Legal, accounting firms may get access to LLP format
February, 25th 2008
Partnership firms rendering professional services, including legal, financial and accounting services, can look forward to their conversion into limited liability partnerships (LLP) and further growth through mergers and acquisitions (M&As).
The proposed limited liability partnership (LLP) Bill will lay down the norms for mergers, acquisitions and restructuring of LLPs to encourage the unhindered growth in size of professional service firms to compete with giant international LLPs. The new law will lay down the way an LLP can acquire the operations of another fully or partly. The proposed merger norms are believed to be close to what is now allowed for companies.
According to this, LLPs will require permission from the proposed national company law tribunal or a high court besides clearance from a registrar of LLPs for a merger or acquisition. As the first step, an LLP will need a direction from a court or the tribunal to call a meeting of creditors and partners to discuss the deal.
If three-fourth of the creditors or partners by value agree, the tribunal may approve the deal with appropriate modifications. The tribunals decision will also hinge on a compliance certificate given by the registrar or the official liquidator attached to the high court. Depending on the nature of the restructure or deal, either of these two offices would be required to certify to the tribunal that the LLP which would cease to exist after the merger or restructure has been run without prejudice to its partners or to the public. For the deal to come into force, the LLP must intimate the registrar about the tribunals decision within a stipulated period. It may face a penalty if it does not.
Conversion of an existing partnership firm into an LLP will allow it to rope in unfamiliar faces with deep pockets or expertise as no partner will be held answerable for the lapses of another partner in an LLP. In a traditional partnership firm, mutual trust and confidence plays a large part in roping in investors. This limits a partnerships access to resources.
The absence of vicarious liability in an LLP would encourage them to get more partners and grow in size to international standards, said Institute of Company Secretaries of India council member and former president Preeti Malhotra. The institute acts as the regulator of company secretaries.