Designated partner: meaning and the provisions governing designated partners

Meaning of designated partner. Section 2(1)(j) of the Limited Liability Partnership Act, 2008 defines a designated partner as any partner designated as such pursuant to section 7. In plain terms, the designated partners are the individuals through whom the LLP meets its duties under the Act: they answer for its filings and compliance and bear the penalties for its defaults (s. 8). The definition speaks of a partner, but section 7(1) also lets the nominee of a corporate partner act as a designated partner, so a designated partner need not himself be a partner.

Provisions relating to designated partners.

1. Minimum number and residence (s. 7(1)). Every LLP must have at least two designated partners who are individuals, and at least one of them must be resident in India. A person is resident in India for this purpose if he has stayed in India for not less than 120 days during the financial year; the test in the original Act was 182 days in the immediately preceding one year.
2. Bodies corporate as partners (s. 7(1), proviso). Where all the partners are bodies corporate, or the partners are partly individuals and partly bodies corporate, at least two individuals who are either partners of the LLP or nominees of those bodies corporate act as designated partners.
3. Who becomes a designated partner (s. 7(2)). Subject to section 7(1): if the incorporation document names the persons who are to be designated partners, they are designated partners on incorporation; if it states that each partner from time to time is to be a designated partner, every such partner is one; and any partner may become a designated partner, and a partner may cease to be one, in accordance with the LLP agreement. Ceasing to be a designated partner in this way is a change of role only; the person remains a partner.
4. Prior consent (s. 7(3)). No individual becomes a designated partner in any LLP unless he has first given the LLP his consent to act as such, in the prescribed form and manner.
5. Filing with the Registrar (s. 7(4)). The LLP must file with the Registrar, in the prescribed form and manner, the particulars of every individual who has consented to act as designated partner, within thirty days of his appointment.
6. Prescribed conditions (s. 7(5)). An individual eligible to be a designated partner must also satisfy the conditions and requirements prescribed by the rules.
7. Designated Partner Identification Number (s. 7(6); rule 10(1)). Every designated partner must obtain a DPIN from the Central Government, and sections 266A to 266G of the Companies Act, 1956 apply to it with the necessary changes. Under rule 10(1) of the LLP Rules, 2009, an individual who intends to be appointed designated partner of an existing LLP applies electronically in Form DIR-3 under the Companies (Appointment and Qualifications of Directors) Rules, 2014, and the DIN so obtained is sufficient for his appointment as a designated partner.
8. Disqualifications.
   • As a partner (s. 5). An individual cannot become a partner while a court of competent jurisdiction has found him to be of unsound mind and that finding is in force, while he is an undischarged insolvent, or while his application to be adjudicated an insolvent is pending. These bars reach a designated partner who is himself an individual partner; a corporate partner's nominee is not a partner.
   • As a designated partner (rule 9(1), LLP Rules, 2009). A person cannot be appointed a designated partner if he
     1. has been adjudged insolvent at any time within the preceding five years; (b) suspends payment to his creditors, or has suspended it at any time within the preceding five years, and has not made a composition with them at any time within the preceding five years; (c) has been convicted by a court of an offence involving moral turpitude for which he received a prison sentence of six months or more; or (d) has been convicted by a court of an offence involving section 30 of the Act.
   • Relief (rule 9(2)). A disqualification under clause (a) or (b) can be lifted by the Central Government through a notification in the Official Gazette, either generally or only for the LLP or LLPs that the notification names.
9. Liabilities (s. 8). Unless the Act expressly provides otherwise, a designated partner is (a) responsible for doing every act, matter and thing the LLP must do to comply with the Act, including filing any document, return, statement or report under it, and for whatever the LLP agreement specifies; and (b) liable to all penalties imposed on the LLP for contravening those provisions.
10. Changes in designated partners (s. 9). When a vacancy arises for any reason, the LLP may appoint a designated partner within thirty days, and sections 7(4) and 7(5) apply to the new designated partner. If no one is appointed to the vacancy, or whenever the LLP is left with a single designated partner, every partner is treated as a designated partner.
11. Penalties (s. 10, as substituted by the LLP (Amendment) Act, 2021).
    • Breach of section 7(1): the LLP and every partner are liable to a penalty of ₹10,000, with a further ₹100 for each day after the first while the breach continues, up to ₹1 lakh for the LLP and ₹50,000 for every partner.
    • Breach of section 7(4): the LLP and every designated partner are liable to a penalty of ₹5,000, with a further ₹100 a day after the first, up to ₹50,000 for the LLP and ₹25,000 for every designated partner.
    • Breach of section 7(5) or section 9: the LLP and every partner are liable to a penalty of ₹10,000, with a further ₹100 a day after the first, up to ₹1 lakh for the LLP and ₹50,000 for every partner.

The same amendment took the figure 8 out of the marginal heading of section 10, so section 8 no longer appears there.

Example. Tejas Foods LLP has three partners: Meera and Kabir, who are individuals, and Annapurna Mills Pvt. Ltd., a company that has nominated its employee Ritu. Meera spent 200 days in India this financial year; Kabir lives in Dubai and spent 60 days here. Meera and Kabir may be the two designated partners, because one of them (Meera) is resident; so may Meera and Ritu, though Ritu is not a partner. Each must give prior consent and hold a DPIN or DIN, and the LLP must file their particulars within thirty days. If Meera resigns as designated partner, the LLP has thirty days to appoint another; while only Kabir remains, every partner is deemed a designated partner.