Partners in LLP (Minimum Number of Partners, Designated Partners, Eligibility)

Limited Liability Partnership (LLP) is a unique business structure that combines the benefits of a partnership and a company. Partners in an LLP play a crucial role in its operation and management. Below is a detailed discussion on the minimum number of partners, the concept of designated partners, and their eligibility criteria as per the Limited Liability Partnership Act, 2008.

Minimum Number of Partners in an LLP

• Requirement:

To establish an LLP, at least two partners are mandatory. These partners are responsible for forming the LLP and conducting its business operations.

• Ceiling on Maximum Partners:

An LLP does not impose a maximum limit on the number of partners. This flexibility makes it suitable for businesses of varying sizes, from small firms to large-scale enterprises.

• Implications of Partner Reduction:

If the number of partners in an LLP falls below two for more than six months, and the remaining partner continues to operate the business, they may bear unlimited personal liability for the firm’s debts incurred during that period.

Designated Partners in an LLP

Designated Partners are responsible for ensuring compliance with legal and regulatory requirements. They act as the face of the LLP for statutory purposes and are similar to directors in a company.

• Minimum Number of Designated Partners:

Every LLP must have at least two designated partners. One of them must be a resident of India, i.e., someone who has stayed in the country for at least 182 days in the preceding financial year.

• Responsibilities of Designated Partners:

  1. Filing annual returns and financial statements with the Registrar of Companies (RoC).
  2. Ensuring compliance with the LLP Act, 2008, and other applicable laws.
  3. Maintaining statutory records, such as minutes of meetings and partner registers.
  4. Acting as the representative of the LLP in case of legal proceedings.
  5. Paying penalties or fines for any non-compliance.

Eligibility Criteria for Partners in an LLP

Partners in an LLP must meet certain eligibility requirements, ensuring that only capable individuals or entities can join and contribute to its functioning. These criteria are divided into two categories:

a) General Partners

• Individuals:
  • Any individual capable of entering into a contract under the Indian Contract Act, 1872 can become a partner.
  • Minors or persons of unsound mind cannot become partners.
  • Indian residents and foreign nationals are eligible to join an LLP.
• Corporate Entities:
  • Companies, LLPs, and other legal entities can also act as partners in an LLP.

b) Designated Partners

Designated partners must meet additional criteria:

• Qualification:
  • Must be an individual (corporate entities cannot be designated partners).
  • At least one designated partner must be an Indian resident.
• Director Identification Number (DIN):
  • Designated partners must possess a valid Director Identification Number (DIN) or a Designated Partner Identification Number (DPIN) issued by the Ministry of Corporate Affairs (MCA).
• Non-disqualification:
  • A designated partner must not have been declared insolvent or found guilty of fraudulent activities.
  • Should not have been convicted of offenses involving moral turpitude or sentenced to imprisonment for more than six months.

Rights and Duties of Partners in an LLP

Partners in an LLP, including designated partners, have specific rights and responsibilities. These are often outlined in the LLP Agreement, which acts as the governing document for the partnership.

• Rights:
  1. Right to participate in the management and decision-making processes of the LLP.
  2. Right to access financial and operational records.
  3. Right to profit sharing based on the terms of the LLP agreement.
• Duties:
  1. Duty to act in good faith and in the best interest of the LLP.
  2. Duty to comply with statutory obligations, such as filing returns and maintaining records.
  3. Duty to indemnify the LLP for any losses caused by willful neglect or fraud.

Admission, Resignation, and Expulsion of Partners

• Admission of Partners:

New partners can join an LLP based on the terms outlined in the LLP agreement. The agreement should specify the procedure, such as capital contribution requirements and rights allocation.

• Resignation of Partners:

Partners may resign by giving prior notice as per the terms of the LLP agreement. Upon resignation, their liabilities remain for acts done while they were partners.

• Expulsion of Partners:

LLP agreement may include provisions for expelling a partner under specific circumstances, such as breach of agreement or misconduct. Such expulsion must comply with the terms of the agreement and applicable laws.

Key differences between General Partners and Designated Partners