Limited Liability Partnership Firm

A Complete Guide on Section 7 Designated Partners

calendar15 Dec, 2022
timeReading Time: 5 Minutes
A Complete Guide on Section 7 Designated Partners

An LLP (Limited Liability Partnership) is a contemporary corporate entity. It is a hybrid structure that incorporates aspects of both a partnership and a corporate (i.e. limited liability with flexibility). The LLP Act of 2008 and the rules created thereunder, known as the Limited Liability Rules of 2009, govern the creation and regulation of limited liability partnerships. Designated Partners are defined in Section 7 of the Act.

In a recent course of action, the LLP Act of 2008 & the LLP Rules of 2009 were amended for the very first time, and the same was notified by the MCA or the Ministry of Corporate Affairs.

Rule 19(1) of Limited Liability Partnership Rules, 2009 was amended by The Limited Liability Partnership (Amendment) Rules, 2022. The amendment introduced a new rule, 19A. Rule 19A says a new name can be allotted to the existing firm under Section 17(3).  Section 17(3) was introduced by the LLP (Amendment) Act, 2021. This article will guide your way through the rights, responsibilities and privileges of Designated Partners under Section 7

A Brief about LLP and Its Historical Perspective

An LLP is a combination of a Partnership Act and a Companies Act provision. The LLP is a corporate body created and established in accordance with the act; as such, the partners do not in any way affect the LLP’s legal status. Most of the Act’s provisions are similar to those in the Companies Act. Instead of directors, LLP has partners known as “Designated partners,” who are placed in the position of directors.

Limited Liability Partnership (LLPs) was founded for the first time in history in the aftermath of the crash of real estate and energy prices in Texas, United States of America, in the 1980s, which caused a significant wave of insolvency of numerous bank/savings/loan organizations, 

In 1957, iron, steel, and hardware merchants proposed that limited liability partnerships be recognized in India because small enterprises had difficulty complying with the complex structure of the Companies Act. But the 7th Law Commission rejected this proposition.

Following the rejection by the 7th Law Commission, various expert groups and committees were formed, including: 

  • Abid Hussain Committee in 1997;
  • Naresh Chandra Committee on Audit & Corporate Governance in 2003;
  • Dr J.J. Irani Committee on Company Law in 2005.

They recommended the need for a law allowing the formation of LLPs in India. On November 2, 2005, the Ministry of Company Affairs issued a concept paper on limited liability partnership after considering all of the proposals made by the different committees. 

Taking in all the suggestions and comments on the concept paper by the different committees, the Government of India eventually introduced the “Limited Liability Partnership Bill, 2006” after analysing the various committees’ recommendations and remarks made on the concept paper. Both houses then passed the bill, which led to the creation of the LLP Act that is currently in effect.

Who are Designated Partners?

Any partner designated as such in the incorporation document is referred to as a designated partner at the time of LLP registration. Section 2(j) defines the term designated Partner as any partner thus designated as per Section 7 of the Act. As per Section 7 of the LLP Act of 2008, every LLP must appoint at least 2 designated partners who are individuals & at least one should be a resident of India.

A designated partner is entrusted with fulfilling all compliance obligations, which includes filling out documents, statements and returns.

In non-compliance, a Designated Partner will be held liable for all the punishments/penalties mentioned under the act. The partnership deed will determine who will be the designated Partner. If any corporate bodies partner with LLP, then they can nominate any person to be a Designated Partner. The act specifies for how long a person may be a designated partner. Therefore only the matter of termination and designation is decided by the partnership deed itself.

The guidelines mentioned under Rule 9(1) of the Limited Liability Partnership Rules are supplementary to section 7 of the act.

What are the duties of Designated Partners?

The duties of designated partners are explained below:

  • Duty to fulfil all compliances under Income Tax, GST, LLP Act;
  • Responsible for signing all the e-forms that are filed with the ROC (Registrar of Companies);
  • Duty to maintain all the books related to accounts, annual statements, and audit reports;
  • Duty to produce documents before inspector as and when required.

Designated Partner Identification Number (DPIN)

The MCA (Ministry of Corporate Affairs) issues the individuals designated Partners with unique identification called DPINs, also known as Designated Partner Identification numbers. TH, which are unique identification numbers.

Every designated Partner is required by section 7(6) of the LLP Act to obtain a Designated Partner Identification Number (DPIN) from the central government. DPIN and Directors Identification Numbers are highly similar (DIN). 

(Note: Class 2 digital signature is required to obtain DPIN.)

What Are The Eligibility Criteria For Designated Partners? 

Rule 9(1) of LLP Rules talks about the individuals who are not eligible to be Designated Partners:

  1. The person who is currently insolvent;
  2. The person who was declared insolvent at any time within the preceding five years
  3. The person has failed to make any payments to creditors in the last five years.
  4. The individual who has been or is currently serving a sentence of at least six months in jail for any offence involving moral dishonesty.

Persons Who Cannot Act As Designates Partners

Here is the list of persons or individuals who cannot act as Designates Partners, as they are not covered under the definition of Individual/body corporate:

  • A Minor
  • A Corporation sole
  • A Co-operative society
  • A Trust (subject to certain exceptions)
  • A Partnership firm
  • Association of person
  • A Hindu Undivided family.
  • Other forms of unregistered business entities

What Are The Required Documents For Obtaining DPIN?

  • A copy of identity proof should contain a photograph and details regarding the date of birth and the father or husband’s name.
  • A copy of proof of residence.

(Note: Above mentioned documents need to be attested or certified.) 

  • In the case, where the applicant is a nominee of a body corporate, they must provide their authorization on the body corporate’s letterhead by giving the specifics of the name and the address.
  • A copy of their valid passport shall be needed if the applicant is a foreign national.

Fines Imposed On Designated Partners 

For carrying out the business with fraudulent intention

  • A minimum penalty of INR Fifty Thousand
  • A maximum penalty of INR. Five Lakhs
  • Imprisonment up to 2 years

For filling any false statements in returns, statements or documents

  • A minimum penalty of INR One Lakhs and 
  • A maximum penalty of INR Five Lakhs

Imprisonment up to 2 years

For failing to file an annual return with the Registrar 

  • A minimum penalty of INR Ten Thousand 
  • A maximum penalty of INR One Lakhs 

Conclusion

An LLP (Limited Liability Partnership) is a modern corporate structure. It is a hybrid structure that combines elements of a partnership and a corporation (i.e. limited liability with flexibility). The LLP Act of 2008[1] and the rules enacted under it, known as the Limited Liability Rules of 2009, govern the idea.

All LLPs must have a Designated Partner, defined in Section 2(j) of the Act as any partner thus designated as per Section 7 of the Act. All compliance requirements, including completing paperwork, statements, and returns, are delegated to a designated partner. In the event of non-compliance, a Designated Partner will be held accountable for all the punishments/penalties specified in the act.

Read Our Article: Appointment procedure of Designated Partner in LLP

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