LIMITED LIABILITY PARTNERHSIP – THE NEW FORM OF ORGNISATION
BY CA SUDHIR HALAKHANDI
In the traditional form of partnerships there are two major characteristics which are major hurdles for forming these type of partnerships by the professionals and these two characteristics are can be inferred from the Indian Partnership Act, 1932 :-
SECTION 25 LIABILITY OF A PARTNER FOR ACTS OF THE FIRM.
Every partner is liable jointly with all the other partners and also severally, for all acts of the firm done while he is a partner
SECTION49 PAYMENT OF FIRM'S DEBTS AND OF SEPARATE DEBTS.
Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall he applied first in the payment of his separate debts, and the surplus (if any) in payment of the debts of the firm.
Further if two professionals wants to pool their resources, knowledge and talent they can also go for a Company format in which also the liability is limited but when projects or formation is not too big too face the cost and complexities attached with the companies and further they don’t want to take unlimited Liability which is attached with the traditional partnerships. Hence a New format is introduced in the name of Limited partnerships for which Bill has been passed by Rajya Sabha in on 24th Oct, 2008 and Loksabha on 12 th Both the Houses of parliament hence it is necessary for us to have a close Look at the main ingredients of this proposed New format of Business organization.
The main characteristics of the LLPs are as under:-
1. The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a LLP. The LLP will have perpetual succession.
2. The mutual rights and duties of partners of an LLP inter seand those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the proposed legislation. The Bill provides flexibility to devise the agreement as per their choice. In the absence of any such agreement, the provisions of law shall govern the mutual rights and duties.
3. The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP, which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct.
4. Every LLP shall have at least two partners and shall have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law.
5. The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government.
6. The Central Government shall have powers to investigate the affairs of an LLP, if required, by appointment of competent inspector for the purpose.
7. The law would confer powers on the Central Government to apply such provisions of the Companies Act, 1956 to provide, inter-alia, for mergers, amalgamations, winding up and dissolutions of LLPs, as appropriate, by notification with such changes or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses.
8. The Indian Partnership Act, 1932 shall not be applicable to LLPs. Other entities may convert themselves to LLP in accordance with provisions of law.
9. The Central Government shall have powers to make rules for carrying out the provisions of the proposed legislation.