understanding LLP Act (Limited Liability Partnership Act)

By | August 12, 2015

APPLICABILITY OF THE LLP ACT

 1. Whether the LLP Act is applicable to any specific services like professional services regulated by Statutes?

No.Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP.

In the light of various inputs received by this Ministry for applicability of the LLP form to small entities and venture capital funded enterprises, it is proposed that the framework should not be restricted to professional services alone as was earlier recommended by Naresh Chandra Committee. Accordingly, the LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only.

2. Likely users/beneficiaries of the LLP Law?

India has witnessed considerable growth in services sector and the quality of our professionals is acknowledged internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a further impetus to our impressive economic growth. Equally the services sector promises an economic opportunity similar to that provided by information technology over the past few years. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients. In view of all this, the LLP framework could be used for many enterprises, such as:-

  ♦  Persons providing services of any kind

  ♦  Enterprises in new knowledge and technology based fields where the corporate form is not suited.

  ♦  For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs), Company Secretaries (css) and Advocates, etc.

  ♦  Venture capital funds where risk capital combines with knowledge and expertise

  ♦  Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services.

  ♦  Small Sector Enterprises (including Micro, Small and Medium Enterprises)

  ♦  Producer Companies in Handloom, Handicrafts sector

3. Whether an entity which has objectives like “charitable or other not for profit objectives” would be able to set up under LLP Act?

No. The essential requirement for setting LLP is ‘carrying on a lawful business with a view to profit’.

4. Whether provisions of Indian Partnership Act, 1932 would be applicable to LLPs?

No, these shall not be applicable to LLPs.

5. Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made?

The Companies Act is not suited to the liability and governance structure intended for LLPs. The overall intent of the legislation to regulate widely-held companies is different. Therefore, in accordance with the recommendations of the Irani Committee, it is felt appropriate to bring about a separate legislation for LLPs. The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level. Besides, a partnership firm involves full joint and several liability of the partners. Because of this, many firms/enterprises engaged in biotech, information technology, Intellectual property and other knowledge based sectors find traditional partnerships unsuitable. The traditional partnerships are also considered unsuitable for multi-disciplinary combinations comprising a large number of partners, seeking a flexible working environment but with limited liability. LLP structure would promote growth and enable such firms/enterprises expand their trade/business or services across States in India as also abroad.

6. Committees, which have made recommendations for legislation on LLPs in India

The desirability of LLP form has been expressed in the context of small enterprises by :-

  ♦  Bhat Committee (1972);

  ♦  Naik Committee (1992);

  ♦  Expert Committee on Development of Small Sector Enterprises headed by Sh. Abid Hussain in 1997 and

  ♦  Study Group on Development of Small Sector Enterprises (SSEs) headed by Dr. S P Gupta (2001).

Following Committees set up by M/o Company Affairs have also recommended for legislation on LLPs:-

  ♦  Committee on Regulation of Private Companies and Partnerships headed by Sh. Naresh Chandra (2003)

  ♦  The Committee on New Company Law (Dr. J.J. Irani Committee) (2005)

7. Whether Ministry has adopted a “Consultative Approach” while bringing out the LLP Act?

Yes. The Ministry of Corporate Affairs, on 2nd November, 2005, placed a Concept Paper on LLP Law on its website so that all interested stakeholders may express their opinions on the concepts involved and suggest formulations for the consideration of the Ministry on various aspects of LLP Law. The Concept Paper was also circulated to various concerned Ministries/Departments and autonomous bodies like Comptroller and Auditor General of India (C&AG), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA) etc. for their comments. Large number of comments and suggestions were received by the Ministry on the Concept Paper. These were examined in light of international practice/law on the subject. The Act has been prepared keeping in view the Indian requirements.

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