Designated Partner
Also written Designated Partners
In a Category III AIF set up as an LLP, the sponsor acting as the partner responsible for all statutory compliances of the LLP — and bound by the AIF code of conduct.
In plain language
A Category III AIF can be registered as a trust, a company, a body corporate or a Limited Liability Partnership (LLP). Each form needs someone legally accountable for it. In a company that is the promoter; in an LLP it is the designated partner.
The workbook makes the link explicit. Sponsor means the person responsible for forming and registering the Category III AIF with SEBI, and includes the designated partner in the case of an LLP. In an LLP structure, the sponsor is the designated partner and is responsible for all statutory compliances stipulated for the LLP.
Abroad the vocabulary differs: the manager of an LLP-style fund is the General Partner (GP) and the investors are Limited Partners (LPs).
How it works
Functions (3.3.1.2). The sponsors or designated partners sponsor the fund, define its theme, constitute it in the right structure, register it with SEBI, and form the initial and subsequent corpuses. After registration, the sponsor invests in the capital of the partnership.
Regulatory touchpoints
| Rule | Where |
|---|---|
| Any change in sponsor or designated partner must be informed to SEBI; a change in control needs prior SEBI approval | Chapter 3 |
| The LLP must be incorporated under a partnership deed filed with the Registrar under the LLP Act, 2008, and the deed must permit AIF activity and prohibit public invitation | Chapter 5 |
| The custodian shall not be a related party to the sponsors or designated partners unless specific conditions are met | Chapters 4 and 5 |
| PPM audit findings go to the Trustee or Board or Designated Partners within 6 months of year end | Chapter 4 |
| Policies and procedures are approved jointly by the Manager and the trustee, trustee company, designated partners or directors | Chapter 5 |
| Designated partners are bound by Code of Conduct III of the Fourth Schedule | Chapter 5 |
Code of Conduct III (for investment committee members, trustees, trustee company directors, directors or designated partners): maintain integrity and high ethical and professional standards; exercise due care, due diligence and independent judgement; disclose conflicts to the manager and recuse where necessary; keep information about the fund, investors and investee companies confidential; avoid unethical practice, gross negligence or fraud.
A worked example
Illustrative figures. Sabarmati Alpha LLP is registered as a Category III AIF. Its sponsor, Sabarmati Capital Pvt Ltd, is the designated partner. Scheme I raises commitments of Rs 150 crore.
Sponsor continuing interest
5% × Rs 150 crore = Rs 7.5 crore
Alternative = Rs 10 crore
Lower of the two = Rs 7.5 crore invested in the scheme
Compliance calendar for FY 2025-26
- LLP statutory filings — the designated partner's responsibility.
- PPM audit findings to the designated partners, the manager's board and SEBI by 30 September 2026.
- Policies and procedures approved jointly by the manager and the designated partner.
A custodian proposal. The manager suggests a custodian that is a related party of Sabarmati Capital. Unless the specific conditions in the Regulations are met, it cannot be appointed.
A change of partner. In 2027 Sabarmati Capital is acquired by another group — a change in control. Prior SEBI approval is required before the AIF continues its investment activities.
Why NISM asks about it
Chapter 4 (Category III AIF: Fund Structures and Service Providers) states that in an LLP the sponsor is the designated partner responsible for statutory compliance and sends PPM audit findings to designated partners. Chapter 3 folds the designated partner into the definition of sponsor. Chapter 5 (Regulatory Framework) applies the LLP registration conditions, the related-party bar on custodians, joint approval of policies and Code of Conduct III.
Common exam traps
- In an LLP, the sponsor is the designated partner. In a company, the sponsor includes the promoter.
- Responsibility: all statutory compliances stipulated for the LLP.
- GP and LP are foreign-jurisdiction terms: the manager is the GP, the investors are LPs.
- Changes in sponsor or designated partner are informed to SEBI; a change in control needs prior approval.
- Designated partners follow Code of Conduct III, the same code as trustees and investment committee members — not the manager's Code II.
- The custodian cannot be a related party of the designated partners unless specific conditions are fulfilled.
Check yourself
1.The findings of the yearly audit of compliance with the terms of the PPM must be communicated to the trustee or board or designated partners, the board of the investment manager and SEBI within:
- a)60 days from the end of the quarter
- b)3 months from the end of the financial year
- c)6 months from the end of the financial year
- d)12 months from the end of the financial year
Show the answer
Answer: (c) 6 months from the end of the financial year
The findings, along with corrective steps to be taken if any, must be communicated to the Trustee or Board or Designated Partners of the Category III AIF, Board of the Investment Managers and SEBI, within 6 MONTHS FROM THE END OF THE FINANCIAL YEAR, and the report is filed on the SEBI Intermediary Portal. Option (a) is the deadline for the quarterly report of material risks to investors, which is a different obligation from a different chapter.
2.In a Category III AIF set up as a Limited Liability Partnership, who is responsible for all statutory compliances stipulated for the LLP?
- a)The trustee appointed by the settlor
- b)The limited partners, acting collectively
- c)The merchant banker who filed the PPM
- d)The sponsor, acting as the Designated Partner
Show the answer
Answer: (d) The sponsor, acting as the Designated Partner
The workbook states: "In a limited liability partnership structure (LLP), the sponsor of the Category III AIF is the Designated Partner and is responsible in respect of all statutory compliances stipulated for the LLP." A trustee and a settlor (a) exist only when the AIF is formed as a trust. Option (b) borrows foreign terminology. In most foreign jurisdictions the manager is the General Partner (GP) and the investors are the Limited Partners (LPs). The LPs are investors and do not carry the compliance burden. The merchant banker (c) is a service provider that files the PPM and does due diligence on it. It is not responsible for the fund's statutory compliance.
Where this is taught
Free preparation for NISM Series XIX-BRelated terms
- Category III AIFThe AIF category for funds running diverse or complex trading strategies with leverage — hedge funds and their kin — and the only category denied tax pass-through status.
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- SponsorThe person or firm that sets up the mutual fund — applies to SEBI for registration, executes the trust deed in favour of the trustees, and puts up the capital of the AMC.
- Continuing interestThe sponsor's or manager's own money locked into the fund — 2.5% of corpus or Rs 5 crore, whichever is lower, for Category I and II AIFs, and 5% or Rs 10 crore for Category III.
- General PartnerThe foreign-terminology name for the entity that manages a Category III AIF's investments — the Indian equivalent is the investment manager, and the fund's investors correspondingly become "Limited Partners" (LPs).
- PPM AuditThe mandatory yearly audit of a Category III AIF's compliance with the terms of its PPM, with findings reported to the trustee or board or designated partners, the manager's board and SEBI within 6 months of year end.
- TrusteeThe party that holds a Category III AIF's trust deed when the fund is set up as a trust, appoints the investment manager and custodian, and receives the annual audit findings on the fund's behalf.
- Limited PartnerThe label used in foreign jurisdictions for an investor who subscribes to units of a fund structured as a limited liability partnership, as against the General Partner who manages it.