Sunday, May 10, 2015

LLP as a vehicle to engage in and carry on any 'profession' - Pros -any Cons ?


Tough Companies Act creating a shift towards LLP?

*Be Cautious: Professional Indemnity Insurance is Must after ...


For a one-stop consultancy shop

Harinderjit Singh

Auditing, legal and cost accounting services offered under a single roof can transform the efficiency of Indian business »
Partners can breathe easy

  • Under MDP, the nature of work that flows could be so divergent that all partners may not be involved in the execution of each assignment. In such a situation, the risk factor involved needs to be evaluated. It is possible that due to the negligence of some partner, the civil liability on the firm in the form of damages or compensation could be heavy. Under the Partnership Act 1932, the liability of a firm is unlimited and the partners are personally, jointly and severally liable in respect of the obligations of the firm. Unlimited liability of partners and the firm will vanish if the liability of the partnership firm and partners could be limited in an MDP — hence the LLP. An LLP combines the organisational flexibility and tax status of a partnership with the advantage of limited liability.
  • In the UK, MDPs are mainly popular among several professionals’ services. Since MDPs tend to have regulatory overlaps in UK, they are addressed by one regulator relying on the work of another. The Ministry of Corporate Affairs can play a pivotal role by asking three key professional bodies to enter into a mutual recognition agreement (MRA) with other professional body or institution situated outside India.
  • The concept of LLP should also be popularised with regulators for engineering, architecture and actuarial services. Similar to the ICAI’s new law, allowing partnership with specified professions, AICTE should pass a similar resolutions to include MBAs.
  • “Clients are better served by having experts from various professions addressing problems in a comprehensive manner. Clients may also get economies of scale if they purchase professional services in a package rather.”
“Clients are better served..... Clients may also get economies of scale if they purchase professional services in a package rather.”
On the first blush, the suggestion of a ‘one-stop shop’ / ‘package’, for professionals, - which, as understood, is to structure MDP following the model of LLP, and the extended suggestion for MDPs to, in turn, enter into a MRP, - does not prima facie seem to have been offered after a close and incisive study of the inherent shortcomings in the LLP form of entity. Albeit, the concept has been given a legal shape and formally gone ahead with and in vogue in respect of professions, including the three professions spoken of.
According to a view, however, as shared openly as to what those shortcomings/ pitfalls are, anyone, if itching to know, may have a peep into enough material available in public domain; in particular, attention may be given to the viewpoints brought out in a couple of published articles. As per the analytical study made therein, there is a fundamental fallacy in the premise that LLP, as a form of legal entity, from the viewpoint of clients, will serve their interests better, in comparison to the time-tested age-old concept of ‘partnership’ governed by the Partnership Act.
Also refer, -

*Be Cautious: Professional Indemnity Insurance is Must after Companies Act 2013
on the aspect of ‘risk’ made a passing reference to, Professional Indemnity Insurance no doubt provides desired financial protection for a wide range of professional advisers. But, In the event any one suffers financial loss, there could be other related impediments; for knowing more, may look back and go through the broad discussion in, among others , published articles, –
(2005)128 Comp.Cas 1 and (2006) 65 SCL 42

Cross Refer OldBlogs

*Be Cautious: Professional Indemnity Insurance is Must after ...

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