News: India Inc hails introduction of LLP Bill

(BS 27/12/2006) New Delhi - The government’s move to introduce the Limited Liability Partnership (LLP) Bill in the recently concluded Parliament session has been welcomed by various corporates of the country who feel that the Bill, if converted into an Act, would organise the entrepreneurial initiative and allow for the evolution of new multi-disciplinary practice to offer a consolidated product or service.

Also, it would prepare the Indian professionals to compete with the highly growing sophisticated professional industry of the West which is already eyeing the sub-continent.

The Company Affairs Ministry has said that the need to have the new law has long been recognised for businesses which may require a framework to provide flexibility, suited to the requirements of the services.

Pallavi Shroff, senior partner of Amarchand and Mangaldas firm, upholds this viewpoint. “The new law shall, without imposing a detailed legal and procedural requirements intended for large widely held companies, will be an alternative corporate business vehicle offering benefits of limited liability besides giving its members a free hand to organise their internal structure as partnership based on agreement.’’

Shroff added that it was a very welcome legislation for professional services. In the present scenario, people enter into partnerships under the Indian Partnership At, 1932. However, there are restrictions as more than 20 partnerships would mean incorporating the firm into a company.

To avoid this, people adapt different means and ways to evade the limitation in the present law. Amit Kapoor, head of the infrastructure practice of J Sagar and Associates also feels that people seldom enter into a partnership as there is always a risk of being held responsible for the acts of the other partner.

“LLP would mean protection from any litigation. If a person has certain financial interest in a particular partnership, the same remains intact in case the other partner gets sued,’’ said Kapoor.

According to him the law will change the paradigm. Professionals will be encouraged to come together and LLP will start the practice of convergence.

“Today one does want to rely on somebody’s competence but is deterred with regard to the liability. This stalls different professionals to enter into partnership,’’ he added.

LLP is also aimed at building the small scale industry. As per the survey of Ministry of Small Scale industry more than 90 per cent of small scale industry are individual proprietorships while only 2 per cent constitute partnership.

Advocate Suman Batra of Kesar Dass states LLP shall promote the service sector to become more organised and have a legal form. This, he claims, would entitle the small scale industry to have access to financial loans from financial institutions.

“In absence of a structured form of business, banks and financial institutions hesitate in sanctioning loans to a small scale industry as it is difficult to recover loan from an individual. Since LLP will promote more legalised firms in the country, there will be no hesitation in giving loans to an LLP.

In case of a default, the LLP can be would up just like a company under the Companies Act. Even in that case, the interests of partners remains protected,’’ adds Batra.

He further states that for professionals it will be a huge leap forward if LLP is made an Act. ``Even a law firm or an chartered accountant firm will be, under the LLP, able to raise capital by taking loans,’’ says Batra.

He cites an example from the West of how law firms internationally are more organised. ``Before taking up a case, law firms abroad sign an engagement document with the client informing the latter about the liability of each partners in the company. This enables a more professional approach towards work,’’ he adds.