Limited Liability Partnership (LLP) is a popular business structure that combines the benefits of a partnership and a limited liability company. It is governed by the Limited Liability Partnership Act, 2008, and provides for the liability of partners in an LLP. In this blog, we will discuss the liability of designated partners in an LLP.
 Designated partners – Who are they?
In an LLP, there are two types of partners – designated partners and other partners. Designated partners are responsible for the management of the LLP and are accountable to the Registrar of Companies. Every LLP must have at least two designated partners, and they are required to have a Designated Partner Identification Number (DPIN) issued by the Ministry of Corporate Affairs.
Liability of designated partners – Unlimited or limited?
One of the primary benefits of an LLP is limited liability. This means that the liability of partners in an LLP is limited to their agreed contribution to the LLP. However, designated partners have a higher degree of liability as they are responsible for the management of the LLP.
 Liability of designated partners – Regulatory compliance
Designated partners have a significant responsibility to ensure that the LLP complies with all regulatory requirements. They are required to file various documents with the Registrar of Companies, such as the Annual Return and Statement of Accounts, and ensure that the LLP complies with all applicable laws and regulations.
 Liability of designated partners – Contractual liability
Designated partners can also be held personally liable for any contractual obligations of the LLP. This means that if the LLP fails to meet its contractual obligations, the designated partners can be sued for the breach of contract. It is important to note that the liability of designated partners is joint and several, which means that each designated partner can be held liable for the full amount of the obligation.
Liability of designated partners – Liability for wrongful acts
Designated partners can also be held liable for any wrongful acts committed by the LLP. This includes acts of fraud, misrepresentation, or any other illegal activities. If a designated partner is found to be involved in such acts, they can be held personally liable for the damages caused.
Designated partners are also responsible for maintaining proper books of accounts and ensuring that the financial statements of the LLP are accurate and in compliance with the applicable accounting standards. They can be held personally liable for any misstatement or non-disclosure of material facts in the financial statements.
It is important for designated partners to have a clear understanding of their roles and responsibilities and to ensure that they comply with all applicable laws and regulations. They should maintain proper documentation and record-keeping and exercise due diligence in their management of the LLP.
In case of any disputes or legal issues, designated partners can also be held liable for the legal costs and expenses incurred by the LLP. This can be a significant financial burden, and designated partners should ensure that they have adequate insurance coverage to protect themselves against such risks.
Conclusion
While designated partners in an LLP enjoy the benefits of limited liability, they also have a higher degree of responsibility and liability as they are responsible for the management of the LLP. It is important for designated partners to understand their roles and responsibilities and to exercise due diligence in their management of the LLP to avoid any potential liabilities.
Other Related Blogs: Section 144B Income Tax Act
Frequently asked questions (FAQs) about the liability of designated partners in an LLP:
Q: Who is a designated partner in an LLP?
A: A designated partner is a partner in an LLP who is responsible for the management of the LLP and is accountable to the Registrar of Companies.
Q: What is the liability of designated partners in an LLP?
A: Designated partners in an LLP have a higher degree of liability compared to other partners. They can be held personally liable for regulatory compliance, contractual obligations, wrongful acts, acts of negligence or breach of duty, and legal costs and expenses incurred by the LLP.
Q: Is the liability of designated partners in an LLP unlimited?
A: The liability of partners in an LLP is generally limited to their agreed contribution to the LLP. However, designated partners have a higher degree of liability as they are responsible for the management of the LLP.
Q: Are all designated partners in an LLP liable for the same degree of liability?
A: Yes, all designated partners in an LLP have the same degree of liability, which is higher compared to other partners.
Q: Can designated partners in an LLP be held personally liable for regulatory non-compliance?
A: Yes, designated partners in an LLP can be held personally liable for any non-compliance with regulatory requirements. They are responsible for filing various documents with the Registrar of Companies and ensuring that the LLP complies with all applicable laws and regulations.
Q: Can designated partners in an LLP be held personally liable for contractual obligations?
A: Yes, designated partners in an LLP can be held personally liable for any contractual obligations of the LLP. If the LLP fails to meet its contractual obligations, the designated partners can be sued for the breach of contract.
Q: Can designated partners in an LLP be held personally liable for wrongful acts committed by the LLP?
A: Yes, designated partners in an LLP can be held personally liable for any wrongful acts committed by the LLP, including acts of fraud, misrepresentation, or any other illegal activities.
Q: What steps can designated partners in an LLP take to limit their liability?
A: Designated partners in an LLP can take various steps to limit their liability, such as maintaining proper documentation and record-keeping, complying with all applicable laws and regulations, exercising due diligence in their management of the LLP, and obtaining adequate insurance coverage to protect themselves against potential risks.
