Limited Liability Partnership: An Emerging Concept In India (A Critical Study)

2018

Chapter Four
International Scenario of
Limited Liability Partnerships

Mr. Vinod Kumar and

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Chapter Four
International Scenario of Limited Liability Partnerships

4.1. Introduction
The LLP structure is available in countries like United Kingdom, United States of
America, various Gulf countries, Australia and Singapore. On the advice of experts who
have studied LLP legislations in various countries, the LLP Act is broadly based on UK
LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in
a body corporate form i.e. as a separate legal entity, separate from its partners/members.
The concept of limited liability partnership was first introduced via Limited Liability
Partnership Act, 2008 in India. But the history of Limited Liability Partnership is quite
interesting as the concept first originated in United States. During the financial crisis of
the late 1980s and early 1990s hundreds of US saving and loan firms were declared
insolvent. As a result of the collapse many accountancy and legal firms faced legal
claims instigated by the US government. Successful claims could have resulted in all
partners, including those who were not responsible for the failure of the savings and
loan firms, being liable to repay millions of dollars in compensation. In 1991 Texas
introduced the concept of a limited liability partnership (LLP). The concept was popular
and the majority of US states eventually passed LLP legislation

4.2. Origin of LLP

As has already been seen the main shortcoming with regards to the standard partnership
is the lack of limited liability for its members. Members have joint and several liabilities
for the debt of their partnership to the full extent of their personal wealth. The risk of
such unlimited liability is increased by the fact that due to the nature of partnership all
members can enter into a contracts on behalf of partnership and is further compounded
when the membership of partnership is extensive, as it is in case of many professional

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partnerships. The danger inherent in such partnerships were reveal in America in the
early 1990s240.Usually the LLPs are person in the eyes of law and are incorporated as a
person unlike normal partnership concerns which are not incorporated as persons in the
eyes of law. Since the middle of the 19th century, there has been a continuing pressure
to relax the provision surrounding the limited company from and introduce a new
corporate structure for small and medium sized business organizations. ‘Limited
Liability’ means that an enterprise member, merely by virtue of her membership will
not be held personally liable for acts of the enterprise beyond the amount of her
individual investment. In contrast, unlimited liability means that member of an
enterprise by virtue of her membership is personally liable for the acts of the enterprise
including the act of other enterprise members taken within the context of the
enterprise’s operation.6 Is a concept whereby a person’s financial liability is limited to a
fixed sum, most commonly the value of a person’s investment in a company or
partnership with limited liability.The LLP structure is available in countries like United
Kingdom, United States of America, Singapore, Australia, and various gulf countries.
However, the LLP Act broadly based on the UK LLP Act, 2000 and the Singapore LLP
Act of 2005.

4.3. Limited Liability Partnership in France

Traces of the concept of LLP could be found in the early French law. In fact as early as
in1673 in France, Louis XIV’s Ordinance du Commerce devoted no less than 14
sections to the regulation of the partnership en commandite. This form of partnership
goes as far back as the Italian commander of middle ages. In these times an investor
entrusted his capital to abrader for employment in mercantile enterprise and though
entitle to share profits, would be liable for the losses beyond the capital that he has
contributed. This concept of limiting the liability spread from Italy to France where the
dormant partners are liable only up to the investment made by them whereas the active

240
David Kelly, Ann Holmes and Ruth Hayward, Business Law, 45, (Cavendish Publishing Limited 2002).

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partners a were jointly and severally liable for all of the obligations of the
partnership241.

4.4. Limited Liability Partnership in UK

In the UK businesses to operate in the main as limited companies, sole traders or

partnerships. Each of these is subject to different regulatory and tax regimes reflecting
their organization and ownership. The only option to many professions, in the past, was
to operate as partnerships, as either statutes or the rules of their professional body
denied them the ability to incorporate. For example, accountancy firms have only been
able to incorporate since 1989. The fact that professional bodies were required to
operate as partnerships meant that they were subject to the rules relating to the liability
of partners. The Partnership Act 1890 sets out special rules relating to the liability of
partners to persons dealing with them.242The concept of the LLP was first introduced in
the United States, following the prosecution by governments of law and accountancy
LLPs that had represented failed savings and loan organization. As a result of an
increasing susceptibility to litigation, audit firms lobbied US States from early as 1991
for the introduction of LLP. Within the UK the process of achieving the creation of the
LLP took longer and was more complex.243
In early 1997 the UK Department of Trade and Industry (“DTI”) circulated a
consultation paper and their investigation focused particularly, but not exclusively, on
the joint and several liability of professional defendants, seeking to ascertain whether
there was an arguable case for replacing joint and several liability by, for example, a
system whereby each defendant might be liable for only a proportionate share of the
loss. Although the remit did not extend to 304 the question of joint and several
liabilities within partnerships, the DTI took the opportunity to consult on the distinct but
related question whether to amend the law in Great Britain to allow limited liability

241
Ravi Shankar Jha, “Limited liability partnership – Evaluation of the new business vehicle, limited liability
partnership –evolution of concept in India and foreign countries inadequacies of act”, 90 CLA 15, ( 2009)
242
ArbindoSaxena, Limited Liability Partnerships, 243(Central Law Publication).
243
Professor Denise Fletcher, Professor Jane Frecknall-hughes, DrstephenWilliams, “understanding limited liability
partnerships in the small and medium-sized business sector”4, (2013).

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partnerships. This question was asked in the knowledge that the concept of LLPs was
well known in some overseas jurisdictions, particularly the USA.244
The UK Limited Liability Partnerships Act 2000 came into force on 6 April 2001. The
legislation provides an LLP the organizational flexibility and taxation status of a
partnership along with limited liability for its partners.
Limited liability entities have their own identity, they can own property in their own
name, open bank accounts, conduct business, sue and be sued and provided they are
operated legally their liability will remain limited to their own assets so any assets held
by the partners will not be forfeit in the event of the LLP being sued.
The main distinction between the US Delaware LLP model245 and the UK LLP model is
that while the former regards the LLP as essentially a partnership, the latter primarily
treats it as a company.246 The existence of an LLP in the UK as a separate legal entity
means that it has its own rights and liabilities, distinct from those of its members.247 In
the UK, an LLP differs from a company to the extent that the former has greater
organizational flexibility and is taxed as a partnership. In the UK, LLPs are accorded
‘entity’ treatment whilst partnerships governed by the provisions of the UK Partnership
Act are generally treated as aggregates of individuals.248

4.4.1. Limitation on Use

LLPs can be used for any commercial purpose, if a non-commercial purpose is desired a
foundation should be considered. LLPs can be used for holding vehicles although their
use as a trading entity is much more common since the reason for their creation is
generally to establish a ‘shop-front’ presence in a highly reputable country.
The Limited Liability Partnerships Act 2000 is an Act of the Parliament of the United
Kingdom which introduced the concept of the limited liability partnership into English

244
Margaret Bartschi, “Foundations of Business Organizations for Paralegals”,3 DWLS (2000)
245
Available at http://www.legislation.gov.uk/ukpga/2000/12/notes/division/3, (last visited on December 29, 2016).
246
Under the Delaware Code, para15-101(8) (Delaware Revised Uniform Partnership Act, Title 6, Chapter 15), only
a partnership may become a LLP, and hence the basis of the LLP is the partnership. See Wood, R., (1997), Limited
Liability Partnerships, p. 47.
247
Limited Liability Partnership Act, 2000, S 1(2) (which provides that the UK LLP is a body corporate with legal
personality separate from that of its members). See Finch, V.et al, (2002), “The Limited Liability Partnership: Pick
and Mix or Mix-Up”, JBL ,pp. 475, 483
248
Yeo Hwee Ying (2003), “Liability of Partners in a Limited Liability Partnership Regime”, 15 SAcLJ 392, (392).

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and Scots law. It created an LLP as a body with legal personality separate from its
members (unlike a normal partnership) which is governed under a hybrid system of law
partially from company law and partially from partnership law. Unlike normal
partnerships the liability of members of LLP on winding up is limited to the amount of
capital they contributed to the LLP249.
Sec 2 of the act provides that an LLP may be incorporated when two or more persons
associated for the purpose of carrying on legal business subscribe their names to an
incorporation document; that incorporation document, or an approved copy of it, has
been delivered to the Companies Registrar at Companies House and a statement either
by a solicitor or one of the subscribers that the formalities have been complied with has
also been delivered to the registrar. The incorporation document must take either the
prescribed form or a form as close to the prescribed form as possible. It must contain
the address of the registered office of the LLP, state the name of the LLP, state the
name of the members of the LLP on incorporation, state which of those members are to
be "designated members" or that all members will be "designated members" and also
say whether the LLP's registered office is to be situated in England and Wales, Wales or
Scotland.250
Sec 3 provides that once the formalities have been complied with the registrar retains
the incorporation document or a copy of it and issues a certificate of incorporation. That
certificate is regarded as conclusive evidence that the incorporation formalities have
been complied with.251
Membership of the LLP is initially those who subscribed to the incorporation document.
A person may become a new member of an LLP with the agreement of existing
members and cease to be a member with their agreement as well. As with a normal
partnership a partner of an LLP is not regarded as being employed by the LLP—they
are self-employed. 252 The relationship between members is governed by agreement
between the members. If such an agreement does not exist the act provides that

249
Mark Rosencranz, You Wanna do what? Attorneys organizing as limited liability partnerships and companies: an
economic analysis, 19 Seattle University Law Review 349 (1996)
250
Gower & Davies, Principles Of Modern Company Law, p. 346
252
J.J. Henning, Partnership Law Review: The Joint Consultation Papers and the Limited Liability Partnership Act
in Brief Hitorical and Comparative Perpective, (2004) 25 Company Lawyer 163

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regulations may be made specifying the default form of such an agreement. 253 As with
normal partnerships the members of an LLP are agents of the LLP, and the LLP is liable
for the actions of a member when that member acts in a wrongful way or makes an
omission. However unlike a normal partnership the members of an LLP are not jointly
and severally liable for the actions of another member. This is due to the fact that the
LLP itself has legal personality separate from its members. If the membership of an
LLP changes then the registrar must be informed within 14 days and if a member
changes address the registrar must be informed within 28 days.254
Members of an LLP are subject to income tax on their income as trading income in the
same way as a normal partnership. They also pay class 4 National Insurance
contributions in the same way as anyone else who is self employed. Capital gains tax
applies to members of LLPs as to those in a normal partnership. Within one year of
incorporation of an LLP there is an exception to stamp duty on land transferred to the
LLP if the person transferring the property is a member of the LLP and that the
proportions of the property are the same as those before the transaction.
LLP's are wound up and subject to insolvency in much the same way as companies. Sec
14 of the act makes provision for regulations to be made applying certain provisions of
the Insolvency Act 1986 to LLP's. Similarly sec 15 makes provision for the making of
regulations to apply company law or display company law and to apply partnership law
as seem appropriate.255

4.5. Limited Liability Partnership in USA

The idea for the LLP has been credited to “a twenty odd person law firm from
Lubbock,” Texas.256The LLP was a direct outgrowth of the collapse of real estate and
energy prices in the late 1980s, and the concomitant disaster that befell Texas’s banks
and savings and loan associations. 257 As a result, the first law on LLP came into

253
Palmer, Company Law Annoted Guide To The Companies Act 2006, p. 556
254
Id.
255
Limited Liability Partnership Act 2000, available at en.wikipedia.org/wiki/Limited_liability_Partnership(last
visited on July 22, 2015).
256
Available at http://www.icsi.edu/webmodules/Programmes/33nc/Limitedliabilitypartne Rship-
Anewbusinessmodel.Pdf, (last visited on July 29, 2016).
257
“Limited Liability Partnerships And Other Hybrid Business Entities” report of Alberta Law

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existence in Texas, through the enactment of Texas House Bill 278 on August 26, 1991.
With the promulgation of the Revised Uniform Partnership Act (‘RUPA’) in the US in
1994, a number of states permitted the formation of LLPs, which was followed by the
incorporation of comprehensive provisions dealing with LLPs in the RUPA in 1997.258
After Texas passed its LLP legislation, most other states quickly followed and today all
51 states have passed laws that permit the formation of an LLP.259Further, the National
Conference of Commissioners on Uniform State Laws adopted the Uniform Limited
Liability Company Act in 1996 and revised it in 2006.260

In the U.S., an LLP is considered as a special type of partnership that requires a special
filing with the State where the partners operate. This partnership form offers all partners
the right to participate in the management and the operation of a partnership without
subjecting themselves to unlimited personal liability as is the case in general
partnerships.261

In the United States, each individual state has its own law governing their formation.
LLPs emerged in the early 1990s: while only two states allowed LLPs in 1992, over
forty had adopted LLP statutes by the time LLPs were added to the Uniform Partnership
Act in 1996.262

The limited liability partnership was formed in the aftermath of the collapse of real
estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank
and savings and loan failures. Because the amount recoverable from the banks was
small, efforts were made to recover assets from the lawyers and accountants that had
advised the banks in the early-1980s. The reason was that partners in law and

258
Reform Institute Edmonton, Alberta available at prejury.law.ualberta.ca/alri/docs/ip004.pdf, (last visited on July
29, 2015).
259
Alberta Law Reform Institute (1999), Limited Liability Partnership Final Report No. 77 (April, 1999)p. 37
available at http://www.assembly.ab.ca/lao/library/egovdocs/alilr/1999/67876.pdf, (last visited on July 29, 2013).
260
Bromberg, Alan R. et al, (2003), Bromberg &Ribstein On Limited Liability Partnerships, The Revised Uniform
Partnership Act, And The Uniform Limited Partnership Act (2001), Aspen p.15. Some states, including New York,
California, Nevada and Oregon, only offer LLP status to professional firms.
261
Available at www.legis.nd.gov/assembly/61-2009/docs/pdf/19062.pdf (last visited on August 29, 2017).
262
Sullivan, Arthur, Steven M. Sheffrin Economics: Principles in action. Upper Saddle River, New Jersey 07458:
Pearson Prentice Hall. pp. 190,available athttp://www.pearsonschool.com/index.cfm?locator= PSZ3R9 &PM
DbSiteId= 2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4. (last visited on
July 29, 2013).

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accounting firms were subject to the possibility of huge claims which would bankrupt
them personally, and the first LLP laws were passed to shield innocent members of
these partnerships from liability.263

Although found in many business fields, the LLP is an especially popular form of
organization among professionals, particularly lawyers, accountants, and architects. In
some U.S. states, namely California, New York, Oregon, and Nevada, LLPs can only be
formed for such professional uses. 264 Formation of an LLP typically requires filing
certificates with the county and state offices. Although specific rules vary from state to
state, all states have passed variations of the RUPA.265

The liability of the partners varies from state to state. Sec 306(c) of the RUPA grants
LLPs a form of limited liability similar to that of a corporation:

An obligation of a partnership incurred while the partnership is a limited liability

partnership, whether arising in contract, tort, or otherwise, is solely the obligation of the
partnership. A partner is not personally liable, directly or indirectly, by way of
contribution or otherwise, for such an obligation solely by reason of being or so acting
as a partner.
However, a sizable minority of states only extend such protection against negligence
claims, meaning that partners in an LLP can be personally liable for contract and
intentional tort claims brought against the LLP. While Tennessee and West Virginia
have otherwise adopted RUPA, their respective adoptions of Sec 306 depart from the
uniform language, and only a partial liability shield is provided.
As in a partnership or limited liability company (LLC), the profits of an LLP are
allocated among the partners for tax purposes, avoiding the problem of "double
taxation" often found in corporations.266

263
Robert W. Hamilton Registered Limited Liability Partnerships: Present at Birth (Nearly), Colorado Law
Review 66: 1065, 1069.
264
Thomas E. Rutledge and Elizabeth G. Hester, Practical Guide to Limited Liability Partnerships, sec 8, 5 State
Limited Liability Company & Partnership Laws (Aspen 2008).
265
What is a limited Liability Partnership?available at http://www.wisegeek.com/what-is-a-limited-liability-
partnership.htm, (last visited on July 30, 2016).
266
Robert W. Wood, Limited Liability Companies, p. 124

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Some US states have combined the LP and LLP forms to create limited liability limited
partnerships.

4.6. Limited Liability Partnership in Singapore

LLP was introduced on 11 April 2005. All LLPs must be registered with the
Accounting & Corporate Regulatory Authority (ACRA) of Singapore.
In Singapore an LLP is a form of business entity that permits one partner to be shielded
from individual joint liability for partnership obligations created by another partner's or
person's misconduct. A partner's liability is not limited, except, when the misconduct
took place under the supervision or control of the partner. Only liability arising from the
misconduct of other partners or persons is covered by this law; the partnership is not
relieved from liability for other partnership obligations and individual partners are liable
for their own misconduct. An LLP in Singapore may be registered where persons who
wish to start a business with a view of profit and have agreed (with or without other
terms):
 that the business shall be carried-on in the form of a limited liability partnership,
following the registration date.
 that they shall each contribute effort and skill to the business as a member of the
limited liability partnership.
 that the profit of the business shall be divided between them as per agreed upon
terms.267
The salient features of the Act are: The partners can be individuals or companies.
 There must be a minimum of 2 partners. There is no maximum number of partners in
a LLP.
 An LLP in Singapore is a legal entity (i.e. it can sue or be sued in its own name and
can own or hold any property).
 Profits form part of each partner’s personal income and are taxed at personal income
tax rates.

H.Y. Yeo and J.C.S Lee, Limited Liability Partnership – New Business Entity in Singapore [2006] Journal of
267

Business Law, 859

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 Registration number of the LLP must be printed on all letterheads, invoices, bills or
other documents used for the purposes of the business.
 It is compulsory for all LLPs to appoint a local manager who is a Singapore Citizen,
Permanent Resident, or Employment Pass holder. There can be more than one local
manager.
 The personal assets of the partners are protected. In addition, owners are not personally
accountable for the wrongful acts of other owners. However, partners can be personally
accountable for debts and losses resulting from their own careless actions.
 The manager must make an Annual Declaration to ACRA stating whether the business
is able or unable to pay its debts as it becomes due in the normal course of business.
The first Annual Declaration must be made within 15 months of the date of
registration.Any change in the LLP brought about by the retirement or death of a
partner shall not affect the existence, rights or liabilities of that legal entity.268

4.7. Limited Liability Partnership in Canada

Canada has 10 provinces namely Alberta, British Columbia, Manitoba, New Brunswick,
Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec and
Saskatchewan and three territories namely Northwest Territories, Nunavut and Yukon
Territory. The provinces of Quebec, Ontario, Manitoba and Alberta and the territory of
Nunavut have permitted LLPs for lawyers. In BC, the Partnership Amendment Act,
2004 permitted LLPs for lawyers and other professionals as well businesses.269

On the recommendation of the Senate Committee in March 1998 the Canadian

provinces and territories adopted the LLP Model against the negligent partners. The
Committee believes that structures such as limited liability partnerships should be
available to professionals who wish to limit their personal liability.270

268
Singapore Company Incorporation & Registration Services: Limited Liability Partnership (LLP), available
at http://www.asiabizsetup.com/singapore-partnership-registration.aspx(last visited on July 19, 2016).
269
Provincial News: Limited Liability Partnerships: A Reality at Last in BC" BarTalk 16.3
Available at http://www.cba.org/BC/CBA_Publications/bartalk_06_04/provincial_news.aspx. (last visited on July
25, 2013).
270
Limited Liability Partnership Legislation Discussion Paper, Office of the Attorney General, Prince Edward Island

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Ontario was the first state to enact the LLP Legislation in 1998. In August 1999, the
Uniform Law Conference of Canada produced an issues paper on limited liability
partnerships and a model LLP Act. Since then British Columbia, Saskatchewan,
Manitoba, Quebec, Nova Scotia and New Brunswick have all adopted forms of LLP
271
Legislation, drawing to various degrees on the ULCC model Act. Canadian
jurisdictions enacting LLP legislation have generally limited the use of LLPs to
“eligible professions”, i.e. professions that are regulated under an Act, such as
accountants, lawyers and doctors. However in 2005, British Columbia adopted LLP
legislation, which places no restrictions on the types of business able to register.

Ontario

In Ontario, amendments to the Partnership Act, 1990 came into force in July 1998
permitting professional to practice in the form of limited liability partnerships. Unlike a
general partnership, where the partners are liable for debts and liabilities arising from
the negligent acts of all partners, the partners in a limited liability partnership are not
personally liable for the negligent acts of another partner or an employee who is directly
supervised by another partner.

Sec- 44 -46 of the Partnerships Act, 1990 deals with the provisions relating to limited
liability partnership.272

4.8. Limited Liability Partnership in Hong Kong

On 18th June 2010 the Legal Practitioners (Amendment) Bill was gazetted in the Hong
Kong Legislative Council (LegCo).273 Over two years later, after much to-ing and fro-
ing between the Government, the Hong Kong Law Society and LegCo members, the
Bill was finally passed as the Legal Practitioners (Amendment) Ordinance (LPAO)274on
12th July 2012. These facts may not seem particularly worthy of attention, given the

271
Ibid
272
Aurbindosaxena ,Limited Liability Partnership. P.22.
273
LegCo Bills Committee, available at http://www.legco.gov.hk/yr09-10/english/bc/bc52/general/bc52.htm, (last
visited on July 29, 2013).
274
Available at http://www.legco.gov.hk/yr11-12/english/ord/ord022-12-e.pdf(last visited on June 19, 2013).

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volume of important legislation making its way through the chamber, but it would be
unwise to dismiss the LPAO as a mere ‘technical’ or ‘specialist’ provision. Indeed, it
may have as much impact on the lives of ordinary citizens as any recent constitutional
initiatives.

The LPAO introduces limited liability partnerships (LLPs) for solicitors’ firms,
replacing the existing law by which every partner is jointly and severally liable for each
and every one of their firm’s contractual and tortious obligations.275 This, in turn, will
alter the relationship between each firm, its individual partners and their clients. When
one considers that there are over 6,500 solicitors holding practicing certificates4 in
Hong Kong, who deal with thousands of private individuals, small businesses and
multinational corporations on everything from divorces and bail applications to M&As
every day, the significance of the LPAO becomes apparent.

The possible introduction of LLPs was first brought to the attention of the LegCo’s
Panel on Administration of Justice and Legal Services (the Panel) by the Hong Kong
Law Society in June2004. 276 The Law Society argued, firstly, that the traditional
partnership structure was “no longer appropriate” for the operation of law firms in Hong
Kong.

The Law Society added that LLPs had, by that time, been introduced or were in the
process of being introduced in other common law jurisdictions such as the United
States, Canada and the UK. There was, therefore, no risk of Hong Kong adopting an
untried or unusual business model. On the contrary, the territory faced the danger of
losing major professional practices to other jurisdictions if it did not introduce LLPs.277
Moreover, the ‘non-corporate’ form of LLP278 proposed by the Law Society could, it
was suggested, be introduced by “simple amendments” to existing legislation and would
not “affect the management structure and culture of a traditional partnership”. Nor

275
The Partnership Ordinance, s.12.
276
See para 3 of LegCo Background Brief available at http://www.legco.gov.hk/yr0910/english/bc/bc 52 /papers
/bc520714cb2-2055-3-e.pdf (last visited on July 29, 2013).
277
It should be noted that very little evidence of such ‘mega claims’ or of the loss of professional practices to other
jurisdictions was produced by the Law Society.
278
See [Law Society document on LLPs (May 2008)]

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would such changes, in the Law Society’s view, undermine the rights of consumers of
legal services to take appropriate action against those firms or individual lawyers who
may have been negligent or committed some “wrongful act of misconduct”.279
It is important to appreciate that there are two basic forms of LLP in other jurisdictions.
The original form, pioneered in the US, is the non-corporate or partnership-based LLP
and the second, first introduced in the UK, is the corporate entity LLP.280
The US RUPA and the New York Partnership Act281 are of significance to Hong Kong
as they influenced the thinking of many, including the Law Society, in the development
of the LPAO.
UK LLP is a separate legal entity makes it more like a company than a general
partnership in the way it operates and the legislation (and supporting regulations)
recognizes that fact. 282 For example, a third party who wishes to do business with a
general partnership will enter into a contract with one of the individual partners on
behalfof him and his colleagues, rather than the partnership, as the partnership itself has
no separate legal existence. The contracting partner will, by virtue of the law of agency,
in general, and sections 5 and 6 of the Partnership Act, in particular, bind his colleagues
to that contract. Similarly, by virtue of section 10 of the Partnership Act, partners are
vicariously liable for the wrongs (such as negligence) committed by their fellow
partners within the firm’s ‘ordinary course of business’.283
Under the Partnership Ordinance (Cap. 38), 284 every partner in a law firm is liable
jointly and severally with his fellow other partners for all the debts, liabilities and
obligations of the firm incurred while he is a partner, including those arising from any
negligence or misconduct by his colleagues. The LPAO does not amend the Partnership
Ordinance but, instead, adds a new Part IIAAA to the Legal Practitioners Ordinance
(Cap. 159) (LPO) to introduce LLPs for solicitors in Hong Kong. Other professionals’

279
Available at http://www.legco.gov.hk/yr04-05/english/sec/library/0405rp04e.pdf (last visited on July 29, 2013).
280
See Whittaker J. and Machell J. The Law of Limited Liability Partnerships (3rd Edn, Bloomsbury), Chapter 23
281
Available at http://law.onecle.com/new-york/partnership/index.html(last visited on July 29, 2015).
282
In particular, section 15 deals with the application of company law to LLPs subject to any appropriate
modifications.
283
The equivalent provisions in the partnership Ordinance are sections 7, 8 and 12.
284
Available at http://www.hklii.hk/eng/hk/legis/ord/38/, (last visited on July 29, 2013).

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business arrangements, including those of accountants, are unaffected by the new
legislation.
Section 7AR stipulates that any relevant laws applicable to a general partnership, except
in so far as they are not inconsistent with the new provisions, continue to apply to a
LLP. Further, section 7AM adds that a number of the new provisions are in addition to,
and do not affect any other provisions relating to the practice of a law firm. It is
therefore necessary to read the LPAO in conjunction with, in particular, the Partnership
Ordinance and the LPO.

4.8.1. Limitation of liability- the new rule

At the heart of the LPAO is the relationship between partners and third parties and the
introduction of LLPs is designed to alter that relationship. In that respect, it is worth
reminding ourselves that, by the Partnership Ordinance sections 7, 8 and 11:

 each partner is an agent for his firm and has the power to bind firm and his fellow
partners (section 7);
 partners are bound by acts on behalf of firm (section 8); and
 every partner in a firm is liable jointly with the other partners for all debts and
obligations of the firm (section 11).Further, by sections 12, 13 and 14:
 the firm is liable for any partner’s wrongful act or omission (section 12);
 the firm must make good the loss where a partner or the firm receives money which
is misapplied (section 13); and
 every partner is liable jointly with his co-partners and also severally for everything
for which the firm becomes liable (section 14).The substantive aspect of the LPAO is
contained in section 7AC: Protection from liability of partners in limited liability
partnership

(1) A partner in a limited liability partnership is not, solely by reason of being a

partner, jointly or severally liable for any partnership obligation (whether founded on
tort, contract or otherwise) that arises from the provision of professional services by the
partnership as a limited liability partnership as a result of a default of –

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(a) another partner; or
(b) an employee, agent or representative of the partnership.
(2) Subsection (1) applies irrespective of whether the liability is in the form of
indemnification, contribution or otherwise.
(3) Subsection (1) applies only if at the time of the default –
(a) the partnership was a limited liability partnership;
(b) the client knew or ought reasonably to have known that the partnership was a
limited liability partnership;
(c) the partnership had complied with section 7AD; and
(d ) the partnership had complied with section 7AE(2) for the matter in respect of
which the default occurred.
The nature of subsection (1) will be dealt with here, whilst that of subsection (2) will be
addressed in the context of partnership indemnities below. Subsections (3)((a) and (b)
are self-explanatory and subsections (3)(c) and (d) will be addressed in the context of
partnership distributions in due course.
As can be seen section 7AC(1) alters the law applying to general partnerships so that a
partner/member of a LLP is not automatically jointly or severally liable for any of the
firm’s obligations285 which arise from an error or omission by any other partner/member
or employee, agent or representative of the LLP in its “provision of professional
services”. This is a profound change in that it limits the power of a partner to bind his
colleagues under section 7 and it limits the direct obligations owed by individual
partners under sections 8, 11 and 14 and their indirect obligations (through the firm)
under sections 12 and 13.
It is, however, important to stress that section 7AC(1) only ‘limits’, rather than
‘removes’ or ‘excludes’, the application of these provisions to partners in LLPs. The
extent of this limitation is indicated by the use of the term “professional services”. Any
partnershipobligation that arises other than in the provision of its professional services
will still be the responsibility of all the partners under whichever of sections 7,8, 11, 12,
13 or 14 of the Partnership Ordinance applies in the circumstances.

285
Partnership obligations” are defined in section 7AA.

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Such “professional services” are not explained or defined in the LPAO and it is worth
noting that an earlier draft of the legislation referred to “the course of the business” of
the LLP rather than the provision of such services. The change, at a late stage of the
legislative process, was explained by the Government to reflect that fact that: “an
innocent partner will be protected against personal liability for the default of other
members of the firm from the provision of professional service and not from other
ordinary trading debts such as rent and employees' salaries arising in the course of the
business of the partnership…so as to better reflect the [Government’s] policy intent that
the Bill offers partial liability shield”286
Clearly, the use of the term “in the course of business” was interpreted, by the
Government, as having the potential (at the least) to create a ‘full shield’ for liability
from all partnership obligations. The Government’s view was that those partners who
wished to “enjoy [the] full shield from [the] general liabilities of the firm may opt to
practice in the form of a solicitor corporation”

4.9. Limited Liability Partnership in China

In August 2007, a new business vehicle, the Special General Partnership (“SGP”),287
was adopted under the revised Partnership Enterprise Law of the People’s Republic of
China (“the PEL”). The SGP resembles an overseas Limited Liability Partnership in
that it shields co-partners from liabilities due to the misconduct or negligence of other
partners. The introduction of the SGP increases the options available for professional
practitioners in China. Before the revision of this particular statute, the general
partnership was the only partnership vehicle allowed under Chinese law.288
On 1 March 2010, the Administrative Measures for Foreign Enterprises and Individuals
to Establish Partnerships in China came into effect. The Measures for the first time
allows foreign investors to establish various partnership forms, including the General

286
Report of the LegCoBills Committee on Legal Practitioners (Amendment) Bill 2010, para 10.
287
The drafter of the PEL clarified in the press briefing of the PEL that the special general partnership under the PEL
can be translated into “the limited liability partnership” in English. See “Partnership Enterprise Law Specified the
Liability of Partners in Professional Firms”, Xinhua Net available at: http://news.xinhuanet.com/legal/2006-
08/27/content_5012933.htm. (last visited on July 29, 2013).
288
The PEL also introduced another new partnership form in China, the limited partnership. See Lin Lin& HY Yeo,
“Limited Partnership: New Business Vehicle in People's Republic of China” (2010) 25(2) B.J.I.B. & F.L.104.

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Partnership, the Limited Partnership and the SGP) in China. Previously, the business
vehicles available for foreign investors included wholly foreign-owned enterprises,
equity joint ventures and cooperative joint ventures only.
The introduction of the SGP in China is in line with the international trend. The major
purpose for introducing the SGP is to meet the needs of the local professional services
firms in China, which feelthe pressure of severecompetitions with overseas LLP firms
and the increasing intentional tort litigations against the partners.289

4.9.1. Nature
The SGP is essentially a special form of the general partnership. It is regulated in a
section entitled “Special General Partnership Enterprises” with five provisions in the
PEL. Where this section does not provide, the provisionson the general partnership and
its partner shall apply.290
The nature of the SGP is the same as that of the general partnership under Chinese
partnership law. However, the SGP appears to possess certain attributes that are
consistent with the entity approach - may have its own assets,291 the partners are not
allowed to sever the partnership assets before the dissolution of partnership,292 and the
SGP has the ability to sue or be sued in its own name.293

4.9.2. Formation and Business Scope

The PEL provides that the SGP should comprise at least two partners.18 A SGP is
deemed to be constituted from the date of issue of the partnership enterprise business
license.294
Unlike Delaware and the UK in which the LLP is available to all types of business, the
PEL provides that the formation of the SGP is restricted to “professional service
providers who provides clients with paid services on thebasis of professional knowledge

289
See Honghu, “Law Committee of the National People’s Congress’ Report on the Revised Partnership Enterprises
Law (Draft)” (2006) No.7 National People’s Congress Gazette (in Chinese).
290
PRC Partnership Enterprise Law 2007, Art.55.
291
PRC Partnership Enterprise Law 2007, Art. 20.
292
PRC Partnership Enterprise Law 2007, Art. 21.
293
Art. 49 of PRC Civil Procedural Law read with Art. 40 of Opinion on Several Issues of Applying the PRC Civil
Procedure Law.
294
PRC Partnership Enterprise Law 2007, Art. 11

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and special skills”.295 Nevertheless, as the definition of “professional” was unclear, the
availability of the SPG to specific professional partnerships is left for other regulations
to specify.
Several legislations and policies have been promulgated to encourage the use of the
SGP in China, including the PRC Lawyer Law 2008 and the Temporary Measure for
Promoting Large and Medium-sized Accounting Firm to Adopt the Special General
Partnership (draft) 2010.296 In particular, under the Administrative Measures for Law
Firms 2008,297 to establish a domestic law firm as a SGP, the following conditions shall
be satisfied: (1) having a written partnership agreement; (2) having at least 20 partners
as founders; (3) the founders being lawyers with at least three years of practice
experience and who practise full time; and (4) having assets of at least RMB10
million.298 It is argued that the ceiling of the threshold is a bit high for a start-up law
firm as it is difficult for a small sized firm to have at a minimum RMB 10 million in
assets and at least 20 partners.
As to the formation of foreign SGPs, other than having to satisfy the general conditions
stipulated in the PEL, it is subject to the industry restrictions specified under the
Catalogue for Guiding Foreign Investment in Industries (the “Foreign Investment
Catalogue“). Foreigners are not permitted to establish partnerships and invest in
industries which are categorized under Foreign Investment Catalogue as “prohibited”.
Currently, there are still bans prohibiting the establishment of foreign law firms and
accounting firms in China.
4.9.3. Contributions
A partner of the SGP may offer contributions in the form of cash, tangible goods,
intellectual property, land use rights, other property rights and service. 299The PEL does
not provide a minimum capital requirement for establishing a SGP.

295
PRC Partnership Enterprise Law 2007, Art. 55. It is noted that some states in the US, such as New York,
California, Nevada and Oregon only permit professional firms to establish as LLPs.
296
The draft Measures is available at the home page of the Accounting Standard Committee of the Ministry of
Finance of the People’s Republic of China, online: available at http://www.casc.gov.cn/gnxw /201 001 /t2 01 00 12
8_1143497.htm. (Last visited on January 20, 2015).
297
Administrative Measures for Law Firms 2008, Art. 5.
298
Administrative Measures for Law Firms 2008, Art. 8.
299
PRC Partnership Enterprise Law 2007, Art.16.

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The PEL provides that a partner is obliged to make contribution as per the partnership
agreement.300A failure to do so shall constitute a breach of partnership agreement on the
part of the defaulting partner. He has then to make up for the contribution. However, the
SGP also allows a partner to contract for the additional flexibility of increasing,
reducing or varying contribution to the partnership with the unanimous agreement of all
partners. 301 To keep the public informed, such a change to his contribution amount
requires consequential amendment to the register.302

4.9.4. Transfer of Partner’s Shares

The partners of the SGP are allowed to transfer their partnership shares to outsiders
(subject to different requirements). A partner must obtain the consent of all the partners
before the transfer (unless otherwise provided by the partnership).303A notable feature
of the PEL regarding transfer of partner’s shares is that an assignee will become a
partner and be subject to the rights and obligations according to the amended agreement
and the PEL.304 In stark contrast, the assignee’s position is quite weak under the US
law. A transfer in whole or in part of a partner’s transferable interest in the partnership
does not entitle the transferee to participate in the management of the partnership
business.305
It is submitted that Chin should adopt the US position to facilitate greater certainty of
the partnership and protection for the creditor. A change in partner will have adverse
effects on the liability of creditors who rely on the personal liability of the partner to
pay the debts of the firm. In addition, any change of the identity of the general partner is
likely to result in to serious consequence for the existing partnership.

4.9.5. Tax treatment

In consistent with international practice, Article 6 of the PEL provides that the
partnership itself will not be subject to taxation but the partners themselves will have to

300
PRC Partnership Enterprise Law 2007, Art.17.
301
PRC Partnership Enterprise Law 2007, Art.34.
302
PRC Regulations on Administration of Registration of Partnership Enterprises Art. 18.
303
PRC Partnership Enterprise Law 2007, Art. 22.
304
PRC Partnership Enterprise Law 2007, Art. 24
305
The Uniform Partnership Act, s.503.

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be taxed on the profits generated by the firm in accordance with their individual tax
rates.306 The Ministry of Finance and the State Administration of Taxation jointly issued
a circular in December 2008 (Caishui [2008] No.159) to reconfirm the flow-through tax
treatment in that individual and enterprise partners are subject to individual income tax
and enterprise income tax respectively on income allocable from the partnership in
which they are partners. Nevertheless, there remains uncertainty as the tax treatment on
SGPs as there is no specific regulation on taxation on foreign SGPs.
There is no doubt that the introduction of the SGP is a milestone in the development of
the partnership law and professional services market in China. After the promulgation
of the PEL, a number of professional services firms were established as SGPs in China,
reflecting a receptive attitude in the Chinese professional community towards this new
business vehicle.
Nevertheless, the SGP regime is a very Chinese version in that it does not provide a safe
haven for professional practitioners as expected. It appears that China prefers to
introduce the overseas LLP regime gradually, but it is doubted that the very limited
provisions governing the SGP would be sufficient to address the pressing needs of
Chinese professional practitioners. It is hoped that the authorities will issue additional
guidance that clarifies the outstanding issues so as to make the SGP a more viable and
well-recognized business vehicle in China.
4.10. Limited Liability Partnership in Malaysia
In Malaysia, prior to 2012 there were three main types of business vehicles: sole
proprietorships, partnerships and companies.307 Additionally, in the offshore financial
center of the Federal Territory of Labuan there had been in existence the Labuan
Limited Partnership (“Labuan LP”) and Labuan Limited Liability Partnership (“Labuan
LLP”), introduced in 1997 and 2010 respectively.308

306
PRC Individual Income Tax Law 2005, Art. 3(2).
307
Sole proprietorships are not subject to any specific regulation, while partnerships and companies are governed by
the Partnership Act 1961 and Companies Act 1965 respectively. The Partnership Act is borrowed from the UK
Partnership Act 1890 while the Companies Act was based on the UK Companies Act 1948 with some modifications
following the Australia Uniform Companies Act 1961.
308
Labuan Limited Partnerships and Limited Liability Partnerships Act 2010, which supersedes Labuan Offshore
Limited Partnerships Act 1997.

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The increasing recognition on the needs of small businesses in Malaysia led to the
publication of the Consultative Document on the Limited Liability Partnership in
Malaysia in 2008 (“Consultative Document”) by the Corporate Law Reform Committee
(“CLRC”).309 CLRC made a preliminary proposal for a LLP in Malaysia, drawing upon
models used in other countries. The idea behind the proposed LLP was to complement
the existing forms of business vehicles by providing a wider choice for businesses to
structure their operations, a choice which is flexible in its formation, maintenance and
termination so as to enable them to be more competitive in the era of globalisation and
to create a more conducive business environment.310
The LLP Act was finally passed by the Malaysian Parliament in 2012.15 Unlike the UK
LLP Act 2000 which is fairly basic but supplemented by detailed regulations; the
Malaysian LLP Act is fairly substantial, with 92 sections. The structure of the LLP Act
most closely resembles the Singapore LLP Act 2005.

4.11. Limited Liability Partnership in New Jersey

The Channel Island of Jersey 311 is a British Crown Dependency. 312 In 1997, Jersey
enacted the Limited Liability Partnership (Jersey) Law 1997. The driving force that led
to the codification of the legislation was that the major Accountancy firms in UK were
facing a number of high profile lawsuits arising out of real/alleged audit failures. But
even after their long campaign, they could not secure liability concessions from the UK
government. As a result they approached the Jersey Authorities immix 1990s to enact
similar legislation. The Jersey LLP Bill was drafted by Ernst & Young and Price
Waterhouse (now part of PricewaterhouseCoopers), at a private cost of more than£1

309
The Corporate Law Reform Committee (“CLRC”) was established by The Companies Commission of Malaysia
(“CCM”) to undertake a comprehensive review of the Companies Act 1965 to ensure that the Act remains relevant
and up to date with the current and future needs of the business environment in Malaysia. Four working groups have
been formed to review specific areas of the Act. One of the working groups was tasked with the duty to review the
company’s formation, private companies and alternative forms of business vehicles.
310
CLRC, Consultative Document on Limited Liability Partnership in Malaysia, Companies Commission of
Malaysia, 2008, p 5.
311
The Channel Islands consist of five islands. These are Jersey, Guernsey, Sark, Herm and Alderney. Jersey is by
the far the largest of these islands. Each island has its own government.
312
Available at http://www.cia.gov/cia/publications/factbook/geos/je.html (last visited on august 29, 2013).

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million313 and was designed to dilute ‘joint and several’ liability and reduce the redress
available to audit stakeholders314.
The Bill was “championed by the Island’s leading politicians” who also promised to
‘fast track’ it, effectively displacing the previously agreed legislative programme
persuading some to conclude that Jersey was offering its ‘legislature for hire’ to enable
major accountancy firms (or international capital) to hold other nation-states (e.g. the
UK) to ransom. The approach to Jersey was accompanied by a threat that if the British
government failed to match the liability concessions, the firms would relocate their
operations to Jersey. The threat was sufficient to discipline the UK government and it
promised similar legislation “within a week”315.The UK government eventually enacted
the LLP legislation and the firms did not register in Jersey.

The externally drafted legislation was described by a member of Jersey parliament as

“not offshore tax avoidance, on which our finance industry is built, but offshore liability
avoidance” 316 .As per the Jersey Law, an LLP is required to pay a£10,000 as
registration fee, which makes it affordable only to businesses of stature. The Act
classifies partners as 'partners' and' designated partners'. Every LLP must also have a
registered office in Jersey at which it must maintain those records specified in Article
8(4) of the law, which are available for inspection by partners. The names and addresses
of all the partners of an LLP are also a matter of public record. Similarly, LLPs are not
required to file partnership agreement, accounts or to have their accounts audited; they
must, however, maintain proper accounting records. On a closer look at the provisions
of the law, one finds that the provisions are somewhat similar to legislation in the State
of Delaware (US). The law allows partners to take an active part in the management of
a partnership whilst retaining their own individual limited liability. Every LLP is
required to make a £5 million provision for judgments against the partnership and to
compensate creditors. This financial provision against debts and liabilities of the

313
The Accountant, November 1996, p. 5.
314
Globalization and its discontents: Accounting firms buy limited liability partnership legislation in Jersey by
PremSikka, University
of Essex.
315
Financial Times, 28 June 1996, p. 22; 24 July 1996, p. 9.
316
Jersey Evening Post, 25 July, 1996, p.1.

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partnership are required to be maintained throughout the life of the partnership and are
not permitted to be made the subject of a security or set-off18 .Despite actually having a
separate legal personality, the Jersey limited liability partnership is treated as a
partnership for taxation purposes. It is rather fiscally transparent i.e. tax is levied on the
individual partner’s share of profits rather than the overall partnership profit. In this
respect the Jersey LLP is also similar to the Scottish general partnership structure.

4.12. Limited Liability Partnership in Pakistan

Partnerships and corporation are the primary and the oldest forms of business.
Partnership law encourages private ordering through bargaining by providing an
agreement amongst partners. In contrast, corporate law historically has provided a
mandatory framework for firm structure highly resistant to shareholders’ attempts to
define their relationships through bargaining317. The Partnership Act, 1932 provides for
a general form of partnership which is the most common form in Pakistan.

Limited Liability Partnership (LLP) is a new business structure in Pakistan proposed by

the SECP.

Initially, SECP has approved a concept paper in this regard and has also approved the
draft of Limited Liability Partnership Bill, 2015 (LLP) after consultation with all
relevant stakeholders. The new LLP concept combines the advantages of Limited
Liability Company and the flexibility of a general partnership at a low compliance cost.
This corporate vehicle provides its individual partners protection from the joint liability
created by another partner, either by his business decision or misconduct. Because of its
flexibility in its structure and operation, LLP is expected to be most useful for small and
medium enterprises, in general, and for the enterprises in manufacturing services sector,
in particular. Introduction of LLP in Pakistan is enabling enterprises, entrepreneurs and

317
Robert W. Hillman, The Bargain in the Firm: Partnership Law, Corporate Law, and Private Ordering Within
Closely- Held Business Associations.

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professionals providing services of any kind, to structure commercially efficient
vehicles best suited to their needs318.

Existing Legal Framework in Pakistan & General Partnership

In Pakistan, general partnership firms are regulated through Partnership Act, 1932 and
these firms are not considered as juristic person (legal personality).Such partnerships
are normally created where the individual partners desire to have a flexible structure
along with some formality of relationship between them. General partnerships in
Pakistan are regulated under the Partnership Act, 1932. Section 4 of the said Act defines
partnership as “the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all". A group of twenty or less
persons who want to carry out a lawful commercial activity may, subject to certain
exceptions, form a partnership. These general partnerships are not under any sort of
legal obligation to register them. It is optional for the partners to keep it formal or
informal.

4.13. Limited Liability Partnership in Germany

The German Partnerschaftsgesellschaft or Part G is an association of non-commercial

professionals, working together. Though no corporate entity, it can sue and be sued,
own property and act under the partnership's name. The partners, however, are jointly
and severally liable for all the partnership's debts, except when only some partners'
misconduct caused damages to another party - and then only if professional liability
insurance is mandatory. The Partnerschaftsgesellschaft is not subject to corporate or
business tax, only its partners' respective income is taxed.319

4.14. Limited Liability Partnership in Japan

Limited liability partnerships were introduced to Japan in 2006 during a large-scale

revamp of the country's laws governing business organizations. Japanese LLPs may be

318
Mohammed SohailAsghar, Limited Liability Partnership in Pakistan: An overview, P.24.
319
Id.

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formed for any purpose (although the purpose must be clearly stated in the partnership
agreement and cannot be general), have full limited liability and are treated as pass-
through entities for tax purposes. However, each partner in an LLP must take an active
role in the business, so the model is more suitable for joint ventures and small
businesses than for companies in which investors plan to take passive roles.320 Japanese
LLPs may not be used by lawyers or accountants, as these professions are required to do
business through an unlimited liability entity.321

A Japanese LLP is not a corporation322, but rather exists as a contractual relationship

between the partners, similarly to an American LLP. Japan also has a type of
corporation with a partnership-styled internal structure, called a godokaisha, which is
closer in form to a British LLP or American limited liability company.

4.15. Limited Liability Partnership in Romania

An LLP is equivalent to the Romanian law vehicle known as a
Societatecivilăprofesională cu răspunderelimitată.
4.16. Limited Liability Partnership in Poland
A close equivalent to limited liability partnerships under Polish law is the
spółkapartnerska, where all partners are jointly and severely liable for partnership's
debts apart from those arising from another partner's misconduct or negligence. This
partnership type is only addressed to representatives of some "high risk" occupations,
such as lawyers, medicine doctors, tax advisers, accountants, brokers, sworn translators
etc.

4.17. Limited Liability Partnership in Kazakhstan

The concept of LLP exists in Kazakhstan law. All partners in a Kazakhstan LLP have
limited liability, and they are liable for the debts of the partnership to the extent of the

320
Peri H. Pakroo, J.D, Limited Partnerships & Limited Liability Partnerships: The Basics. Available
atwww.nolo.com(last visited on July 29, 2013).
321
Online Incorporation of LLP, Limited Liability Partnerships, available at: www. Netzcapital. Com (last visited
on July 29, 2013).
322
Id.

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value of their corresponding participatory interests in the partnership. The names for
LLP in Kazakhstan are "ЖШС" (which stands for
ЖауапкершілігішектеулісеріктестікZhaūapkershilirishekteūliseriktestik) in Kazakh
and "ТОО" (which stands for Товарищество с ограниченнойотв етственностью To
varishchestvosogranichennoyotvyetstvyennostʼyu) in Russian. This is the most popular
business form in Kazakhstan. Almost any private business may be incorporated as an
LLP (notable exceptions are banks, airlines, insurance companies, and mortgage
companies, which must be incorporated in the form of a joint stock company). An LLP
in Kazakhstan is a corporate body, and in fact, is an LLC. Partners cannot conduct
business on its own, and it's the corporate body that conducts the business. There is also
a concept of "simple partnership" in Kazakhstan law, which corresponds more to the
general concept of partnership, but it is not widely used and is not well developed in
Kazakhstan.

4.18. Limited Liability Partnership in Greece

An LLP is an approximate equivalent to the Greek ΕΠΕ (Εταιρεία

ΠεριορισμένηςΕυθύνηςEteríaPeriorisménisEvthínis Company of Limited Liability). In
an ΕΠΕ the partners own personal shares that can be sold by a partner only when all
other partners agree. The business management can be exercised either directly by the
board of partners or by a General Manager. In the aspect of liability, an ΕΠΕ is identical
to an LLP.

4.19. Conclusion

The LLP is a rather recent legal institution. The concept of LLP was invented in the US
State of Texas in1991 as an alternative to an ordinary partnership, in which innocent
partners were guarded from the vicarious personal liability for malpractice liabilities of
the firm. The concept was introduced in a country at a time when litigation and damages
awarded by the courts and jury was increasing at an alarming rate. The concept, not
surprisingly, was extremely popular. In Texas, during the first year after the enactment
of the LLP statute, more than 1200 professional firms adopted LLP status. The New

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York statute adopted in 1994 too showed similar levels of popularity. By the end of the
decade, nearly all states in the USA had adopted some form of LLP legislation.

The LLP concept has proven to be popular even beyond American Shores. In 2001, the
UK Limited Liability Partnership Act (“UK Act”) became part of English Law. The Act
offered businesses the option of electing a partnership structure for their operations
while controlling the partners personal risk exposure by way of limited liability. Closer
to home, Singapore has recently, in 2005, after extensive public consultation enacted its
own LLP statute. The objective behind its creation is that the LLP business vehicle will
increase the options available to businessmen and investors and also help make
Singapore a progressive and preferred place for business.

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Chapter Five
Limited Liability Partnership: A
Comparative Analysis

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