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UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

BUSINESS LAW ASSIGNMENT

ON TOPIC

DESIGNATED PARTNERSHIP

UNDER LIMITED LIABILITY PARTNERSHIP ACT,2008

SUBMITTED BY: RHYTHM

CLASS: BA.LLB (HONS)

SECTION: C

ROLL NO: 141/20

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ACKNOWLEDGEMENT

Primarily I would like to thank my teacher, Dr Amita Verma, whose valuable

guidance has been the ones that helped me make this project and make it a
success. His suggestions and instructions have served as the major
contributor towards the completion of the project. Secondly, I would like to
thank my parents and friends who have helped me with their valuable
suggestions and guidelines which have been helpful throughout the completion
of the project. Lastly. I hope this project serves its purpose and is worthwhile to
all the readers.
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INDEX

S.No. Topic Pg No.

1. MEANING AND CONCEPT OF LIMITED LIABILITY PARTNERSHIP 4

2. BACKGROUND OF LIMITED LIABILITY PARTNERSHIP ACT,2008 4

3. PROVISIONS RELATED TO PARTNERSHIP IN LLP ACT 5

4. DESIGNATED PARTNERS IN LLP 6

5. APPOINTMENT AND REQUIREMENTS 7

6. PERSONS WHO CANNOT BE DESIGNATED PARTNERS 7

7. RIGHTS AND LIABILITIES OF DESIGNATED PARTNERS 8

8. RESIGNATION AND CESSION OF PARTNERSHIP 9

9. RELATED CASE LAWS 10

10. CONCLUSION 12
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MEANING AND CONCEPT OF LIMITED LIABILITY PARTNERSHIP

Limited Liability Partnerships are a form of alternate corporate structuring that

combines the flexibility of a partnership firm and the advantages of limited liability of
a company at lower compliance costs. As a hybrid corporate business vehicle, LLPs
provide the limited liability of a company while at the same time allowing its members
the flexibility of organising their internal management on the basis of a mutually
arrived agreement, such as in the case of a partnership firm. LLPs fill the need of
organisation while subsequently providing flexibility without imposing onerous/
detailed legal and procedural compliances. They enable professional/ technical
expertise and initiative to be integrated with limited financial risk taking capacity in an
innovative and efficient manner.

In India, LLPs are governed by the provisions of the Limited Liability Partnership Act,
2008 however, Limited Liability Partnership is not a concept that is indigenous to
India. Where there are variations in concepts related to LLPs across different
national jurisdictions, the basic concept of an LLP, however, is the same, which is
that some or all partners of an LLP have limited liabilities, and a partner of the LLP is
not responsible or liable for another partner’s misconduct or negligence.

One of the major variations across national boundaries, which is relevant to the
scope of the present report is that some countries require an LLP to have at least
one partner having unlimited or increased liability.

1. LIMITED LIABILITY PARTNERSHIP ACT, 2008

Background

With the growth of Indian economy, the role played by its entrepreneurs as well as its
technical and professional manpower has been acknowledged internationally. In this
background, a need was felt for a new corporate form that would provide an
alternative to the traditional partnership which exposes its partners to unlimited
personal liability and a statute based governance structure of limited liability
companies.

The LLP (Amendment) Act, 2021 has come into effect from 1st April, 2022.The main
aim of this amendment is to facilitate greater ease of living to law abiding corporates
and to decriminalize certain provisions of the Act, including the concept of small
LLPs, appointment of adjudicating officers, special courts etc.

The concept of LLP was first emphasised by the Committee on Regulation of Private
Companies and Partnerships. The objective of the Companies Act, 2013 was to
provide provisions for the regulation of companies, and hence it was found that the
Companies Act was not suitable for the regulation of LLPs. A need was felt for
specific legislation dealing with the incorporation and regulation of LLPs. The need
for specific legislation dealing with the LLP was emphasised by the Committee on
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New Company Law, 2005. The Committee was headed by Dr. J.J. Irani, the former
director of Tata Sons. While the Naresh Chandra committee had recommended that
the concept of LLP should be introduced for the service sector, the Irani Committee
emphasised the need for the application of this concept to small enterprises too.

2. PROVISIONS RELATED TO PARTNERS IN AN LLP

SECTION 5

As per Section 5 of the Act, any person or body corporate can become a partner in
an LLP. Thus, both natural as well as legal persons, can be partners in an LLP.
Section 5 provides the conditions upon which a person may be disqualified from
being a partner in an LLP. If a person becomes insolvent or a court of competent
jurisdiction declares him to be of unsound mind, then such a person will be
disqualified from becoming a partner in an LLP.

SECTION 6

Section 6 provides the conditions under which a partner can be held personally liable
for the obligations of the LLP. An LLP must have a minimum of two partners. If at
any time the number of partners is reduced to 2 and the business continues for a
period extending to 6 months with only one partner, the single partner can be held
personally liable for the obligations of the company that were incurred during this
period. However, it is necessary for the single partner to have knowledge that the
partnership firm has only one partner.

SECTION22

As per Section 22, the persons who subscribe to the incorporation document at the
time of the registration of the LLP are regarded as the partners of the LLP. The
relationship between the partners and the LLP and the relations among the partners
of the LLP are regulated by virtue of the LLP agreement.

SECTION25

Section 25 provides that a partner has to inform the LLP about any change in his
name or address within 15 days of the change and a notice of such change has to
be subsequently sent to the Registrar.
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3. DESIGNATED PARTNERS IN LLP

SECTION 2(J)

Section 2(j) defines the term ‘designated partner ‘ as any partners thus designated
under section 7 of the act.

SECTION 7

Section 7 of the Act provides that an LLP must have a minimum of two designated
partners, of which one must be a resident of India. It is essential that both the
designated partners must be natural persons and not body corporate. If all the
members of the LLP are body corporates, then the nominees of the body corporates
will serve as the designated partners.

The explanation of Section 7 provides that a resident of India is a person who has
stayed in the territory of India for a minimum of 182 days in the preceding year.

SECTION 9

Any vacancy for the post of a designated partner has to be filled within 30 days from
the day on which the vacancy arrives. If the vacancies are not filled or if there is only
one designated partner in the LLP, then, as per Section 9, all the partners will be
deemed to be designated partners.

SECTION 10

PUNISHMENT FOR CONTRAVENTION OF SECTION 7 AND 9

If the LLP contravenes the provisions of sec 7(1), the LLP and its every partner shall
be

 Liable to pay penalty of Rs.10,000 and in case of continuing contravention, with

further penalty of Rs.100 for each day after the first during which the
contravention continues subject to maximum of Rs.1 lac for LLP and Rs.50,000
for every partner.

 If LLP contravenes the provision of section 7(4), such LLP and every designated
partner shall be liable to a penalty of Rs.5,000 and in case of continuing
contravention, with a further penalty of Rs.100 for each day after the first during
which such contravention continues, subject to a maximum of Rs.50,000 for LLP
and Rs.25,000 for its every designated partner

 If LLP contravenes the provisions of section 7(5) or section 9, such LLP and its
every partner shall be liable to a penalty of Rs.10,000, and in case of continuing
contravention, with a further penalty of Rs.100 for each day after the first during
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which such contravention continues, subject to a maximum of Rs.1 lac for LLP
and Rs.50,000 for its every partner.

3.1 APPOINTMENT AND REQUIREMENTS

Under section 7 of the LLP Act, those persons who are specified as designated
partners in the incorporation document shall be the designated persons, or every
such partner who is a partner shall be a designated partner in case no such person
is specified. An individual cannot become a designated partner in any LLP without
his prior consent, and such a person is also required to obtain a Designated
Partner’s Identification Number.

3.11 What is 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).

3.12 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.

 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.

3.2 PERSONS WHO CANNOT BE DESIGNATED PARTNERS

As per rule 9(1) of LLP Rules following individuals are not eligible to be designated
partners

• Minor

• Any person declared bankrupt in the preceding 5 years

• Any individual who has been imprisoned for a period extending 6 months
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• Any person having a history of credited false in the preceding 5 year

Any other form of unregistered business entities cannot act as

designated partners

3.3 RIGHTS AND LIABILITIES OF DESIGNATED PARTNERS

The role of designated partners in case of LLP is on same footage as of Directors in

the case of a Company.

Rights of designated partner are same as of other partners. Similar to other partners,
they are not entitled to any remuneration for their participation in the management of
LLP unless otherwise specifically provided in the LLP Agreement, yet they have
additional responsibilities to comply with and will become liable for all penalties
under the LLP Act for contravention/ non-compliance of the provisions of the LLP
Act.

Under section 10 of the LLP Act, If any LLP contravenes the provisions of section 7
(1) of the LLP Act relating to appointment of at least two designated partners, such
an LLP and its every partner shall be punishable with fine which shall not be less
than ten thousand rupees but which may extend to five lakh rupees

Further, contravention of sections 7(4) [filing of particulars of designated partners

with Registrar], 7(5) [non-fulfilment of conditions and requirements for eligibility to be
a designated partner], 8 [Liabilities of designated partners] and 9 [Changes in
designated partners] of the LLP Act shall entail penalty of fine which shall not be less
than ten thousand rupees but which may extend to one lakh rupees to the LLP and
its every partner.

3.31Major duties

Major duties of a designated partner include:-

 Notify any changes in the LLP’s to Registrar of Companies.

 Notify any changes in the Partners names & residential addresses to

Registrar of Companies.

 Notify any change in Registered Office Address to Registrar of Companies.

 Filing of any Annual return, Statement of Accounts and other documents

specified under the provisions of LLP Act with the Registrar of Companies.

 Statement of Accounts & Solvency to be signed by the Designated Partners of

the Company.
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 to preserve and to produce before an inspector or any person authorised by

him in this behalf with the previous approval of the Central Government, all
books and papers of, or relating to, the limited liability partnership or, as the
case may be, the other entity, which are in their custody or power

 Responsible for signing all the e-forms filed with the Registrar of Companies.

SECTION 35

Section 35 of the Act provides that a designated partner is responsible for ensuring
that an LLP files its annual return within 60 days of its financial year closure in such
form as may be prescribed. This Section further provides that if the LLP fails to file
the return within 60 days, the designated partner can be punished with a fine of up to
Rupees 1 lakh.

SECTION 47

Under Section 47, it is the duty of a designated partner to provide all assistance to
the inspector appointed under Chapter IX for the purpose of investigating the affairs
of the LLP.

4. RESIGNATION AND CESSION OF PARTNERSHIP

SECTION 24

lays down the procedure for the resignation of a partner. A partner willing to resign
has to give a 30-day notice to the other partners expressing his intention to resign.

A person ceases to be a partner of an LLP upon his death or if he is declared

insolvent or of unsound mind by a court of competent jurisdiction. Where an
individual ceases to be a partner of LLP, such former partner or any person entitled
to receive his share upon his insolvency or death, will receive the share of
accumulated profit and the capital contribution made by the former partner.

However, the former partner or the person entitled to his share will not enjoy the right
to participate in the management of the LLP.
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5. CASE LAWS RELATED TO LLP

A) M/S Diamond Nation v. Deputy State Tax Commissioner (2019)

Facts:

In the case of M/S Diamond Nation v. Deputy State Tax Commissioner (2019), the
Registrar of Firms had refused to register Go Green Diamonds LLP as a partner in
the firm of the petitioners. The reason stated by the Registrar of Firms for the
rejection of the application by the petitioners was that an LLP cannot become a
partner in a partnership firm.

Arguments by the petitioners

The petitioners contended that Section 4 of the Indian Partnership Act provides that
a legal person can be a partner of a partnership firm. Section 2(d) of the LLP Act
provides that an LLP shall be a body corporate and have a separate identity distinct
from its members. Thus, an LLP can be a partner in a partnership firm.

Arguments by the respondents

The respondents contended that a joint reading of Sections 25 and 49 of the Indian
Partnership Act makes it clear that all the partners of a partnership are jointly and
severally liable. However, the partners of an LLP, by virtue of the LLP Act, enjoy
limited liability. Furthermore, a partnership firm does not have any identity separate
from its members, while an LLP enjoys a separate legal personality. Thus, admitting
an LLP as a partner of a partnership firm would lead to ambiguities.

The issue before the Court

Whether an LLP can be admitted as a partner of the partnership firm.

Judgment

The Court primarily referred to the judgment of Dulichand Laxminaraya v.

Commissioner of Income Tax (1956), where an individual, three firms, and a joint
family wanted to enter into a partnership, and the Court had held that since a firm is
not a person, it cannot enter into a partnership.

The Court held that permitting an LLP to be a partner in a partnership firm would
frustrate Sections 25 and 49 of the Partnership Act. The limited liability of the
partners of an LLP runs against the purpose of Section 25 of the Partnership Act. A
body of persons cannot be a partner.

The Court thus concluded that there is cohesiveness between the provisions of the
LLP Act and the provisions of the Partnership Act and the Registrar had rightly
refused to register the LLP as a partner.
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B) Jayamma Xavier v. Registrar of Firms (2021)

Facts

In the case of Jayama Xavier v. Registrar of Firms (2021), an LLP had entered into a
partnership with an individual. Subsequently, the registrar of forms refused to
register the partnership on the ground that an LLP cannot be a partner.

Arguments by the petitioner

The petitioners contended that the Partnership Act does not prohibit entering into a
partnership with an LLP. The LLB enjoys perpetual succession and is regarded as a
separate legal person in the eyes of the law. It is a body corporate capable of suing
and being sued in its name.

Arguments by the respondents

The respondents contended that some provisions of the Indian Partnership Act,
namely Sections 25, 26 and 49, are inconsistent with the provisions of the LLP Act,
2008. Thus, an LLP cannot be allowed to enter into a partnership.

The issue before the Court

Whether an LLP can be treated as a person or enter into a partnership with an

individual.

Judgment

The Court held that a partnership can be created by two individual persons and, as
per the definition of person under Section 3(42) of the General Clauses Act, 1897, a
body corporate is regarded as a person in the eyes of the law. Since an LLP is a
body corporate as per the provisions of the LLP Act, 2008, there is no inconsistency
in permitting an LLP to be a partner in a partnership firm.

The Court held that when an LLP enters into a partnership, it would be covered by
the provisions of the Partnership Act and, therefore, the liabilities of the partners of
the LLP under the LLP Act, 2008 would be irrelevant. The liability of the LLP would
be independent of the liability of its individual partners.

Based on this analogy, the Court set aside the order of the registrar of firms and held
that there is no express prohibition for an LLP to enter into a partnership with an
individual.
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6.CONCLUSION

Since the internal management in an LLP is regulated by the terms of the Limited
Liability Partnership Agreement (hereinafter LLP Agreement), it provides flexibility to
the firm to adopt any form of internal organisation. An LLP involves less statutory
compliance as compared to a company registered under the Companies Act, 2013.
There is no ownership management divide in a limited liability partnership as every
partner is an agent of the firm but cannot be held liable for the wrongful acts of the
other partners. An LLP has a distinct identity that is separate from its members.
Therefore, it is a separate person in the eyes of the law. Thus LLP is gaining
popularity in recent times. But, it can be disadvantageous too. The documents that
an LLP files with the Ministry of Corporate Affairs are public documents, and anyone
can obtain a copy of these documents by paying a nominal fee. The documents of a
general partnership are not public documents and are not available in the public
domain.The Act provides hefty penalties in case of non-compliance. Also, the
operation of an LLP involves complex compliance, which can be a hindrance to the
growth of the LLP.The LLPs have a limited range of financing options. Venture
capitalists and angel investors do not usually invest in an LLP, and the only options
left for the LLP are borrowing from financial institutions or taking a loan from the
partners.
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BIBLIOGRAPHY

 Avtar Singh, Business Law (EBC Publication, 11TH edn.)

 K.R. Bulchandni, Business Law for Management (Himalaya Publication

House, 5th edn.)

 Kennan, Davis, Business Law (Pitman Publication, London, 3rd edn.

1996)

 Nirmal Singh, Business Law (Deep & Deep Publication, New Delhi, 6th
edn 2003)

 Moshal, Modern Business Law (Ane Books Pvt. Ltd, New Delhi, 7th edn,
2009)