Absence of limited liability partnership
Since the beginning of the twentieth century, the concept of Limited Liability Partnership (LLP) was in practice in Great Britain (the Partnership Act 1907) and the business community could avail of its benefits. Nevertheless, while enacting Partnership Act 1932 back then, it did not incorporate the LLP provisions. Recently, India and Pakistan have adopted or are in the process of adopting LLP subsequently considering its need [without repelling the Partnership Act 1932 by separate legislative enactments, the Limited Liability Partnership Act 2008 and Limited Liability Partnership Act 2016 (proposed) respectively]. On the other hand, Bangladesh has remained indolent and succumbed to its adverse effects.
The concept of LLP is usually a mixture of partnership and corporate structure, adaptation of it as a 'business form' arose in the early nineteenth century in the United States as a response to concerns stemming from the partner's liability to third persons, as well as the difficulty of obtaining a corporate character for business entities. As early as 1822 in the USA, the State of New York was the first to introduce the LLP concept and in fact, borrowed the basic idea from the French Commercial Code. As a business structure, LLP operates quite similar to an organisational setup of a partnership business, the only difference being that it affords limited personal liability to partners.
In the domain of business community, LLP as a 'form of business' is considered to be a 'useful vehicle' that can often be used in tax planning and financial structuring and thus, suitable for a group of people engaging together in a property or financial venture. Obvious reasons behind the acceptability of LLP as a business association relates to its advantages -there is no limit on the number of owners that can be involved with the business which evenly spreads out the amount of liability that each partner can have if something were to go wrong with the business; limits partners liability since there are multiple owners involved in the business thus, all of the risks of the business spreads out and made much smaller than if a single person was responsible for the business on her/his own; the partnership firm itself does not have to file taxes on their business that provides great breaks for the entity (though each individual partner must file a variety of different tax forms regarding the business); and lastly, 'flexibility' is a defining characteristics of LLP that brings in partners ability to decide how much they want to contribute and how much of a partner they truly want to be in the business.
However, LLPs do have disadvantages too -the partners with limited liability cannot state how the entity/business should run, irrespective of their percentage of share in the business and active partner runs the show alone. A limited partner can become a general partner in order to exercise control over the internal affairs of the business, but in that case, liability protection for them will no longer apply.
Whatever advantages or disadvantages that may be attributed to LLP business, in the present world they are realities and need of the time. In Bangladesh, it is the time that we should actively consider enacting a statute to enable the business community of our jurisdiction to avail the advantages of such 'legal business form' to foster and enhance their trade and commerce.
Nevertheless, appropriate safeguards in the legislation process have to be provided to maintain a balanced approach towards adaptation of such a legal regime in Bangladesh. The following safeguards calls for considerations in conceiving future legal regimes for LLP business in Bangladesh:
Appropriate words to advertise their status (the name of a limited liability partnership business must end with the expressions 'Limited Liability Partnership' or abbreviation 'LLP');
Mandatory provision for registration pursuant to the LLP statute along with requirements that records be always kept updated.
To incorporate provisions that the LLP business render financial disclosure as usually required by a company/corporations and must file annual accounts (which must be audited) with the office of Registrar of Companies and Firms;
To incorporate provisions that limited liabilities members to be sued for wrongful and fraudulent trading, in cases where they allowed LLP business to continue their trading even after they knew that it had no reasonable prospect of avoiding bankruptcy, or allowed it to continue trading with a view to defraud creditors;
To incorporate enough adoptable provisions for dealing with bankruptcy/insolvency as well as winding-up of the LLP business, if and when required;
To have 'claw back provisions' in the LLP statute with a view that members be subject to a claw back, in as much as, the liquidator may apply to the court of law to recover withdrawals of property of the business made by a member within two years prior to the winding-up, if the member concerned knew or had reasonable grounds to believe that the LLP business was bankrupt/insolvent or would be made bankrupt/insolvent by the said withdrawal and;
To incorporate requirement of 'bond' in the LLP statute, i.e., the idea of LLP has to maintain arrangements with one or more banks or insurance companies to pay 'substantial amount of fund' to the person (receiver or official assignee) responsible for winding-up affairs of the LLP business upon its dissolution, for the benefit of creditors of the limited liability partnership.
The writer is the Dean, School of Law, BRAC University.