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Limited
Liability Partnerships: A possible boon for Professionals in India?
The
Ministry of Company Affairs ("MCA") in India will, within
a few days, come out with an approach paper to invite comments
from all stakeholders on how to shape a new law allowing limited
liability partnerships ("LLPs").
A
LLP is a form of business entity, widely used in other countries
of the world, which permits individual partners to be shielded
from joint liability created by another partner's decision or
misconduct. The Government had set up the Naresh Chandra Committee
("NCC") which advised the Government on occasions on which
a partner's deeds would constitute a liability for the partnership
and where a partner's immunity from liability should end. The
Committee had further recommended that no restriction should be
placed on the number of partners in a LLP. The J.J. Irani Committee,
which advised the MCA earlier this year on the proposed new company
law, favoured the form of a business entity where there would
not be any restrictions regarding the maximum number of partners.
At present, The Indian Partnership Act, 1932 prescribes a minimum
of two and a maximum of twenty partners for all partnerships,
except in the case of banking where the maximum limit is ten.
It
is still not clear as to which sectors will be included within
the scope of this proposed LLP legislation. It is believed that
the services that are likely to receive a significant boost in
India are insurance consultancy services and equity investment
services like venture capital funds. In this context, it may be
recalled that that the Reserve Bank of India ("RBI") had
earlier disallowed New Bridge Capital, a US based private equity
fund from acquiring Global Trust Bank since the concept of LLPs
is yet to gain legitimacy in India.
As
per the NCC's recommendations, the scope of LLP should at first
be made available to firms providing professional services as
opposed to trading or manufacturing firms. If this be the case,
then the professionals will soon be able to do riskier business
without the fear of losing their personal assets in order to cover
the possible liabilities of their partnership.
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You
can direct your queries or comments to the authors
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Source:
The Economic Times, dated October 11, 2005.
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