the bodies corporate, act as designated partners.
3. How a partner is designated (s. 7(2), subject to s. 7(1)): if the incorporation document names the designated partners, they are designated partners on incorporation; if it states that each partner from time to time is to be one, every such partner is one; and the LLP agreement governs how any partner later takes on that role or gives it up.
4. Consent, filing, conditions and DPIN (s. 7(3)-(6)): a person becomes a designated partner only after giving his prior consent to the LLP in the prescribed form and manner; once he is appointed, the LLP files his particulars with the Registrar, in the prescribed form and manner, within thirty days of the appointment; he must satisfy the conditions the Rules prescribe; and he must obtain a Designated Partner Identification Number from the Central Government, sections 266-A to 266-G of the Companies Act, 1956 applying to it mutatis mutandis. Under rule 10(1) of the LLP Rules, 2009, as it now stands (substituted in 2018), an individual who is to be appointed designated partner of an existing LLP applies electronically for the DPIN in Form DIR-3, the form under the Companies (Appointment and Qualifications of Directors) Rules, 2014, and a Director Identification Number (DIN) is sufficient for the appointment.
5. Partner disqualifications (proviso to s. 5): an individual partner who is to be a designated partner must first be capable of being a partner, and an individual cannot become one if a competent court has found him to be of unsound mind and that finding stands, if he is an undischarged insolvent, or if his own application to be adjudicated insolvent is pending.
6. Disqualifications (rule 9 of the LLP Rules, 2009): under rule 9(1) he cannot be appointed if he (a) has been adjudged insolvent within the preceding five years; (b) suspends, or has within the preceding five years suspended, payment to his creditors without making a composition with them in that time; (c) has been convicted of an offence involving moral turpitude and sentenced to imprisonment for six months or more; or (d) has been convicted of an offence involving section 30 of the Act. Rule 9(2) lets the Central Government remove the disqualification under (a) or (b) by a notification in the Official Gazette, either generally or for the LLPs named in the notification.