Skip to content

Difference between Partner and Designated Partner of an LLP

According to the Indian Partnership Act, 1932, a partnership can either exist as a Partnership firm or a Limited Liability Partnership. Here, a typical partnership firm is controlled and managed by its owners or partners, and no separate authority is hired for the purpose. However, because the Limited Liability Partnership inherits features from a Private Limited Company as well, its management, like that in a private limited company, is not controlled by its owners or partners. For this purpose, a separate authority or designation is hired, namely, a Designated Partner.
Partner-Vs-Designated-Partner
The Limited Liability Partnership Act of 2008 specifies the minimum number of Designated Partners that an LLP must have before the process of its incorporation begins. In other words, an LLP cannot exist as a legal entity unless it has at least 2 designated partners. Also, out of all the designated partners in an LLP, at least one must be a resident of India.

Table of Contents

What is a Limited Liability Partnership?

The LLP Act of 2008 lists the following as an LLP’s essential qualities:
  • The LLP body corporate with is a distinct legal identity from its partners. The separate legal identity of an LLP is a result of its mandatory need of incorporation. 
  • To form an LLP, a minimum of two recognized partners are required. Each partner would act as an agent of the LLP and all the other partners. The rights and obligations of the partners are mutually agreed upon by the partners, and are mentioned in the LLP agreement signed by all the partners. 
  • An LLP is governed by the terms of the LLP agreement, which is created upon its establishment on mutually agreed terms by all partners. The agreement must be drafted in the manner prescribed under the Limited Liability Partnership Act, 2008. In the absence of such provisions in the agreement, the act controls or regulates the partners’ rights and obligations towards the LLP.
  • Due to the fact that an LLP is a separate legal entity, each partner is accountable for the LLP’s tangible and intangible assets as well as their respective mutually agreed contributions to the business.
  • LLPs follow the same methods of accounting and trading disclosures as any other business does.

What distinguishes Designated Partners of LLP from the other Partners of LLP?

There are a number of factors that distinguish a designated partner from that of an LLP. These include their roles and responsibilities towards the LLP, their requirements in the LLP, and the procedure for their appointment. Follow the table below for an elaboration of the distinctiveness between a Designated partner and a partner in an LLP.
Features Designated Partner Partner
Minimum number
2
2
Maximum number
15
No maximum limit
Nationality
At least 1 must be an Indian resident
At least 1 must be an Indian Resident
Roles & Responsibilities
Controls the management of the LLP
Invests capital into the LLP
Appointment
As prescribed in the LLP agreement or the LLP Act
As prescribed in the LLP agreement or the LLP Act

Their Responsibilities

The primary difference between the two is in the manner that they are obligated towards the LLP. While the LLP Agreement defines and governs the rights and obligations of partners and designated partners, the LLP Act of 2008 fixes higher accountability of both these authorities.
The statute stipulates that, unless otherwise stated in the LLP Agreement, the rights and obligations of both types of partners are equivalent, with the following exceptions:
  • While the Partner’s are accountable for their own actions or inactions, the Designated Partners are accountable for the obligations outlined in the LLP Agreement, as well as for any fines imposed on Limited Liability Partners for resulting from the breach of the duty. 
  • It can be stated that a Designated Partner of an LLP is obligated for meeting compliances mandated for the LLP under law. These may include the filing of applications, returns, and statements with the appropriate authorities when necessary. The designated partner of the LLP may be held personally and jointly accountable for fines and penalties assessed under the LLP Act (or any other applicable Act) for failing to comply with the aforementioned requirements, i.e., in case of non-compliance or disobedience of the aforementioned compliances.
  • Additionally, after the formation of the LLP, designated partners become increasingly accountable for controlling the regular activities and operations of the LLP, as the apex authority of management

Minimum Requirements:

The Limited Liability Partnership Act of 2008 mentions provisions that detail the minimum qualifications and requirements for the Partners and Designated Partners of an LLP. As discussed earlier, the Act states that at least 2 Designated Partners must be appointed in order for a Limited Liability Partnership to be formed and incorporated The designated partners must be individuals, and at least one among all of them shall be a resident Indian. There are no requirements set forth for the minimum number of Partners to be appointed by the LLP Act. Nevertheless, it is obvious that at least two partners shall be required to set up an LLP in India.

Procedure for Appointment:

Both the partner and the designated partner are appointed in similar ways. The procedure outlined in the LLP Agreement and in the LLP Act can be followed for their appointments.
However, for the appointment of a person as a Designated Partner in a Limited Liability Partnership, a further need for a Designated Partner Identification Number (DPIN) is prescribed. The DPIN, is a unique number that the MCA issues to individuals who act or wish to act as the designated partner in an LLP. The DPIN is a part of the unique identity of the designated partner and is required to be mentioned in all the e-forms submitted to the Ministry of Corporate Affairs throughout the lifespan of the LLP.

Is it possible to change your designation once your LLP has been registered?

After the formation and incorporation of an LLP, the Partners of the LLP may modify their designation. The LLP Agreement must be changed by executing a Supplementary Deed in cases where the Designated Partners wish to become partners, or a partner is to be named as the Designated Partners of the LLP. The modifications must be done for all the appropriate clauses.
Following the modification of the LLP Agreement, a request for a change in the designation of the Partner(s) must be submitted to the Registrar of Companies in the manner prescribed under law. If the intended change of designation is from Partner to Designated Partner, an additional form DIR 3, must also be filed for obtaining the DPIN from the Ministry of Corporate Affairs.

Conclusion

The distinction between a partner and a designated partner is quite substantial, and this fine line of distinction must be observed when incorporating the LLP or when appointing a new person in the LLP. Here, at Setindiabiz, we guide and assist startups to get incorporated as LLPs in India. Our services extend throughout India and are 100% online to ensure speed and transparency in the process of LLP formation and registration. To avail our services, visit our website and contact us directly!

About Setindiabiz

Setindiabiz is an organized team of experienced CA, CS, & Lawyers, duly supported by a pool of trained accountants & paralegal staff that provides quality & affordable compliance services to startups & small businesses in India. The views, statements and recommendations expressed in this article or post are only for the sole objective of providing information, and it does not constitute professional advice or recommendation of the company. Neither the author nor the company or its affiliates accepts any liability for any loss or damage arising from any information in this article or any actions taken in reliance thereon.
Setindiabiz Logo

3 thoughts on “Difference between Partner and Designated Partner of an LLP”

  1. Our LLP is registered/ formed in 2013 in Mumbai,Maharashtra with 4 normal partners & this included , 2 designated partners to start with and they all 4 also become Designated partners operating successfully for 7 years now and now all 4 partners are total of 4 partners and these 4 are also Designated partners. Out of these 2 Designated partners want to retire as DP but these 2 DPs to continue will continue as Directors.
    Thus the LLP will continue as LLP with 4 partners but 2 will be Designated partners.

    1. Dear Satish Kelkar

      The proposed restructuring of the LLP is very much possible, to assist you in this matter. The corporate law team is already engaged with you on the LLP Restructuring, we thank you for your feedback

Leave a Reply

Your email address will not be published.