In this blog post, Sakshi Pawar, a student, pursuing her third year LLB at Gujrat National LawUniversity and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the role of a designated partner in an LLP.

The Limited Liability Partnership Act came into India after the formation of two committees called the J.J. Irani and Naresh Chandra – II which recommended the formation of the LLP Act to the Ministry of Corporate Affairs. The LLP Act was enacted in January 2009 and the primary reason for the coming up of the Limited Liability Partnership is the fact that in normal partnerships (the Partnership Act is not applicable to the LLP Act) the personal liability of all partners is unlimited, which makes this a deterrent for entrepreneurs. However, LLPs allow for the partners to have limited liability to the extent of their shares in the firm. It is a mix of a company and a general partnership, to the extent that the partners have a liability they would have in a company but not the same level of rigidness or compliance. It manages to do this by making the LLP the body corporate formed and incorporated under the Act as a legal entity separate from that of the partner. It is also unlike a Limited Liability Corporation where there is at least one partner known as the ‘general partner’ who takes care of both the management of the firm and has unlimited personal liability. In the LLP, there is absolutely no personal liability beyond the shares vested in any of the partners, therefore, it is different from all the aforementioned business vehicles.

The management of the LLP is done by both managing partners and designated partners, they need not be the same, as the managing partner is present to ensure legal compliance. The Designated Partner just has to ensure that the documents that need to be filled for the LLP Act have been filled. This has been given under Section 8 of the Act, also under Section 10 of the Act penalties for not complying with these laws have been given, and the designated partner will have to bear the consequences. Only for the view of legal compliance may the designated partners be considered the managing partners. These designated partners need not indulge in the day to day activities of the firm. They are almost like the Board of Directors of a company.

There are certain requisites before someone becomes a designated partner, and these are provided under Section 7 of the LLP Act. Section 7 of the LLP Act which states that there must be two or more designated partners out of which at least one should be residing in India. For the purpose of the section residing in India will constitute one hundred and eighty-two days in the immediately preceding one year. The designated partner will be decided by the partnership deed itself. If in case any of the body corporates are partners to the LLP then any person nominated by them would constitute as a designated partner. The act will decide for how long a person shall be a designated partner (termination and designation are therefore both done by the deed itself). If the deed mandates that all the partners be designated partners at some point or another then that will have to be the position for that firm. The designated partner has to give prior consent through a form before getting the post.

Rule 9(1) of the Limited Liability Partnership Rules, gives conditions supplementing Section 7 of the LLP Act. The person shall not be allowed to be a designated partner if he/she has been adjudged insolvent in the preceding 5 years; suspended payment to his creditors in the preceding 5 years made (or made a composition with them); convicted by a Court for any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months or convicted by a Court for an offence involving section 30 of the Act (liability in case of a fraud). The Central government has the power to remove any disqualification incurred by a person generally through the Act or specifically by someone in relation to a specific LLP.

A Designated Partner is provided with an Identification Number – ‘DPIN’ from the Central Government. The provisions of Sections 266A to 266G (both inclusive) of the Companies Act apply mutatis mutandis for the said purposes. In brief, these sections stipulate that:

• Section 266A – Application for allotment of Director Identification Number; (applies to Designated Partner Identification Number)
• Section 266B – Allotment of Director Identification Number;
• Section 266C – prohibition to obtain more than one Director Identification Number;
• Section 266D – Obligation of Director to intimate Director Identification Number to concerned company or companies;
• Section 266E – Obligation of company to inform Director Identification Number to Registrar;
• Section 266F – Obligation to indicate Director Identification number in such return, information or particulars;
• Section 266G – Penalty for contravention of provisions of Section 266A or Section 266C or Section 266D or Section 266E.

 

The DPIN as per Rule 2(iv) is allotted by the Central Government to any individual or nominee of a body corporate. The procedure for obtaining DPIN is given in Chapter III of the Rules such as making an electronic application under Form 7, and this can be done on the website of the Ministry of Corporate Affairs. This DPIN is allotted for the lifetime of the applicant and shall not be given to any other person in the meantime. Within thirty days of the appointment of the Designated Partner, relevant documents must be submitted to the Registrar. Rule 9 and 10 deal with the procedure that needs to be followed in the event of there being a change in the particulars of the designated partner.

If there arises a vacancy in the post section, 9 of the Act applies and a newly designated partner must come within 30 days since the vacancy arose.

Section 8 is the section that elaborates on the role or liability of a designated partner and states that they will be responsible for the filing of any document, return, statement or report according to the provisions of the act and be punished in case such sections are not complied with. The punishment is given under section 10 of the Act.

[divider]

Note: This is an example of a format taken from Our Professional Group, an Internet-based research group, accessible at http://ourprofessionalteam.com/index.php. The author does not claim it to be an original writing but has simply included it to illustrate a designated partners clause in an agreement.

THIS Agreement of LLP made at ………… this……………….. Day of …………………. 20…………

BETWEEN

1. ………………. S/o ……………….. R/o………………………. residing at ………………..which expression shall unless it is repugnant to the subject or context thereof, include their legal heirs, successors, nominees and permitted assignees and hereinafter called the FIRST PARTY, and
2. ………………. S/o ……………….. R/o………………………. residing at ………………..which expression shall unless it is repugnant to the subject or context thereof, include their legal heirs, successors, nominees and permitted assignees and hereinafter called the SECOND PARTY, and

THAT THEY BOTH SHALL BECOME Partners who shall be Designated Partners on incorporation of the LLP to carry on the partnership business as a Limited Liability Partnership (LLP) registered under the provisions of Limited Liability Partnership Act, 2008 (LLP Act) with a view to shall the profits/losses on the following terms

DEFINITIONS

In this agreement unless the context otherwise requires:-

“Accounting year” means the financial year as defined in the Limited Liability Partnership Act, 2008.

“Act” or “LLP Act” means the Limited Liability Partnership Act, 2008

“Business” includes every trade, profession service, and occupation.

“Designated Partner” means any partner designated as such.

“LLP” means the limited liability partnership formed pursuant to this LLP Agreement.

“LLP Agreement” means this Agreement or any supplement thereof determining the mutual right, duties and obligations of the partner in relation to each other and in relation to LLP.

“Partner” means any person who becomes a partner in the LLP accordance with this LLP Agreement

1. Name: Limited Liability Partnership shall be carried on in the name and style of M/s. …………… LLP and hereinafter called as …X….. LLP.
2. Business: The Partnership business shall be __________________until and unless changed as per the mutual decision of all the partners of the LLP at the time of the decision
3. Place of Office: The partnership business shall be carried on at the under mentioned address, which shall also be its registered office.__________________________. The business shall also be carried from such other places as may be mutually decided by the partners from time to time.
4. Duration: The Partnership shall commence from the date of registration of the firm, and shall continue to operate in accordance with the provisions of LLP Act, 2008 and rules framed thereunder, until termination of this agreement with the mutual consent of all the partners.
5. Contribution: The Contribution of the LLP shall be Rs……… (Rupees ……….. only) which shall be contributed by the partners in the following proportions.     First Party …..% i.e. Rs .……. (Rupees ………….. only)      Second Party ……% i.e. Rs ……… (Rupees ……….. only) The further Contribution if any required by the LLP shall be brought by the partners in their profit sharing ratio.
6. Number of Designated Partners: The maximum number of designated partners appointed for the LLP shall be as mutually agreed between the partners initially at the time of incorporation of LLP or as decided by the designated partners of the LLP from time to time unanimously.
7. Sleeping Partners: All the partners other than those appointed as the designated partners of the LLP shall be sleeping partners, and they shall not interfere with the day to day conduct of the business of the LLP.
8. Common Seal: LLP shall have a common seal to be affixed on documents as defined by partners under the signature of any of the Designated Partners.
9. Immovable Properties: The immovable properties purchased by the LLP shall be clear, marketable and free from all encumbrances.
10. Audit: The Statement of Accounts and Solvency of LLP made each year shall be audited by a qualified Chartered Accountant in practice in accordance with the rules prescribed under section 34(3) of the LLP Act, 2008, namely, rule 24 of the LLP Rules & Forms, 2008. It shall be the responsibility of the Designated Partners of the LLP to comply with Rule 24 of the rules.
11. Remuneration to Partners: No partners shall be entitled to any remuneration for taking part in the conduct of the LLP’s business.
12. Drawings: Each partner may draw out of the partnership funds as drawings from the credit balance of his income account. Such withdrawals shall be duly accounted for in the yearly settlement of accounts and divisions of profits of the partnership at the end of each financial year.
13. Interest on Capital or Loan : Interest at the rate of _____ % per annum on the capital contributed or loan given or credited as given by each of the partners and standing to his credit as on the first day of each calendar month for the previous month out of the gross profits of the partnership business shall be credited to the respective accounts, and such interest shall be cumulative such that any deficiency in one financial year shall be made up out of the gross profits of any succeeding financial year or years.
14. Business transaction of a partner with LLP: A partner may lend money to and transact other business with the LLP, and on that behalf, the Partner shall have the same rights and obligations with respect to the loans or other business transactions as a person who is not a Partner.
15. Profits: The net profits of the LLP shall be divided in the following proportions:

To the said —————                  ____%

To the said —————                  ____%

16. Losses: The losses of the LLP including loss of capital, if any, shall be borne and paid by the partners in the following proportions:

To the said —————                  ____%

To the said —————                  ____%

17. Bankers: The bankers of the partnership shall be———– Bank,——— branch and/or such other bank or banks as the partners may from time to time unanimously agreed upon.
18. Accounting year: The accounting year of the LLP shall be from 1st April of the year to 31st March of the subsequent year. The first accounting year shall be from the date of commencement of this LLP till 31st March of the subsequent year.
19. Place of keeping books of accounts: The books of accounts of the firm shall be kept at the registered office of the LLP.
20. Division of Annual profits of LLP: As soon as the Annual Statements of Accounts and Solvency shall have been signed by the Partners and the same duly audited and the auditor rendering his report thereon, the net profits, if any of the LLP business, shall be divided between the partners in the proportion specified in and in accordance with the provisions of this Agreement.
21. Term of validity of deed: Duration of this Agreement shall be ______ years beginning from the date first above mentioned, subject to the condition that this deed may be extended further by mutual consent in writing of the Parties hereto upon such terms and conditions or with such modifications as may be mutually agreed upon between them.
22. Arbitration: In the event of any dispute or differences arising between the parties hereto either touching or concerning the construction, meaning or effect of this Deed or the respective rights and liabilities of the parties hereto, or their enforcement thereunder, it shall be first settled amicably through discussions between the parties and if not resolved then otherwise referred to the arbitration of a Sole Arbitrator if agreed upon, failing which to the Sole Arbitrator as appointed by the Court in accordance with the provisions of the   Arbitration and Conciliation, Act 1996.  The arbitration proceedings shall be conducted at New Delhi in the English language.
23. Auditors: The Auditors of the firm shall be __________ having their office at _________. The auditors shall be responsible for all the accounts/taxation related tasks of the firm including but not limited to income tax, VAT, preparation of balance sheet/assets and liabilities/profit and loss of the LLP, etc.
24.  The legal advisors of the firm shall be ______________
25. Severability: This deed constitutes the entire understanding/agreement between the parties taking precedence over and superseding any prior or contemporaneous oral or written understanding. Unless otherwise provided herein, this deed cannot be modified, amended, rescinded or waived, in whole or part except by a written instrument signed by all the parties to this deed. The invalidity or unenforceability of any terms or provisions of this deed shall not affect the validity or enforceability of the remaining terms and provisions of this deed, which shall remain in full force and effect.

Admission of New Partner

26. The new partner may not be introduced with the consent of all the existing partners. Such incoming partner shall give his prior consent to act as Partner of the LLP.
27. The Contribution of the partner may be tangible, intangible, Moveable or immovable property and the incoming partner shall bring minimum contribution of Rs………
28. Person whose business interests are in conflict to that of the firm shall not be admitted as the Partner.
29. The Profit sharing ratio of the incoming partner will be in proportion to his contribution towards the capital of LLP.

Rights of Partner

30. All the partners hereto shall have the rights, title, and interest in all the assets and properties in the firm in the proportion of their Contribution.
31. Every partner has a right to have access to and to inspect the books of accounts of the LLP.
32. Each of the parties hereto shall be entitled to carry on their own, separate and independent business as hitherto they might be doing, or they may hereafter do as they deem fit and proper, and other partners and the LLP shall have no objection thereto provided that the said partner has intimated the said fact to the LLP before the start of the independent business. Provided the business is not in competition to the existing business being carried on by the LLP.
33. On the retirement of a partner, the retiring partner shall be entitled to full payment in respect of all his rights, title and interest in the partner as herein provided.
34. Upon the death of any of the partners herein anyone of his or her heirs will be admitted as a partner of the LLP in place of such deceased partner.
35. On the death of any partner, if his or her heir legal heirs opt not to become the partner, the surviving partners shall have the option to purchase the contribution of the deceased partner in the firm.

Duties of Partners

36. Each Partner shall be just and faithful to the other partners in all transactions relating to the LLP.
37. Each partner shall render true accounts and full information of all things affecting the Limited Liability Partnership to any partner or his legal representatives.
38. Every partner shall account to the Limited Liability Partnership for any benefit derived by him without the consent of the LLP of any transaction concerning the limited liability partnership.
39. Every partner shall indemnify the Limited Liability Partnership and the other existing partner for any loss caused to it by his fraud in the conduct of the business of the Limited Liability Partnership.
40. In case any of the Partners of the LLP desires to transfer or assign his interest or shares in the LLP he can transfer the same with the consent of all the Partners.
41. No Partner shall without the written consent of other Partners:-

• Engage or except for gross misconduct, dismiss any employee of the partnership.
• Commit to buy any immovable property for the LLP.
• Submit a dispute relating to the business of LLP business to arbitration.
• Assign, mortgage or charge his or her share” in the partnership or any asset or property thereof or make any other person a partner therein.
• Engage directly or indirectly in any business competing with that of the Limited Liability Partnership Withdraw a suit filed on behalf of LLP.
• Admit liability in a suit or proceedings against LLP.
• Share business secrets of the LLP with outsiders.
• Remit in whole or part debt due to LLP.
• Go and remain out of the station in connection with the business of LLP more than ____ days at a time.
• Open a banking account on behalf of LLP in his name.
• Draw and sign any unauthorised cheque on behalf of LLP in excess of Rs_____________ on its banking account.
• Give any unauthorized security or promise for the payment of money on account on behalf of the LLP except in the ordinary course of business.
• Draw or accept or endorse or unauthorise any bill of exchange or promissory note on LLP’s account.
• Lease, sell, pledge or do other disposition of any of the LLP’s property otherwise than in the ordinary course of business.
• Do any act or omission rendering the LLP liable to be wound up by the Tribunal.
• Derive any profits from any transactions of the LLP or from the use of its name, resources or assets or business connection by carrying on a business of the nature as competes with that of the LLP.

Duties of Designated Partner

42. Devote their whole time and attention to the said partnership business diligently and faithfully by employing themselves in it, and carry on the business for the greatest advantage of the partnership.
43. The Designated Partners shall be responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance with the provisions of this Act including the filing of any document, return, statement and the like report pursuant to the provisions of Limited Liability Partnership Act, 2008.44.  Protect the property and assets of the LLP.
44. Upon every reasonable request, inform the other partners of all letters, writings and other things which shall come to their hands or knowledge concerning the business of the LLP.
45. Punctually pat their separate debts to the LLP.
46. The Designated Partners shall be responsible for the doing of all such other acts arising out of this agreement.

Cessation of Existing Partners

48. A partner may cease to be a partner of the LLP by giving notice in writing of not less than ______ days to the other partners of his intention to resign as a partner.
49. Majority of Partners can expel any partner in the situation where the partner has been found guilty of carrying of activity/business of LLP with a fraudulent purpose or has been found to engage in a business which competes with the business of LLP.

IN WITNESS WHEREOF THIS DEED IS SIGNED BY THE PARTIES HERETO THE DAY, MONTH AND YEAR FIRST ABOVE WRITTEN.

Party of the First Part —————————–

Party of the Second Part —————————–

Witness 1: 

Witness 2: