Limited Liability Partnership in Pakistan
Limited liability partnership (LLP) is that partnership concern where some or all partners have their limited liabilities. It, therefore, displays the requisites of companies and partnerships. In LLP, each partner is not responsible for another partner's wrongdoing or negligence, and some or all partners have limited liability as that of the company's shareholders. However, partners of an LLP have the right to manage the business directly as compare to the company’s shareholders.
Before starting discussion regarding the Limited Liability Partnership in Pakistan, we would like to shortly brief the types of partnerships based on liability as under;
Types of partnerships permitted in Pakistan:
There are the following types of partnerships based on Liability permitted in Pakistan;
- General Partnership(In a general partnership, the liability of each partner is unlimited)
- Limited Partnership(In a limited partnership, the liabilities of all partners are limited)
- Limited Liability Partnership (L.L.P.)
Here we are going to discuss about Limited Liability Partnership from the types mentioned above;
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Buffing, Mopping, Dusting
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John Dibag
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20 - 04 - 2021
Introduction
Limited liability partnership is almost a new business structure introduced in Pakistan. It was introduced by the SECP in 2017. This step by the SECP was taken due to a demand on a high level for a substitute to the existing partnership structure, i.e. (A.O.P.) and private limited company incorporation. It is a substitute which permits entrepreneurs to organize their business activities flexibly and innovatively.
Limited Liability Partnership Act, 2017
According to Limited Liability Partnership Act, 2017:
- An L.L.P. shall be a body corporate by registration under this Act and shall be a legal entity separate from its partners.
- An L.L.P. shall have perpetual succession.
- Any change in Limited Liability Partnership partners shall not affect the existence, rights, or liabilities of the Limited Liability Partnership.
The capacity of L.L.P.
A Limited Liability Partnership by its name is capable to;
- Sue and be sued
- Can acquire, hold and develop or dispose of property of every description, both movable and immovable
- Have a common seal and
- Do and suffer such other acts and things as corporate bodies may lawfully do and suffer.
Overview of an L.L.P.
Here is a structural overview of the Limited Liability Partnership for convenience and understanding at a glance.
01
Perpetual succession & continuity
02
Limited liability of partners
03
Only with a Profit motive
04
No restriction on salaries, distribution of profits
05
No upper limit for the number of partners
06
No mandatory meetings & their compliances
Now we move forward to the Incorporation section of the Limited Liability Partnership, the explanation of which is as follows;
The process of incorporation
The Securities Exchange Commission of Pakistan regulates the incorporation process of an L.L.P. under Limited Liability Partnership Act, 2017. Here are few steps that need to be elaborated in order to get the L.L.P. registered in Pakistan:
- Selection of Name and User Registration on SECP Website
- Application for Name Reservation
- Completion of documents required for Incorporation
- Fee payment
- Submission of documents
- Issuance of Incorporation Certificate
Selection of Name and User Registration on SECP Website:
At the very outset, you have to select a suitable name for the undergoing partnership and apply to reserve of the chosen name with the registrar. After choosing the name, you are required to have your account on SECP services for online submission or proceeding for manual filing.
Keeping in mind the prohibition of names restricted by the Act, here is the list of words prohibited under section 6 of the L.L.P. Act:
- Provincial Government, Federal Government, Name depicting association with any foreign government, Authority, Register/ Registered, Co-operative, Bureau, Division, Name suggesting an association with any political personality, Commission, Department, Nation, Undertaking, Municipal, Union, Republic, President, Governor, Prime Minister, Chief Minister, Minister, Senate Cabinet, National Assembly, Provincial Assembly, Parliament/Jury Parliamentary, Statute/ Statutory, Court/ Judiciary/ Judge, Administrator.
- Names of Global bodies and abbreviations thereof including, but not limited to, United Nations, Organization of Islamic Conference, International Finance Corporation, Asian Development Bank, Islamic Development Bank, International Monetary Fund, Red Cross, Red Crescent, South Asian Association for Regional Cooperation
Application for Name Reservation
To complete the name reservation process, an application (L.L.P. Form-I) is filled by the registrar, and on the satisfaction of registrar, the available name is reserved for thirty (30) days. This is to be mentioned here that the name availability stands canceled if the applicant does not furnish the application for incorporation of L.L.P. within thirty days. A letter for name availability is allotted on agreeing the proposed name.
Completion of documents required for Incorporation
Once the name is reserved following documents are needed to be completed to proceed towards incorporation;
- Attested copy of the L.L.P. agreement which is executed by the partners, witnessed and notarized;
- Copies of National Identity Card (N.I.C.) of all the partners and designated partners and in case of any physical application, of witness to the documents and in case of foreigner, a passport copy.
- Letter for Name Availability;
- Approval of designated partner (if applicable);
- In case of physical application, the original bank challan indicating the fee payment as prescribed in the Schedule of Fee provided in the coming section.
- An Authority letter that is duly signed by all the partners in favor of the person authorized to furnish documents, i.e., An advocate of the High Court/Supreme Court or a Chartered Accountant/Cost Management Accountant
- Any other information and documents as required by the registrar.
Fee Payment
The fee schedule for L.L.P., including all official costs incurred during the process of L.L.P. incorporation, is discussed as under. It is to be noted that the fees paid to consultants and lawyers are separate and may differ from case to case.
| Particulars | In case of online submission of application Amount (Rupees) |
In case of physical submission of application Amount(Rupees) |
|---|---|---|
| Reservation of name | 100 | 200 |
| Rectification or change of name | 500 | 1,000 |
| Certified true copy except for LLP agreement and financial statements. | 1,000 | 2,000 |
| A true certified copy of LLP agreement and financial statements, calculated at the rate per page required to be copied, subject to a minimum fee of a hundred rupees. | 100 | 200 |
| For filling or registering any notice, accounts, or document required to be filed under the act. | 10 | 20 |
| For inspection of documents and a register kept by the registrar in respect of an LLP | 100 | 200 |
| Conversion of a firm to LLP | 100 | 200 |
| Conversion of Private Limited company to LLP | 500 | 1000 |
| For appeal | 500 | 1000 |
Submission of Documents
Once all documents have been compiled as stated above, one can apply for incorporation of L.L.P. (L.L.P. Form-III).
Issuance of Incorporation Certificate
The registrar shall examine the application and documents and, if satisfied, will issue the L.L.P. incorporation certificate. It usually takes one to two weeks for the issuance of the Incorporation certificate.
We would like to mention here some benefits of Limited Liability Company.
Benefits of L.L.P.
- Limited liability defends the member's personal assets to be liable for the business. L.L.P. is a separate legal entity to its members.
- Flexibility. The working of the partnership and allocation of profits is decided by a written agreement executed between the members. This may permit for more flexibility in managing the business.
- The L.L.P. is considered to be a legal person. It can rent, buy, lease, own property, employ staff, enter into contracts, and be held for accountability if needed.
- You can run the L.L.P. with multiple levels of memberships.
- By having registration of L.L.P. at Companies House, you avoid another partnership or company from registering in the same name.
- Offers Possible Pass-Through Tax Relief
Here we are going to distinguish Limited Liability Partnership with Unlimited Liability Partnership & a Company. Some of the differences are being elaborated below;
Difference between LLP, Unlimited Partnership & Company
| Description | Limited Liability Partnership | Unlimited Partnership | Company |
|---|---|---|---|
| Prevailing Law | Limited Liability Partnership is prevailed by ‘The Limited Liability Partnership Act, 2017' and different Rules made thereunder. | Partnership is prevailed by Partnership Act, 1932' and various Rules made thereunder. | Companies are prevailed by ‘Companies Act, 2017.' |
| Name of Entity | Name containing 'Limited Liability Partnership' or 'LLP' as a suffix. | Any name as per option | Name to comprise 'Private Limited' in case of Private Company as a suffix. |
| Distinct entity | Is a distinct legal entity according to the Limited Liability Partnership Act, 2017. | Not a separate legal entity | Is a separate legal entity under the Companies Act, 2017. |
| Perpetual Succession | It has perpetual succession, and partners may come and go | It is not having perpetual succession as it is based on the will of partners | It has perpetual succession, and members are allowed to enter and exit. |
| Common Seal | It denotes the signature, and LLP may have its common seal, depending upon the terms of the Agreement. | There is no common seal in case of partnership. | It shows the signature of the company, and each company will have its common seal. |
| Ownership of Assets | The LLP, independent of the partners, has ownership of assets | There is joint partnership of partners in assets belonging to the partnership firm | The company, independent of the members, has assets' ownership |
| A company is a legal entity that can sue and be sued. | An LLP is a lawful entity that can sue and be sued | Only registered partnerships can sue the third party | Legal matters |
Process of conversion of Partnership or Private Limited to Limited Liability Partnership and vice versa
A simple conversion process from Partnership or Private Limited to Limited Liability Partnership and vice versa is followed by filling the requisite application with the SECP and following the requirements.
Key Requirements for conversion into L.L.P.
- Consent from all shareholders is required to file an application.
- An audited statement of assets and liabilities audited by an auditor not older than 30 days before filling conversion application.
- N.O.C. from regulatory authority if necessary.
- All due income tax returns and other statutory authorities shall be filled.