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New Delhi, Dec. 8: Limited liability partnerships are on its way in India, following yesterday’s cabinet nod to the proposal. A limited liability partnership (LLP) restricts the liability of a partner to just the contribution made to the partnership.
Sources said the bill, to be made public after it is placed before Parliament, would let foreigners be part of such partnerships as long as one of the partners is a resident of India.
Sources said companies could now set up partnerships and allow them to join hands with individuals and do business. For instance, a scientist can share his invention with a pharmaceutical company to exploit commercially the invention.
The sources added that the law would be flexible enough to let foreign companies be part of LLPs.
They said the bill defined LLP as one where the liability of a partner is restricted to his contribution to the partnership and where the personal assets of a partner are not attached to square up the partnership's liability.
The officials said that this new class of business were for the small firms who want to get the benefits of corporatisation without being a limited company.
Except micro-finance institutions, the partnership is for small business, micro business and professionals such CAs, accountants, architects, and lawyers and even venture capital firms.
Government sources said the bill would be brought soon before the Parliament in this winter session. The scope of the bill will be wider than the recommendations of the Naresh Chandra committee on corporate governance which proposed to restrict such partnerships to just among accountancy and law firms.
However, stung by the vanishing companies scandal and the penny stock scandal, the government has decided to extend the partnership to all small businesses and knowledge based entities, though the rules will initially be for professional and service sector firms.
The bill allows existing partnerships and non-listed firms to become LLPs, but does not permit listed companies to become LLPs.
Indian businesses are formed under the Indian Partnership Act 1932 or the Companies Act 1956. The new law will create an entirely new class of entities that will enjoy benefits of both partnerships and companies.
All LLPs will have to give an annual solvency declaration and file audited accounts. Very small firms can be exempted from filing audited accounts at the discretion of the government. While the minimum number of partners in an LLP will be two, the maximum number is left to the LLPs’ discretion.
LLPs are a Central subject and would be monitored by central government agencies. The standards of financial disclosures will, however, be the same as private companies.
The tax laws will be similar to the laws for partnership firms and not limited companies. “In legal perspective, the LLPs will be a hybrid between a company and a partnership, but perhaps closer to a private company,” officials said.
Under the limited liability law, for business failures and complex case of claims and disputes, the liability would be restricted to partners responsible for the breach of law. There would be no recourse to attach the personal assets of partners who are not responsible for the breach of law.
