Finally, some movement on the Limited Liability Partnership Bill

As reported across several papers, Shri Prem Chand Gupta, Minister of Corporate Affairs, in the government on Tuesday introduced the revised Limited Liability Partnership Bill, 2008 in the Rajya Sabha. The Bill provides for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto.

With the imminent opening up of the accounting and legal and other professional services sectors this Bill will play an important role in creating a level playing field for the professionals of India. The Institute of Chartered Accountants of India, has already made the necessary amendments allowing its members to partner with members of other professions. The other professional bodies are also making similar amendments to facilitate the process. This will help in creating larger multi-disciplinary firms which can service clients across domains.

Limited Liability Partnership (LLP) as proposed in the Bill, 2008 is a new corporate form that enables professional expertise and entrepreneurial initiative to combine, organize and operate in an innovative and efficient manner. In India, this need has long been recognised for businesses which may require a framework that provides flexibility suited to requirements of service, knowledge and technology based enterprises.

Services sector is playing a major role in the national economy and there is a growing diversity in the range of services being offered. The services sector would also find this form very useful. The advantage of the LLP form would be that it will not impose detailed legal and procedural requirements intended for large widely held companies on such enterprises. In this way it will also be useful for small enterprises.

The need for LLP legislation has been recognized for a very long time. Various committees and Expert Groups have, from time to time, recommended introduction of LLP legislation in India.  In the last decade itself, Abid Hussain Committee (1997) had recommended this legislation in the context of SSIs. The Naresh Chandra Committee on Regulation of Private Companies and Partnerships (2003) and Dr. Irani Committee on New Company Law (2005) had also made recommendations for a separate  LLP Legislation.

However, it is the recent initiative of the Ministry of Corporate Affairs that has enabled this legislation to be finalized and tabled in the Parliament.

Government had earlier introduced the Limited Liability Partnership Bill, 2006 in the Rajya Sabha on 15^th December, 2006. It was later referred to the Department Related Parliamentary Standing Committee on Finance for examination and report. The Committee submitted its recommendations in its report to both Houses of Parliament on 27^th November, 2007. The present Bill, 2008 has taken in view the recommendations made by the Standing Committee and other relevant inputs.

The salient features of the LLP Bill, 2008 are as follows:

(i)         The LLP will be an alternative corporate business vehicle that would give the benefits of limited liability but would allow its members the flexibility of organizing their internal structure as a partnership based on an agreement.

(ii) The Bill does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise which fulfills the requirements of the Act.

(iii) While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

(iv)        LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs. Since LLP shall be in the form of a body corporate, it is also proposed that the relevant provisions of the Companies Act, 1956 may be made applicable to LLPs at any time in the future by Notification by Central Government, with such changes or modifications as appropriate.

(v) An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. Since tax matters of all entities in India are addressed in the Income Tax Act, 1961, the taxation of LLPs shall be addressed in that Act.

(vi) Provisions have been made in the Bill for corporate actions like mergers, amalgamations etc.

(vii)       While enabling provisions in respect of winding up and dissolutions of LLPs have been made in the Bill, detailed provisions in this regard would be provided by way of rules under the Act.

Prior to introducing the LLP Bill, 2008, Shri Prem Chand Gupta withdrew the earlier Limited Liability Partnership Bill, 2006.