Add a Designated Partner in LLP

In an LLP, a "designated partner" holds a distinct and more significant position than a regular partner. Unlike regular partners who primarily contribute capital, designated partners are accountable for ensuring the LLP adheres to all the legal, tax, and compliance rules.

Under the Limited Liability Partnership Act, 2008, designated partners are responsible for filing all required documents with the Ministry of Corporate Affairs (MCA) on time. They also must keep proper records.

If the LLP fails to meet its compliance obligations, such as missing filing deadlines, not maintaining statutory books, or failing to report changes, the Designated Partners (DP) can be held personally accountable for those lapses.

Why is the Designated Partner Crucial for Your LLP?

The designated partner is essential for your LLP's legal standing and how it operates:

• Legal Compliance: They are directly in charge of all legal duties, such as sending in yearly reports and keeping proper records.
• Accountability: If the LLP doesn’t meet its legal duties, designated partners can be held personally responsible.
• Decision-Making: They often help manage daily operations and are involved in major business decisions.
• Legal Requirement: The LLP Act, 2008, makes it mandatory for every LLP to have at least two designated partners, with one resident in India.
• Designated Partner Identification Number (DPIN): Each DP must obtain a unique DPIN issued by the MCA. This DPIN is mandatory for assuming the DP role and is required for signing e-forms and official filings on behalf of the LLP.
• Official Representative: They deal with government bodies and act as the LLP’s main point of contact for all legal and regulatory matters.

In short, without designated partners, an LLP cannot meet its legal responsibilities or function properly.

Partner vs. Designated Partner in an LLP

It's important to know the difference between a 'partner' and a 'designated partner':

Why do LLPs Need to Add a New Designated Partner?

LLPs might need to add a designated partner for several reasons:

• Meeting Legal Requirements: If the number of designated partners falls below the required two (as per Section 7 of the LLP Act), you must add someone quickly.
• Growing the Business: Bringing in new skills, capital, or management talent.
• Planning for the Future: Making sure leadership and LLP compliance continue smoothly.
• Replacing Someone Leaving: To keep the required number after a partner resigns.
• Improving Management: Making the LLP better at operations and planning.

Designated partners have many duties, covering both legal compliance and running the business:

• Ensuring LLP Follows Rules: This is their main job, including filing yearly reports, financial statements, and other necessary documents with the MCA on time.
• Maintaining Proper Accounts: They must ensure that the LLP’s financial records are kept correctly and meet legal standards.
• Operating Within Legal Boundaries: They are responsible for ensuring the LLP follows the LLP Act, 2008, and other relevant laws.
• Signing Official Documents: They sign and submit forms and returns on behalf of the LLP. Important forms include:

• • Form LLP-8 (Statement of Account & Solvency)
  • Form LLP-11 (Annual Return)

• Acting as the LLP’s Representative: They deal with authorities and represent the LLP in business and legal matters.
• Protecting Other Partners' Interests: They must act honestly and protect the interests of the LLP and its other partners.

The responsibilities of a designated partner are more extensive than those of a regular partner because of their official role:

• Personal Responsibility: Designated partners can be held personally accountable if they fail to follow the LLP Act, 2008, and may face penalties, fines, or even jail time in some situations.
• Financial Penalties: They are directly responsible for paying any fines or penalties given to the LLP for breaking the rules.
• Liability in Case of Fraud or Wrongdoing: In cases of fraud or illegal activities by the LLP, designated partners can be held personally liable. However, this liability is not absolute and is determined by the extent of their involvement and the specific legal provisions.

Knowing who can be a designated partner is crucial for following the rules.

Basic Requirements for an Indian National

• Real Person: Only individuals can be designated partners; companies or other entities cannot.
• Age: Must be at least 18 years old.
• Sound Mind: Must be mentally capable and not declared bankrupt.
• Not Disqualified: Must not be disqualified under the LLP Act, 2008 (see below).
• DPIN: Must have a valid Designated Partner Identification Number (DPIN).

Who is Disqualified from Becoming a Designated Partner?

A person cannot become a designated partner if they:

• A person who is an undischarged bankrupt.
• Have applied to be declared bankrupt, and the application is still pending.
• Have been found guilty by a court of an offense involving moral turpitude (acts considered immoral or dishonest) and sentenced to jail for at least six months.
• Have been disqualified under the Companies Act, 2013, from being appointed as a director.

How to Add an NRI or Foreign National as a Designated Partner?

To add a designated partner to an LLP when they are an NRI (Non-Resident Indian) or a foreign citizen involves extra steps:

• At least one Indian Resident Designated Partner: Even with foreign partners, the LLP must always have at least one designated partner who lives in India (meaning they lived in India for at least 120 days during the financial year).
• Passport: A valid passport is necessary for identity proof.
• Apostilled Documents: All documents for foreign citizens must be apostilled (for countries in the Hague Apostille Convention) or consularized (notarized and then certified by the Indian Embassy/Consulate in their country).
• Address Proof: Overseas address proof (like utility bills not older than two months) is required.

Collecting the right documents is essential for a smooth process.

Documents for the Incoming Indian Partner

• PAN Card (required)
• Aadhaar Card
• Proof of Address (e.g., latest bank statement, electricity bill, phone bill, mobile bill, not older than two months)
• Passport-size photograph
• Consent to act as Designated Partner (Form 9)
• Digital Signature Certificate (DSC)
• Declaration of non-disqualification (stating the partner is not disqualified under Section 164 of the Companies Act)

Documents for an Incoming NRI or Foreign Partner (Apostilled)

• Passport (required)
• Proof of Address (e.g., overseas bank statement, utility bill, government-issued ID; not older than two months and apostilled/notarized and officially approved)
• Passport-size photograph
• Visa and Entry Permit (if the person is residing in India at the time of appointment)
• Consent to act as Designated Partner (Form 9)
• Digital Signature Certificate (DSC)
• Declaration of non-disqualification

Documents to be Prepared by the LLP

• Original LLP Agreement
• Supplementary LLP Agreement (properly stamped)
• Consent letter from other partners (if required by LLP Agreement)
• Minutes of Meeting (where the resolution was passed)
• Proof of Registered Office Address (electricity bill, property papers, rent agreement, etc.)
• LLP Identification Number (LLPIN)

Adding a designated partner to your LLP requires following a clear legal process. Here’s what you need to do step by step:

Step 1: Check the LLP Agreement and Get Consent from Existing Partners

Before adding a new partner:

• Review the agreement: Look at your current LLP Agreement to understand the rules about adding new partners.
• Get consent: Obtain written permission from all, or the majority of existing partners, as the agreement requires. Keep this consent in writing to avoid future problems.
• Amend if needed: If the agreement does not have a clause for adding new partners, you must first amend it, which is a separate procedure.

Step 2: Confirm Eligibility and Obtain DPIN for the New Partner

Make sure the new partner meets the legal requirements, such as:

• Must be 18 years or older
• Should be mentally fit to take on responsibilities
• Must not be bankrupt or declared insolvent
• Should not have been convicted of fraud or serious criminal offences
• Must not be barred by a court or government authority from becoming a partner

Note: The DPIN is no longer issued separately. It is now automatically allotted when filing Form FiLLiP for new LLPs or Form DIR-3 for existing LLPs.

Step 3: Get a Digital Signature Certificate (DSC)

The new designated partner must obtain a Class 3 Digital Signature Certificate (DSC). This is required to sign online forms submitted to the MCA.

Step 4: Pass a Resolution and Obtain Written Consent (Form 9)

The existing partners must approve the new appointment formally:

• Pass a resolution: The existing partners must approve the new partner’s admission through a formal resolution in a partners’ meeting. Keep minutes of this meeting.
• Written consent: The new partner must submit their consent by filling out Form 9, confirming they agree to become a designated partner.

This formal approval and the new partner's written consent (Form 9) are required under Rule 7 of the Limited Liability Partnership Rules, 2009.

Step 5: Draft and Stamp the Supplementary LLP Agreement

Update the LLP Agreement to include the new partner as per legal requirements.

• Prepare the agreement: Draft a Supplementary LLP Agreement to add the new partner. This document updates the original agreement with details about the new partner’s rights, duties, capital contribution, and profit share.
• Stamp the agreement: Stamp the Supplementary Agreement according to your state’s stamp duty rules. The amount depends on your LLP’s capital and the state.

Step 6: File Form 4 with the Ministry of Corporate Affairs (MCA)

According to Rule 8 of the LLP Rules, 2009, you must inform the MCA when a new designated partner joins. File Form 4 within 30 days of the appointment to avoid penalties.

Attach these documents with the form:

• Proof of identity and address of the new partner
• The signed Form 9 (their consent to join)
• Any other required papers

File within 30 days of the partner’s appointment to avoid fines.

Step 7: File Form 3 to Update the LLP Agreement

Register the updated LLP Agreement with the MCA by submitting Form 3 along with the stamped Supplementary LLP Agreement.

• Deadline: File within 30 days of signing the updated agreement.
• Note: This form usually follows Form 4.

Step 8: Get Approval from the Registrar of Companies (ROC) and Keep Records

After filing, the ROC will check the submitted forms and documents for accuracy.

• Once approved, the ROC updates the LLP records with the new designated partner’s details.
• Store the updated LLP Agreement and all MCA acknowledgments as proof for future reference.

Understanding the fees to add a designated partner in llp is important for your budget.

Government Fees for Filing Form 3 and Form 4

The Ministry of Corporate Affairs sets specific fees for filing forms, which depend on the LLP's capital contribution.

Note: "Small LLPs" have a contribution up to Rs. 25 lakh and turnover up to Rs. 40 lakh. Fees are subject to change by the MCA.

Stamp Duty on the Supplementary LLP Agreement

When you update your LLP Agreement, such as adding a new partner, you need to pay stamp duty on the Supplementary LLP Agreement. The amount depends on the state where your LLP is registered.

Common stamp duty charges across different states in India:

Things to Remember:

• If you're increasing capital, the stamp duty may depend on the amount added.
• Rules can differ slightly from state to state, so it’s best to check with a legal expert or your state's Stamp Office before filing.

Professional Fees

When you hire a company secretary, chartered accountant, or legal advisor to handle the paperwork and filings, you’ll need to pay professional fees. These experts help prepare documents, file forms with the MCA, and ensure full legal compliance.

Factors Influencing Professional Fees:

• How complex the work is – More details or changes usually mean higher fees.
• Experience of the professional – Seasoned experts may charge more.
• Where you're located – Fees can vary depending on the city or state.

Tip: It’s a good idea to discuss the charges in advance to keep things clear from the start.

Penalty for Not Appointing a Designated Partner

If you fail to appoint a minimum of two designated partners, with at least one being an Indian resident, the LLP and its partners can face significant penalties.

Consequences:

• The LLP and its partners can face a penalty of up to Rs. 1 lakh.
• An additional fine of Rs. 100 per day may apply for each day the default continues, up to a maximum of Rs. 1 lakh.
• The LLP may face issues while filing forms or updating information with the Registrar of Companies (ROC).

Failing to appoint a second designated partner can delay filings and lead to legal trouble.

Appointing a designated partner involves several steps. Mistakes in the process can lead to legal or financial issues.

Poorly Drafted LLP Agreement

A weak or unclear LLP Agreement can cause delays or disagreements.

• It may not clearly explain how to admit new partners.
• Approval conditions, voting rights, or capital clauses might be vague.
• You may have to amend the agreement before adding the new partner.

It’s important to have a well-drafted agreement to avoid problems later.

Financial Implications of Errors in Filing Form 3 and Form 4

Mistakes in filing official forms can lead to fines and legal issues.

• Late filing of Form 3 or Form 4 attracts penalties.
• Incorrect information can result in rejection or queries from the ROC.
• Fixing errors often means extra legal costs and more paperwork.
• Amendments may also require legal support, affidavits, and partner resolutions, adding to overall annual compliance costs.

These forms must be filed within 30 days to stay compliant.

Operating with Fewer Than Two Designated Partners

An LLP cannot operate legally with fewer than two designated partners.

• The ROC may send notices or mark the LLP as non-compliant.
• Important filings may get blocked on the MCA portal.
• You may face problems in getting loans, approvals, or government registrations.
• Partners can be held personally liable for non-compliance under Section 10 of the LLP Act.

To keep the LLP running smoothly, make sure at least two designated partners are always in place.