LLP is a new type of business entity with limited liability. It is an alternative corporative business technique that allows flexibility. It has elements of both corporate and partnership which is referred to as a hybrid between a company and a partnership. Moreover, every LLP shall have a minimum of two partners amongst whom at least one shall be a resident of India. According to the LLP Act of 2016, a person or an entity that has entered a partnership agreement with LLP is referred to as a designated partner. The minimum requirement to become a Designated Partner is that they must have been a part of the business for a minimum period of two years and must have contributed a minimum of 10% to the equity in the business.
Nature of Designated Partner in LLP
The role of the designated partner exceeds just managing the company’s affairs. They are also known as an initial or primary member of an LLP and can enjoy tax benefits. However, only after incorporation, is the partner considered a designated partner.
The designated partners act as a mediation link between the investors and other partners inside the LLP. They shall act impartially and in a bona fide manner. All the decisions taken by the designated partner shall be in favor and benefit of the LLP. They shall receive a Designated Partners Identification Number from the Government of India.
Essentials to Qualify as A Designated Partner
It includes the fact that the person shall be a major, resident of India for a minimum period of three years, a partner in any company, shall not have any criminal charge against him, shall not be a permanent employee of LLP, and have a valid PAN card, SSC certificate, and passport. The minimum requirement to become a designated partner is that they must have a part of the business for a minimum period of two years and must have contributed a minimum of 10% to the equity in the business. One needs to have a personal net worth of a minimum of two crores. A Minor, a corporation’s sole, cooperative society, a trust, a Partnership firm, an association of people, a Hindu Undivided family, or a business entity cannot be a designated partner in LLP.
The Roles and Responsibilities of Designated Partners
The designated partners are responsible and answerable for all the acts that occurred in the name of LLP. They need to notify any changes to the registrar of the company. The designated partners can act as passive investors and stay away from the continuous responsibilities of the LLP and often allocate responsibilities to other partners. They are a key factor in the success of the LLP. The disadvantage of an LLP is that it has limited funds but in the case of a company it can raise more funds by their shares.
They shall be responsible for filing and signing Annual returns, Statements of Accounts, e-forms, and solvency in the LLP. They have the same roles as directors in a company. He may be imposed with a penalty in case necessary. The designated partners enjoy the same set of rights as the other partners. Meanwhile, involved in the day-to-day and long-term decision-making processes, and profit sharing.
The designated partners receive and hold funds on behalf of LLP. They can sign and issue bank statements, audit reports, tax returns, and prepare financial statements. Notably, there is no such disadvantage to becoming a designated partner in an LLP. But has limited control over the operations that are conducted. The profits are on a sharing basis which reduces the overall return on the investment made. The act protects and implements that all partners have equal rights and responsibilities. On behalf of LLP, they are legally empowered to act.
Additionally, when the designated partners fulfill certain conditions they can enjoy tax benefits. Benefits of designated partners include universal credit check benefits. Though it may seem difficult to dissolve one’s partnership in the LLP. Moreover, all the designated partners are liable to each other in a certain unprescribed way.
End Notes!
LLP is a separate entity from its designated members and partners. The designated partners enjoy the benefit of limited liability. They have a significant role in the decision-making process and the role within itself brings prestige and recognition. The role of the designated partner exceeds just managing the company’s affairs.
Serving as a designated partner in an LLP acts as a seeding link to an entrepreneurial mindset within an individual. It is a great source of responsibility and exposure for an individual. A designated partner is responsible for paying the costs associated with an investigation in the LLP. They are responsible for outlining the terms and conditions of functioning in an LLP. The role of the designated partner exceeds just managing the company’s affairs.
