Limited liability partnership (LLP) is a partnership concern in which some or all partners have limited liabilities. It therefore can display the essentials of partnerships and companies. In an LLP, each partner is not liable for another partner’s misconduct or negligence. This is an important difference from the traditional partnership under the Partnership Act 1890, in which each partner has joint (but not several) liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a company.
Unlike company shareholders, the partners have the right to manage the business directly. In contrast, company shareholders must elect a board of directors under the Companies Act, 2017. An LLP also contains a different level of tax liability from that of a company.
Limited Liability Partnership (LLP) is a new business structure in Pakistan introduced by the Securities & Exchange Commission of Pakistan. The reason for introducing this business structure was to bridge the gap between small organisational units such as sole proprietorships and partnerships, which are most of the times unregistered and limited liability companies that are either governed by the Companies Ordinance, 1984 or Companies Act, 2017.
LIMITED LIABILITY PARTNERSHIP SETUP IN PAKISTAN
Limited liability partnerships are distinct from limited partnerships in many countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries, the LLP is more suited for businesses in which all investors wish to take an active role in management.
ZA-LLP prides itself in the ability to bring to clients the freedom to form a business organization of their liking, under the tenets of the corporate law of Pakistan. Our team of skilled attorneys owing to their substantial experience in corporate and business affairs in Pakistan specialise in the forming of businesses of various types whether it be companies, partnerships or limited liability partnerships. Our expertise in law enables our clients to understand better the provisions and requirements of the formation of Limited Liability Partnerships and help register, incorporate, litigate or dissolve LLPs. We bring to you as per the Limited Liability Partnership Act, 2017 and Limited Liability Partnership Regulations, 2018, the ability to establish your own LLP and can help you acquire the registration of your LLP.
ZA-LLP will prepare your LLP Deed, which will be signed by all partners and two witnesses and will get it notarised. It will then be submitted to SECP along with copies of NICs of all partners and copies of Passports of Foreign Partners accompanied by prescribed SECP Fee. The Fee must be deposited either in United Bank Limited (UBL) or Muslim Commercial Bank Limited (MCB).
The benefits of choosing an LLP over the old type of partnership firms are manifold. The Limited Liability Partnership Act, 2017 and Limited Liability Partnership Regulations, 2018, enable the partners of the LLP to enjoy a limited liability previously extended only to limited companies and denied to partnerships under the old Partnership Act, 1932. Another benefit that an LLP enjoys over Firms is that a Firm is established via the Partnership Deed which evokes an upper limit of 20 for the number of partners that a firm may have, however, there is no such limitation regarding Partners in LLP.
The registering organisations differ for the two types of partnerships as well since the Registrar of Firms in each province registers Firms under the Partnership Act, 1932, whereas the LLP is being registered by the Securities and Exchange Commission of Pakistan. This entails that an LLP will be a ‘Body Corporate’ which has a separate legal existence that is distinct from its partners. This also provides the LLP the ability to hold property in its name whereas a Firm is unable to do so. An LLP cannot be dissolved by the partners owing to the separate legal identity however, a Firm may be dissolved at will. According to the act, the registration of an LLP is mandatory, but a Firms’ is optional.
The LLP will be treated as Association of Persons (AOP) under Income Tax Ordinance, 2001.
Any two or more persons associated with business with an intention to make profit may, after registration with the SECP as per the Limited Liability Partnership Act, 2017 and Limited Liability Partnership Regulations, 2018, establish an LLP.
The process of forming an LLP begins with the selection of a name subject for the organization and the submission of an application (Form I- Part I) to the registrar of the Securities & Exchange Commission of Pakistan (SECP) for the reservation of the chosen name which can be submitted online or in physical form. The chosen names are subject to the criteria set under Sec. 6 of the Act. In accordance with the availability of the select name, the submission of all relevant documents and the payment of the prescribed fee, the LLP will be registered within 2 days.
With the satisfaction of the Registrar, the applicant shall be allowed to apply for incorporation of the LLP as per the Form I-Part II within 30 days. Next the applicant shall apply for incorporation as per the Form III which requires all relevant documents and the payment of the prescribed fee. This can also be done online or in physical forms. If satisfied, the Registrar will issue a certificate of incorporation under the Act and register the LLP.
In case of refusal of application, the applicant may file an appeal to the Appellate Branch of the Commission within a time period of 60 days.
The LLP Act 2017 also allows for the conversion from a Firm or a private limited company into an LLP. This is to be done in accordance with the LLP-Form VI which is to be submitted to the Registrar along with the relevant documents and fee. If the Registrar is satisfied with the application, the Registrar shall issue a certificate of incorporation in accordance with LLP Annexure II and register the LLP.
Dissolution of an LLP can be either voluntary or through court.
The Registrar may also decide to strike down the name of the LLP from the register in case an LLP does not operate in accordance with the Act or fails to comply with any of its provisions. In this case the Registrar must issue a cause to the LLP and its partners of his intention. After a period of one month passes, the Registrar may strike down the name of the LLP from the register via an order in writing and officially publish a notice of such in the Gazette. The LLP therefore stands dissolved.
The LLP will have a Designated Partner to handle the affairs relating to administrative matters as required under Sec. 10 of the Act.
With the prior approval of the Registrar, the physical forms of documents and records of the LLP kept at the LLP Registration Office may be destroyed after the expiration of, firstly, a period of ten years from the filing of the record in question in case the LLP exists, and secondly, the expiration of five years from the date of dissolution of LLP in case the LLP stands dissolved. If the said documents are not a part of any current court proceedings and are not ordered by the Court, the Commission or any competent authority then the records shall be preserved until the termination of said proceedings.
The documents filed via the online services of the SECP shall be preserved permanently. It must also be ensured that the destroyed records shall permanently be preserved in electronic forms.
The SECP amended the Limited Liability Partnership Regulations, 2018 via the SRO # 126(1)/2018 as follows:
- The LLP must display its certificate of incorporation at its registered office;
- A register maintaining the partner’s statement of their ownership percentages and associated voting rights must be kept at its registered office;
- A copy of the LLP Agreement, including its amendments if any, must be kept at its registered office.
According to a notice issued by the SECP, books related to an LLPs state of affairs for each year of its existence must be maintained at the registered office in accordance with the double entry, accrual-based accounting system.
The LLP must prepare its financial statements within a period of four months, starting from the end of each financial year. These statements must be filed in accordance with the notice of the Commission along with the payment to the Registrar.
A resolution for approval of the financial statements must be passed either by a majority number of the partners, along with the sign of the designated partners or in case there are no designated partners, by the approval of all partners.
APPOINTMENT OF AUDITOR
With the approval of the partners, an auditor or auditors shall be appointed. This shall be done by passing a resolution by the majority of partners.
The books of the LLP must be preserved in good form and order relating of a period of at least 10 years.