Barrister Ahmad Farooq Malik
Limited Liability Partnership Act, 2017 (XV of 2017) supplemented by the Limited Liability Partnership Regulations, 2018 has introduced the concept and option of forming a Limited Liability Partnership (LLP) in Pakistan. LLP is a well recognised form of business in many countries. Under the auspicious of the Securities & Exchange Commission of Pakistan (SECP), being the regulatory body for an LLP business form, an LLP now is an option ready to be utilised and explored by Pakistani businesses. Much would remain to develop in the jurisprudence of this area with time, if and when the courts will face the task of interpretation of the provisions of the Act of 2017 and/or the Regulations of 2018.
In Pakistan, general partnership firms are still incorporated and regulated under the old Partnership Act 1932. Such formed partnership firms are not considered as juristic person (legal personality) and partners of firm have unlimited personal liability to fulfill the obligations and liabilities of the firm. General partnerships are normally formed where there is a desire to have some structural flexibility along with some formality of relationship between partners. There is no compulsory requirement for registration of a general partnership in Pakistan. On the other hand, LLP is a new form of corporate structure that brings together the flexibility of a general partnership and the advantages of limited liability of a company at a low compliance cost. Owing to flexibility in its structure and operation, LLP would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular. Introduction of LLP in Pakistan is expected to enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
Some salient features of the Limited Liability Partnership Act, 2017 (XV of 2017) and the Partnership Act 1932 (dealing with general partnerships with unlimited liability) are as follows
|General Partnership||Limited Liability Partnership (LLP)|
|Governing Law||Partnership Act, 1932||Limited Liability Partnership Act, 2017 and Limited Liability Partnership Regulations 2018|
|Regulated By||Provinces through Registrar of Firms / Industry Department||SECP|
|Registration||Optional. Optional registration is required with registrar of firms.||Mandatory. Compulsory /LLP registration with SECP.|
|Charter document||Partnership Deed||LLP Agreement|
|Liability||Unlimited liability of Partners||A partner is not personally liable. Limited to capital contribution, except in case of fraud.|
|Legal Status||Partners are collectively known as firm, so there is no separate legal entity.||It is legal entity separate from its partners.|
|Minimum and Maximum partners||2 to 20 partners||2 to unlimited Even a body corporate or a company can now be a partner. Shall have at least one designated partner|
|Property||Cannot be held in the name of firm.||Can be held in the name of the LLP. Property, assets, liabilities, rights, privileges and obligations can be owned by LLP as it enjoys separate legal existence apart from its partners|
|Audit of accounts||Not mandatory||Mandatory. But need not to be filed with SECP.|
|Liability||Partners have unlimited liability hence they remain liable for unlawful acts of other partners.||Partners have Limited Liability because they can bind LLP with their act but not to other partners.|
|Legal Entity||Partnership is not a separate entity from its members. Partners are collectively referred to as firm.||LLP is a separate legal entity from its partners.|
|Perpetual succession||Partnership can be dissolved on death or retirement||LLP has perpetual succession irrespective of death or retirement of either partner.|
Further, the following are also noteworthy:
- The form and value of contribution to partnership of a partner can consist of moneys, negotiable instruments, properties including valuable rights, intangibles, knowledge and skill and the monetary value of contributions can be legally enforced.
- The rights of a partner to a share of the profit and losses are transferable wholly or in part. Such transfer can be done without the partner disassociating himself from the partnership. Assignee does not get any right by virtue of such transfer to participate in the management of the partnership.
- A firm constituted under the Partnership Act, 1932 or a private limited company incorporated under the company law (the repealed Companies Ordinance, 1984 or the new Companies Act, 2017) can be converted into an LLP under the new law.
- Winding up/Dissolution can be voluntary or by Court (for specific reasons as stipulated in the Act of 2017).
- No new partners can be introduced in the LLP without the consent of all remaining and existing partners.
Incorporation Process in Brief:
- Reservation of LLP name
- Application for incorporation of limited liability partnership. (LLP-Form-III) either online or in physical form for incorporation of LLP along with fee as per fee schedule and the following documents, –
(i) copies of National Identity Card (CNIC) of the partners and of designated partners and in case of physical application, of witness to the documents and in case of foreigner, a copy of passport;
(ii) attested copy of LLP agreement duly executed by the partners, witnessed and notarized;
(iii) consent of designated partner (if any);
c) The registrar shall examine the incorporation documents submitted for registration of LLP and if satisfied that the same are complete and in conformity with the requirements of the Act and these regulations, shall register the documents.
d) On registration of incorporation documents, the registrar shall issue certificate of incorporation.
e) Every individual who agrees to act as designated partner shall file his prior consent on LLP-Form-IV [Part I] with the LLP and the LLP shall file the particulars of designated partner along with his consent to act as such with the Registrar as per LLP-Form-IV [Part II] within thirty days of the receipt of his consent.
- An auditor of a LLP shall be appointed after seeking approval of partners through resolution passed by a majority of partners. The first auditor shall be appointed by the partners within sixty days of the date of incorporation of the LLP.
SECP has done a tremendous task and the result is impressive as the new
law provides more allowances for partners as compared to under The Partnership
Act, 1932. It will also be interesting to see how businesses present or future,
welcome this new option and take it up in due course bringing themselves under
the regulatory framework of the SECP. Smooth and transparent incorporation,
regulation and winding up of LLPs must remain the priority which is evident
from the well drafted law.