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Limited Liability Partnership (LLP) : An

alternative form of business introduced
in Pakistan
By: M. Abdul Hannan

July 13, 2018: Limited Liability Partnership (LLP) is an alternative form of business introduced in Pakistan by SECP
through Limited Liability Partnership Act 2017 and augmented by Limited Liability Partnership Regulations 2018
Traditionally, there have been three widely used corporate structures for incorporating a company in Pakistan which
include a general form of partnership, sole proprietorship and a limited liability company.

But the need has always been present to bring about

another form of corporate structure, known as the limited
liability partnership (LLP). This has been available in a
host of countries around the world and merges the
flexibility of a general partnership with the advantages of a
limited liability company.

The gap has been filled with the passage of the Limited
Liability Partnership Bill 2017 by the Senate last week.
The Securities and Exchange Commission (SECP) has been busy in updating some of the obsolete legalisation
pertaining to company regulation such as the Companies Ordinance 1984 and the LLP Act 2017 is also reflective of
the regulator’s desire to provide a conducive atmosphere for the corporatisation of the economy.

The general form of partnership has an obvious flaw which does not make it the medium of choice for small and
medium enterprises as well as services based industries. It assumes unlimited liability for the partners involved
because the firm is not deemed to be a body corporate.

In contrast, the LLP affords protection for the partners from the joint liability created by another partner which includes
misconduct and fraudulent activities but also adverse business decisions taken on a unilateral basis.

Moreover, the LLP also manages to retain the flexibility of a general partnership which makes it ideal for firms
operating in the services sector. It has been the business vehicle of choice for chartered accountants and lawyers
around the globe. The LLP will be treated a partnership firm for income tax purposes and the profit will be taxed in the
hands of the LLP rather than the partners.

In addition, the LLP is also useful for encouraging start-ups such as investment firms and financial service providers.
The main reason is that the compliance costs are drastically reduced for an LLP due to the less onerous legal as
compared to procedural requirements for companies registered under the Companies Act, 2017 (previously the
Companies Ordinance 1984). Â There is also potential for gaining better access to credit financing from financial
institutions.

Given the recent mushrooming of start-ups and the global race to provide a fostering environment to entrepreneurs ,
the LLP will enable local professionals to also benefit from a more flexible and efficient corporate structure making
them more competitive and dynamic.

Further, the Securities and Exchange Commission of Pakistan (SECP) has also notified Limited Liability Partnership
(LLP) Regulations under the Limited Liability Partnership Act 2017. Limited liability partnership is an alternative form of
business establishment that has the flexibility of a general partnership as well as advantages of a limited liability
company. It is an alternative to the concept of partnership and company structure to enable professionals,
entrepreneurs and small and medium enterprises to jointly organise and operate their businesses in an efficient

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3/20/2019 Limited Liability Partnership (LLP) : An alternative form of business introduced in Pakistan | Company Registration in Pakistan by Synerg…
manner. The regulations specify the form and manner of registration of the partnership, proprietary of partners,
accounts and audit requirements and conversion of existing firms and private companies into a limited liability
partnership.

BENEFITS OF LLP:

The benefits provided to entrepreneurs as per the Limited Liability Partnership Act are as under:

Partnership tax will be imposed on LLPs

LLP will be formed as a separate juristic body
LLP for big corporations will not require any legal or procedural condition
There is no extent of minimum capital contribution in LLP
Public and private sector firms can also join into an LLP company

Small companies need an adaptable structure that will fulfill the necessities of small and medium ventures and
particularly the service sector. The service sector plays a major role in the growth of national economy. An increased
diversity can be seen in the existing variety of services offered by SECP. The main advantage of the Limited
Liability Partnership for business is that it will not require complex legal and procedural requirements suitable
for large and widely held companies.

The scope of entrepreneurship is increasing with a rapid pace in Pakistan. Here majority of the young talents are
looking forward to establish their own startup companies. This kind of bill may yet stand out to be a vital resource for
the entrepreneurs of the country.

The Limited Liability Partnership (LLP) is the mode of establishing small scale partnerships under a new form of
business structure.

The new structure will remove the difference between two types of firms: sole proprietorships/partnerships – the
liability of whose partners is unlimited, and the firms whose sponsors enjoy the benefits of limited liability.

The SECP, which has initiated the move, feels that there is a need for an alternative to the concept of traditional
partnership and company structure, to enable professionals, entrepreneurs and SMEs to jointly organise and operate
their businesses in a flexible, innovative and efficient manner. The LLP will enable individual partners to shield
themselves from the joint accountability created by another partner’s faulty business decision or misconduct. The LLP
will permit individual partners to shield themselves from the joint accountability created by another partner’s faulty
business decision or misconduct

The two primary considerations for introducing LLPs are the ‘Risk Factor Advantage’ associated with such
enterprises and the ‘Enhanced Global Competitive Advantage’- an LLP vehicle offered to Pakistani professionals.

Under the LLP law, two or more persons can establish a ‘lawful business’ which will have the acronym ‘LLP’ as the last
words of its name.

It further provides elaborate contributions to be decided mutually by the partners that may consist of money, negotiable
instruments, properties (including valuable rights), intangibles, knowledge and skills, etc.

The detailed requirements for financial disclosures include maintenance of accounts, other records and audit,
inspection of documents kept by the Registrar, penalty for false statement, filing and registration of documents. The
law also allows the compromise, arrangement or reconstruction and winding up of the LLP.

Such business registration models have already been adapted by most of the developed, and counterpart,
jurisdictions. Any foreign LLP will also be allowed to operate in the country.

In Pakistan, this need has long been recognised for small and medium businesses, which require a flexible regulatory
framework for a LLP with less stringent requirements.

As SMEs play a pivotal role in the services sector, they would be the main beneficiary. The LLP would not impose
detailed legal and procedural requirements, as is the case with large scale corporate structures.

Any change in the partners of an LLP firm shall not affect the existence, rights or liabilities of the LLP. Besides, the
rights of a partner to a share of the profits are transferrable either wholly or in part. The transfer of any such rights will
not cause the dissolution of the LLP.

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LLPs will be taxed as a partnership, but will have the benefit of being a corporate, or more significantly, a separate
juristic entity having perpetual succession but distinct from its partners.

The law also allows conversion of firms, including private companies, into LLPs.

The LLP law has been developed by the SECP in collaboration with the United States Agency for International
Development, after a series of consultative and advocacy sessions.

While, briefing the finance ministry about the importance of LLP, the SECP Chairman had said that the growth of
Pakistan’s economy was contingent upon the role played by its entrepreneurs, along with technical and professional
manpower.

The introduction of LLP will also be a step towards documentation of the economy and will help convert the informal,
unregistered, and unregulated sector into a formal and regulated regime.

Synergy Business Consulting fully endorse the new happening and is ready to assist its valuable clients in forming
LLPs in Pakistan.

*****

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