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Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 asked

Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made?

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4 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

Dear Friend, Companies, LLP and Partnership firms are different forms of business organisation. EvenLLPs are one of categories of Partnerships itself they are fundamentally differ from each other in the following ways: (a) Separate Personality being given to LLPs whereas Partnerships does not have such feature. (2) question of limited liability does not arise in partnership forms whereas the LLPs primary objectives was to offer separate personality with limited liability. As such, it is not possible to meet these two requirements under present Partnership Act. conceptually moreover, an amendment cannot take away Acts basic characteristics all together. Further, LLPs feature is similar to a company (private company and LLP have many common points like minimum & maximum number of members, share tractability, Liability etc) however, LLP except in some stated similarities there are many more differences like Private Placement, managerial remuneration, meetings etc as such they cannot be take care by Company law as well.

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Open uri20170510 32134 s5bvk0?1494421637 answered

Dear Friend, as far as your query is concerned that Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made? Let me informed that The Companies Act is not suited to the liability and governance structure intended for LLPs. The overall intent of the legislation to regulate widely-held companies is different. Therefore, in accordance with the recommendations of the Irani Committee, it is felt appropriate to bring about a separate legislation for LLPs. The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level. Besides, a partnership firm involves full joint and several liability of the partners. Because of this, many firms/enterprises engaged in biotech, information technology, Intellectual property and other knowledge based sectors find traditional partnerships unsuitable. The traditional partnerships are also considered unsuitable for multi-disciplinary combinations comprising a large number of partners, seeking a flexible working environment but with limited liability. LLP structure would promote growth and enable such firms/enterprises expand their trade/business or services across States in India as also abroad. Hope answer was helpful to you Regards, Arjun Pratap Singh

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

The Companies Act is not suited to the liability and governance structure intended for LLPs. The overall intent of the legislation to regulate widely-held companies is different. Therefore, in accordance with the recommendations of the Irani Committee, it is felt appropriate to bring about a separate legislation for LLPs. The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level. Besides, a partnership firm involves full joint and several liability of the partners. Because of this, many firms/enterprises engaged in biotech, information technology, Intellectual property and other knowledge based sectors find traditional partnerships unsuitable. The traditional partnerships are also considered unsuitable for multi-disciplinary combinations comprising a large number of partners, seeking a flexible working environment but with limited liability. LLP structure would promote growth and enable such firms/enterprises expand their trade/business or services across States in India as also abroad.

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pavan konduru commented over 2 years ago

Hi Aarti good morning !!!!!! i have gone through your answer but i did not understand how these two could be the reasons for not choosing traditional model of partnership could you explain please: 1. "The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level". 2. Besides, a partnership firm involves full joint and several liability of the partners.

Aarti Vadnerkar commented over 2 years ago

Dear Pavan, As I said, LLP Structure would promote growth and enable such firms/enterprises expand their trade/business orservices across states in India as also abroad while in case of partnership firm its enforcement is at the state level only. In case of Partnership firm, partners are liable jointly & severally in case of partnership affairs. Liability is also unlimited in case of partnership firm, but in case of LLP, partners are liable upto their contribution only. Therefore seperate legislation for LLP was formed.Also in Partnership, partners will not enjoy seperate legal entity while in LLP, it has a seperate legal entity from partners. Hope this will be helpful to you.

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 answered

Dear Rashmitha This is very important, thought provoking and concept based question. i address as under: ** 1st part: -------- - **LLP Vs. Partnership Act**: 1. although Limited Liability Partnerships are one of categories of Partnerships itself they are fundamentally differ from each other in the following ways: (a) Separate Personality being given to LLPs whereas Partnerships does not have such feature. (2) question of limited liability does not arise in partnership forms whereas the LLPs primary objectives was to offer separate personality with limited liability. As such, it is not possible to meet these two requirements under present Partnership Act. conceptually moreover, an amendment cannot take away Acts basic characteristics all together. 2nd Part: LLP Vs. Companies Act, 2013 2. LLPs feature is similar to a company (private company and LLP have many common points like minimum & maximum number of members, share tractability, Liability etc) however, LLP except in some stated similarities there are many more differences like Private Placement, managerial remuneration, meetings etc as such they cannot be take care by Company law as well. 3rd Part: LLP: 3. As such LLPs are a head forward to partnerships but far behind to companies therefore a new law was required to bring this hybrid institution (of both partnership & company). **comment:** at the end of the day all these business entities (including Societies) converge into a body corporate in the course of time. hope i am clear in my point. thanks - Pavan

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