Partners and their

Relations
B Y: - D R . I S H P R E E T V I R D I
 Eligibility to be partners- Section 22
On the incorporation of a limited liability partnership, the persons who subscribed their names to the
incorporation document shall be its partners and any other person may become a partner of the limited liability
partnership by and in accordance with the limited liability partnership agreement.

Who can be a partner?

According to Section 2(q), “Partner” in relation to a LLP means any person who becomes a partner in it, in
accordance with LLP agreement.
Following can become a partner in LLP agreement:
(a) Any individual;
(b) A Body Corporate- Indian Company, Foreign Company, Indian LLP, Foreign LLP.

Who cannot be partner of LLP

(c) Corporate sole- where a single individual is constituted as a corporate.
(d) Co-operative society
(e) Any other body corporate.

Disqualification to become a partner

(f) He has found to be of unsound mind
(g) An discharged solvent
(h) He has applied to be insolvent and his application is pending.
 Number of partners
Minimum and Maximum number of partners
There should be 2 partners but no maximum limit who may-
2 individuals,
1 individual and 1 corporate body,
Both are corporate body.

Reduction of number of partners below 2

There shall be personal liability of sole partner, if all the conditions are present-
(a) no. of partners reduced below 2.
(b) LLP carries business
(c) Sole partner has complete knowledge of the business
(d) Business is carried on for more than 6 months as sole partner.
 Designated Partners
Meaning
According to Section 2(j), “designated partner” means any partner designated as such pursuant to section 7.
There shall be atleast 2 designated partners who must be individuals and atleast 1 should be resident of India.

Who will be a Designated Partner?

(a) If the incorporation document specifies that:
(1) the name of designated partners,
(2) each of the partner of LLP is to be designated partner.
(b) Any partner may become designated partner by and in accordance with LLP agreement.

Manner of Appointment of Designated Partner

(b) Incorporation document specifies who are to be designated partners.
(c) Partner may become or cease to become designated partner in accordance with LLP agreement.
(d) Each partner shall be designated partner is no designated partner is appointed by the incorporation
document.
(e) to become a partner, an individual must give prior consent to act as designated partner of LLP in form.
(f) Every LLP shall file with the registrar particulars of every individual who has given his consent to act as
designated partner within 30 days of appointment.
(g) Every designated partner of LLP shall obtain DPIN from central Government.
 DPIN- Designated Partner Identification Number
 Every designated partner of a LLP shall obtain DPIN from the Central Government.
 DPIN allotted is valid for lifetime.
 DPIN is 8 digit number.

How is DPN obtained by an individual who intends to be appointed as designated partner of LLP?
According to Rule 10(1) “Every individual or nominee of a body corporate, who is intending to be appointed as
designated partner of a limited liability partnership shall make an application electronically in Form 7 to the
Central Government for obtaining Designated Partner Identification Number (DPIN).”
Role of Designated Partner
The management -ownership divide inherent in a company is not there in LLP. Management lies with ordinary
partners who a re authorised by LLP agreement. Designated partners are also accountable for legal
compliance.

Liabilities of Designated Partner

(a) Shall be responsible for Legal Compliance
(b) Shall be liable to penalties in case of contravention

Changes in Designated partner

There is 30 days period for filing up of a vacancy. If there is only one designated partner, each partner shall be
deemed to be a designated partner.
Punishment in contravention of provision of section 7, 8, 9

For contravention of provision under section 7(1), the partnership and every partner
becomes punishable with a fine not less than Rs. 10,000 but may extend to Rs. 5,00,000.

For contravention of provision under section 7(2), (4), (5), Section 8, 9, the fine is to be not
less than Rs. 10,000 but may extend to Rs. 1,00,000.
 Cessation of Partnership interest
A person may cease to be a partner of LLP in accordance with the agreement and the other partners. In absence of any such
agreement, he may cease by service notice in writing of 30 days to other partners of his intention to resign as partner.

Retirement of a Partner
A partner of LLP may retire upon happening of any event as mentioned in LLP agreement, which generally may be upon
reaching a particular age.

Removal/ Expulsion of a Partner

A partner of LLP may be removed as per LLP agreement. If the agreement is silent, Schedule I would be applicable. Consent of
all the partners would be required to expel a partner.

Ceases to be a partner of LLP

(a) On his death
(b) On dissolution of LLP
(c) Person is of unsound mind
(d) Person adjudged insolvent

When a person is ceased to be partner, he is under no obligation from the date of cessation. But this information needs to be
provided to (a) the third parties, (b) to the ROC, failing which he is liable to the third parties existing earlier.

Rights of former partner after cessation- the former partner is entitled to receive from LLP:
(e) An amount equal to capital contribution.
(f) His right to the share in LLP after deduction of losses.
 Registration of Changes on Partners
 Every partner has to inform the LLP of any change in name, address within 15 days.
 When a partner becomes a partner, retires, expelled or ceases, the LLP has to inform the Registrar within 30 days.
 If there is any incoming partner, the notice should contain a statement of such partner’s consent.
 Whenever there is a change, it should result in a change in LLP agreement.
Penalty
Contravention of provision by any partner in informing ROC shall be liable for a minimum fine of Rs. 2,000 which may
extend to Rs. 25,000.
Contravention be LLP for informing Registrar then each designated partner shall be punishable with a minimum fine of
Rs. 2,000 which may extend to Rs. 25,000.

Whistle Blowing
(1) The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a limited liability
partnership, if it is satisfied that—
(a) such partner or employee of a limited liability partnership has provided useful information during investigation of
such limited liability partnership; or
(b) when any information given by any partner or employee (whether or not during investigation) leads to limited
liability partnership or any partner or employee of such limited liability partnership being convicted under this Act or
any other Act.
(2) No partner or employee of any limited liability partnership may be discharged, demoted, suspended, threatened,
harassed or in any other manner discriminated against the terms and conditions of his limited liability partnership or
employment merely because of his providing information or causing information to be provided pursuant to sub-section
(1).
Partners as Agent of LLP
 Extend of liability of LLP
To fix the liability of LLP the following conditions must exist:
 The act or omission by the partner must be wrongful.
 The act or omission must be in the course of LLP’s business.
 The act or omission must be with the LLP’s authority
 The wrongful act or omission must result in partner’s liability to some other person.
Scope of LLP’s Liability
(1) A limited liability partnership is not bound by anything done by a partner in dealing with a person if—
(a) the partner in fact has no authority to act for the limited liability partnership in doing a particular act; and
(b) the person knows that he has no authority or does not know or believe him to be a partner of the limited liability
partnership.
(2) The limited liability partnership is liable if a partner of a limited liability partnership is liable to any person as a
result of a wrongful act or omission on his part in the course of the business of the limited liability partnership or with
its authority.
(3) An obligation of the limited liability partnership whether arising in contract or otherwise, shall be solely the
obligation of the limited liability partnership.
(4) The liabilities of the limited liability partnership shall be met out of the property of the limited liability partnership.
Extend of liability of partners in LLP
(1) A partner is not personally liable, directly or indirectly for an obligation referred to in sub-section (3) of section 27
solely by reason of being a partner of the limited liability partnership.
(2) The provisions of sub-section (3) of section 27 and sub-section (1) of this section shall not affect the personal
liability of a partner for his own wrongful act or omission, but a partner shall not be personally liable for the wrongful
act or omission of any other partner of the limited liability partnership.
 Liability by Holding Out
(1) Any person, who by words spoken or written or by conduct, represents himself, or knowingly permits himself to be
represented to be a partner in a limited liability partnership is liable to any person who has on the faith of any such
representation given credit to the limited liability partnership, whether the person representing himself or
represented to be a partner does or does not know that the representation has reached the person so giving credit:
Provided that where any credit is received by the limited liability partnership as a result of such representation, the
limited liability partnership shall, without prejudice to the liability of the person so representing himself or
represented to be a partner, be liable to the extent of credit received by it or any financial benefit derived thereon.
(2) Where after a partner's death the business is continued in the same limited liability partnership name, the
continued use of that name or of the deceased partner's name as a part thereof shall not of itself make his legal
representative or his estate liable for any act of the limited liability partnership done after his death.
Unlimited Liability in case of Fraud
(3) In the event of an act carried out by a limited liability partnership, or any of its partners, with intent to defraud
creditors of the limited liability partnership or any other person, or for any fraudulent purpose, the liability of the
limited liability partnership and partners who acted with intent to defraud creditors or for any fraudulent purpose
shall be unlimited for all or any of the debts or other liabilities of the limited liability partnership: Provided that in
case any such act is carried out by a partner, the limited liability partnership is liable to the same extent as the
partner unless it is established by the limited liability partnership that such act was without the knowledge or the
authority of the limited liability partnership.
(4) Where any business is carried on with such intent or for such purpose as mentioned in sub-section (1), every
person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be punishable
with imprisonment for a term which may extend to two years and with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees.
(5) Where a limited liability partnership or any partner or designated partner or employee of such limited liability
partnership has conducted the affairs of the limited liability partnership in a fraudulent manner, then without
prejudice to any criminal proceedings which may arise under any law for the time being in force, the limited
liability partnership and any such partner or designated partner or employee 14 shall be liable to pay
 Forms of Contribution
(1) A contribution of a partner may consist of tangible, movable or immovable or intangible property or other
benefit to the limited liability partnership, including money, promissory notes, other agreements to
contribute cash or property, and contracts for services performed or to be performed.
(2) The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of
the limited liability partnership in the manner as may be prescribed.

Obligation to Contribute
(3) The obligation of a partner to contribute money or other property or other benefit or to perform services for
a limited liability partnership shall be as per the limited liability partnership agreement.
(4) A creditor of a limited liability partnership, which extends credit or otherwise acts in reliance on an
obligation described in that agreement, without notice of any compromise between partners, may enforce
the original obligation against such partner.
THANK YOU