Limited Liability Partnership – An Overview – I
Introduction
Limited Liability Partnership commonly known as LLP is a concept which adopts corporate form. Thus it has an organizational flexibility of a company and a tax status of partnership with limited liability on its partners. LLP Bill was tabled in Rajyasabha on 15th December
2006 and is influenced by Limited Liability Partnership Act 2000 of UK. The LLP will help in bridging the gap between the partnership firms and corporate entities which are governed by Partnership Act, 1932 and the Companies Act, 1956. It will be a win-win situation for professionals as well as for users. It will help professionals of various fields in integrating
and providing various services under one roof and increase their global competitiveness. For e.g.: Chartered Accountants, Company Secretaries, Cost Accountants, Advocates, and Architect etc. may join their hands together to explore their respective expertise in order to achieve the ultimate goals.
What is an LLP?
In LLP all partners have a form of limited liability, similar to that of shareholders of a
company. However, the partners have right to manage the business directly and (in many areas) with a distinct advantage of nil tax liability as compared to partnership firm and a company. LLP is a body corporate (i.e. it acquires legal status of its own, separate and distinct from its members) formed and incorporated under LLP Act. The word ‘BodyCorporate’ as defined in the bill means a company referred in the Companies Act, 1956 and includes LLP- registered under LLP Act, LLP’s incorporated outside India and companies incorporated outside India. The LLP has a perpetual succession. Any change in the partners will not affect the existence, rights or liabilities of LLP.
What are the observations of IInd Naresh Chandra Committee and J.J. Irani Expert Committee?
In India the need for LLP legislation gained momentum when IInd Naresh Chandra Committee submitted its report on 23rd July 2005 and made the following observations. “In increasing litigious market environment, prospect of being a member of a partnership firmwith unlimited liability is, to say the least, risky and unattractitive. Indeed the chief reason why, the firms of professionals, such as lawyers and accountants have not grown in size to successfully meet the challenge of the international competition. This makes an LLP a most attractive vehicle for partnership among professionals such as lawyers and accountants.” The central government appointed, the J.J. Irani Expert Committee on Company Law in the year 2005. The committee recommended that the “Limited Liability Partnerships should be facilitated through a separate enactment. Companies Act need not prescribe limitations on the number of members of other kinds of organizations.”
LLP’s International experience!
Limited Liability Partnerships are very popular form of business organizations in United Kingdom, United States and Singapore. In early 1990’s Limited Partnerships emerged in United States. As the years passed, over forty states of America adopted the LLP statutes by the year 1996, the year when the Uniform Partnership Act (UPA) came in to existence.
In United Kingdom, Limited Liability Partnerships are governed by Limited Liability Partnership Act, 2000. The Act become a law on 1stApril 2001. Under U.K. law, the LLP is a “fiscal transparency”. It means that it is not subject to taxation. Only members are liable to pay taxes.
How the LLP can be incorporated?
1. LLP can be incorporated when two or more persons intend to join together for a lawful business with a motive of earning profit and subscribe their names to the incorporation documents. The incorporation document should be filled in a prescribed manner along with fees with the registrar whose jurisdiction its registered office is situated. The incorporation document should be accompanied with the statement in prescribed form made by an advocate, company secretary, or chartered accountant who is engaged in formation of LLP and one partner who has subscribed to the incorporation document. This statement states that all the requirement of the Act and the rules made there under have been complied with respect of incorporation.
2. The required for incorporation are as follows:
§ The incorporation document shall be in a form as may be prescribed.
§ The name of LLP which is to be incorporated.
§ The proposed business of LLP should be mentioned in the document.
§ The name & address of the registered office should be inserted in the document.
§ The name & address of each person who are partners. The names of the designated partners of LLP should also be given.
3. The certificate of incorporation will be the conclusive evidence that the LLP is incorporated by the name specified in the incorporation document. (…..cont.)