How Partner and Designated Partner are different in an LLP?

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  • LLP Registration

The Limited liability Partnership Structure is mainly influenced by characteristics of General Partnership under Indian Partnership Act, 1932. Here, the normal partnership firm provides types of Partners based on their participation to day-to-day operations. However, as the Limited Liability Partnership derives the characteristic of corporate entity from Private Limited Company, the separation to hold a person responsible is provided.

In case of online LLP registration and during continuance of existence, the requirement of minimum number of Designated Partner is provided by Limited Liability Partnership Act, 2008. The Act provides that the Limited Liability Partnership shall be incorporated with minimum 2 Designated Partners being individual, where at least one shall be resident in India. In addition to fulfilment of said requirement during LLP online incorporation, the same shall also be fulfilled during continuance of operations.

Let us now know, what are the differences between Designated Partners of LLP and other Partners of LLP?

Responsibility of Partner/ Designated Partner:

First and foremost variance between both is the accountability of both types of Partners. Where the rights and liabilities in case of LLP are prescribed and regulated by the Limited Liability Partnership Agreement, the LLP Act, 2008 prescribes higher responsibility of Designated Partner of LLP.

The act provides that unless expressly provided by the LLP Agreement, the rights and liabilities of the both types of partners are similar except in following manner: 

The liability of the Partner is limited solely to LLP Agreement and acts or omission by the Partner himself. The Designated Partners are responsible towards the liabilities prescribed by LLP Agreement as well as for all penalties imposed on Limited Liability Partners for contravention of any provisions applicable and to be complied with by the LLP.

An explanation can be given that a Designated Partner of any LLP will be responsible for the compliance requirements to be fulfilled by the LLP, which includes filing of nay document, return or statement with any authority as and where applicable and required. Failing to comply with the said requirements i.e. in case of non-compliance or contravention of provisions, the designated partner of the LLP can be liable for punishments and penalties levied under LLP Act (or any other applicable Act) personally and severally.

Furthermore, designated partners of LLP are more accountable for regulatory & legal compliances apart from day to day activities and operations of the LLP after LLP Formation and hence responsibility and liability increases accordingly.

Minimum Requirement:

The Limited Liability Partnership Act, 2008 prescribes provisions where requirements with regards to appointment of Partners & Designated Partners are provided. As mentioned above, the Act provides that the Limited Liability Partnership can be registered and incorporated by appointment of minimum 2 Designated Partners (individuals, one of which shall be resident in India). However, there are no provisions prescribed for minimum number of Partners to be appointed. Therefore, an LLP formation can also be processed by minimum two personnel as Designated Partners.

Manner of Appointment:

Manner of appointment of both regular partner and Designated Partner are similar. The appointment can be made by following the procedure as laid down under LLP Agreement and LLP Act. The procedure of appointment of Partners and Designated Partner includes change in LLP Agreement and filing of e-forms to MCA.

However, an additional requirement of Director Identification Number (DIN) is prescribed for appointment of person as Designated Partner in Limited Liability Partnership. Director Identification Number abbreviated as DIN is a number assigned by MCA to individuals on application made for allotment thereof. While appointment of a person as Designated Partner, the DIN shall be entered in the applications filed with the Ministry of Corporate Affairs.

  • The Decision to include a person as a Designated Partner of Partner of the Firm shall be taken at the time of LLP Registration in India or on inclusion of a person in Limited Liability Partnership.
  • Above mentioned differences can be helpful to the Partners to LLP as well as the person himself to conclude whether on designation of proposed candidature.
  • As the change is rule of life, the change in designation of Partners can also be necessary during furtherance of Business.

Whether change of Designation is possible after registration of LLP?

The change in designation of Partners of the LLP can be possible after online LLP Formation and incorporation. Where the Designated Partners wants to be a Partner or a Partner is to be appointed as Designated Partners of LLP, the change in LLP Agreement shall be made by entering into Supplementary Deed. Appropriate clauses shall be entered into Supplement Deed to LLP Agreement.

After the change of LLP Agreement, an application shall be made to Registrar for change of designation of Partner(s) by submission of requisite documents. Where the proposed change of designation is Partner to Designated Partner, the application shall also be made for allotment of Director Identification Number (DIN) in e-form DIR – 3.

Conclusion:

The difference between partner and Designated Partner are not major however a thin line of difference is prescribed, which shall be taken care while incorporation as well inclusion of person in the Limited Liability Partnership.

About the Author:

Shrijay Sheth
Shrijay, co-founder of LegalWiz.in, is best known for his business acumen. On this platform, he shares his experiences backed by a strong understanding of digital commerce businesses. His more than a decade-long career includes a contribution to some of the highly successful startups and eCommerce brands across the globe.

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