The Hindu Business Line : Cabinet nod for Limited Liability Partnership Bill

Alternative vehicle
Will allow members the flexibility of organising their internal structure as partnership based on an agreement.
Will enable professional expertise and entrepreneurial initiative to combine, organise and operate in an efficient manner

New Delhi , Dec. 8

The Union Cabinet on Friday gave its nod for introduction of the Limited Liability Partnership Bill, 2006 in Parliament. The LLP will be an alternative corporate business vehicle that would not only give benefits of limited liability but would allow its members the flexibility of organising their internal structure as partnership based on an agreement.

Legal entity

A LLP as proposed in the Bill would be a body corporate and a legal entity separate from its partners.

Even as a LLP will be a separate legal entity liable to the full extent of its assets, the liability of the partners will be limited to their agreed contribution in the structure.

Besides, no partner would be liable on account of independent or unauthorised action of other partners, thus allowing individual partners to be shielded from joint liability created by another partner's wrongful business decision or misconduct.

With the increasing role of services sector and growing diversity in the range of services being offered, a need was felt for a new corporate form that would enable professional expertise and entrepreneurial initiative to combine, organise and operate in an innovative and efficient manner, official sources said.

The LLP form would allow professionals and enterprises engaged in information technology sector, science and technology sector, and venture capital business among others to create commercially efficient vehicles for providing business and services of high quality.

The Bill envisages that a LLP will have perpetual succession. It further stipulates that the Indian Partnership Act, 1932, shall not be applicable to LLPs.

Restrictions

The proposed Bill does not restrict the benefit of LLP structure to certain classes of professionals only and would be available for use by any enterprise, which fulfils the requirements of the Act.

Further, an LLP shall be under obligation to maintain annual accounts reflecting true and fair views of its state of affairs. As regards tax issues, the Bill stipulates that tax matters of all entities are addressed in the Income-Tax Act, and the taxation of LLPs would also be addressed in that Act.

On the issue of mergers, amalgamations, winding up and dissolution, the Bill envisages that suitable provisions would be provided by way of rules under the LLP Act.