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In India professionals like the Chartered Accountants (CA), Company Secretaries (CS) ,Cost Accountants(CWA) and Advocates are allowed to practice their profession under partnership but they can enter into partnership with their own professional colleagues only. For instance, a CS partnership can have only CS as its partners; moreover they cannot practice their profession under Company form of business organization. The restriction on entering into partnership with professionals of other discipline is one of biggest reason for slow development of the profession and biggest obstacle in realizing the synergies of different professional expertise.
Even in case of partnership, the maximum number of persons, which can be made as partners, is restricted to 20, which severely restricts the scope of business and future expansion plans.
With the notification of Limited Liability Partnership Act, 2008, the Government of India has introduced the concept of Limited Liability Partnership (LLP) in India.
A Limited Liability Partnership is a hybrid of existing partnership firms and full-fledged Companies. A minimum of two partners are required for formation of an LLP. Besides, there is no limit on the maximum number of partners, unlike the current limit of 20 members in a partnership firm.
The concept of LLP offers great opportunity to professionals like CA/CS/CWA/Advocates to develop, as now they can enter into partnerships with professionals of different disciplines for instance, a CS can enter into partnership with CA. A LLP as a business organization for professionals offers following advantages:
- No Limit on maximum number of partners, can have partners all round the globe
- Can enter into partnership with professionals of other disciplines
- Limited Liability except in case of fraud
- Not liable for acts of other partners
- No exposure to personal assets
- LLP will be treated as Body Corporate and shall have perpetual succession
- Joining & Cessation of partners, will not lead to dissolution of the firm.
- Less compliances
- More creditworthiness than partnership
LLP is already a renowned business organization worldwide and most of big professional firms like PWC, E & Y etc. are registered in form of LLP.
In case of Professional LLP, the major issues to be considered is whether these are allowed to render audit and certification services. As in case of partnership, there is no separate identity between the partnership firm and the partner and therefore , for example while signing the audited balance of any company, the partner signing is personally responsible but in case of LLP, since there exist separate identity and partners would be doing all acts on behalf of the LLP, therefore they would not be personally liable for their wrong done and consequently will not be rendering efficient services.
Therefore it would take time, before professionals like CA/CS etc can form and start practicing under multi disciplinary LLP’s as there regulators — Institute of Chartered Accountants of India (ICAI) and Institute of Company Secretaries of India (ICSI) etc have yet allowed CA & CS to form multi disciplinary LLP.
Company Secretaries can become passive partner in LLP
The Institute of Company Secretaries of India has allowed Company Secretaries in practice to become passive partner of Limited Liability Partnership the objects of which include carrying out non-attestation services which fall within the scope of the profession of Company Secretaries irrespective of whether or not the practicing member holds substantial interest in that LLP
“Attestation Services” include services which require signing any certificate, document, report or any other statements relating thereto on behalf of a Company Secretary in Practice or a firm of such Company Secretaries in his or its professional capacity or which require signing anything that is required to be signed by a Company Secretary in practice.
A “passive partner” means a partner of LLP who fulfils the following conditions:
- he must not be a designated partner;
- subject to the LLP agreement, he may make agreed contribution to the capital of LLP and receive share in the profits of the LLP; and
- he must not take part in the management of the LLP nor act as an agent of the LLP or of any partner of the LLP;
Provided, none of the following activities shall constitute taking part in the management of the LLP:
- Enforcing his rights under the LLP agreement (unless those rights are carrying out management function).
- Calling, requesting, attending or participating in a meeting of the partners of the LLP.
- Approving or disapproving an amendment to the partnership agreement.
- Reviewing and approving the accounts of the LLP;
- Voting on, or otherwise signifying approval or disapproval of any transaction or proposed transaction of the LLP including -
- the dissolution and winding up of the LLP;
- the purchase, sale, exchange, lease, pledge, mortgage, hypothecation, creation of a security interest, or other dealing in any asset by or of the LLP;
- a change in the nature of the activities of the LLP;
- the admission or removal of a partner of the LLP;
- transactions in which one or more partners have an actual or potential conflict of interest with one or more partners or the LLP;
- any amendment to the LLP agreement;
“Substantial Interest” a member shall be deemed to have a substantial interest in the LLP if he/she is entitled at any time to not less than 25% of the profits of such LLP.