Limited liability partnership THE ‘Limited Liability Partnership Bill, 2016’ has been taken up by the National Assembly Standing Committee on Finance. It was presented in the assembly in the first week of this month.
The Limited Liability Partnership (LLP) is the mode of establishing small scale partnerships under a new form of business structure.
The new structure will remove the difference between two types of firms: sole proprietorships/partnerships – the liability of whose partners is unlimited, and the firms whose sponsors enjoy the benefits of limited liability.
The SECP, which has initiated the move, feels that there is a need for an alternative to the concept of traditional partnership and company structure, to enable professionals, entrepreneurs and SMEs to jointly organise and operate their businesses in a flexible, innovative and efficient manner.
The LLP will enable individual partners to shield themselves from the joint accountability created by another partner’s faulty business decision or misconduct.
The LLP will permit individual partners to shield themselves from the joint accountability created by another partner’s faulty business decision or misconduct
The two primary considerations for introducing LLPs are the ‘Risk Factor Advantage’ associated with such enterprises and the ‘Enhanced Global Competitive Advantage’- an LLP vehicle offered to Pakistani professionals.
Under the proposed LLP law, two or more persons can establish a ‘lawful business’ which will have the acronym ‘LLP’ as the last words of its name.
It further provides elaborate contributions to be decided mutually by the partners that may consist of money, negotiable instruments, properties (including valuable rights), intangibles, knowledge and skills, etc.
The detailed requirements for financial disclosures include maintenance of accounts, other records and audit, inspection of documents kept by the Registrar, penalty for false statement, filing and registration of documents. The proposed law also allows the compromise, arrangement or reconstruction and winding up of the LLP.
Such business registration models have already been adapted by most of the developed, and counterpart, jurisdictions. Any foreign LLP will also be allowed to operate in the country.
In Pakistan, this need has long been recognised for small and medium businesses, which require a flexible regulatory framework for a LLP with less stringent requirements.
As SMEs play a pivotal role in the services sector, they would be the main beneficiary. The LLP would not impose detailed legal and procedural requirements, as is the case with large scale corporate structures.
Any change in the partners of an LLP firm shall not affect the existence, rights or liabilities of the LLP. Besides, the rights of a partner to a share of the profits are transferrable either wholly or in part. The transfer of any such rights will not cause the dissolution of the LLP.
LLPs will be taxed as a partnership, but will have the benefit of being a corporate, or more significantly, a separate juristic entity having perpetual succession but distinct from its partners.
The law also allows conversion of firms, including private companies, into LLPs.
The LLP law has been developed by the SECP in collaboration with the United States Agency for International Development, after a series of consultative and advocacy sessions.
Five notable sessions were held in Karachi, Lahore, Islamabad, Sialkot and Faisalabad in 2014 which were attended by government representatives, business leaders, members of academic institutions and other stakeholders.
While, briefing the finance ministry about the importance of LLP, the SECP Chairman had said that the growth of Pakistan’s economy was contingent upon the role played by its entrepreneurs, along with technical and professional manpower.
The introduction of LLP will also be a step towards documentation of the economy and will help convert the informal, unregistered, and unregulated sector into a formal and regulated regime.