Page 180 - DMGT407Corporate and Business Laws

Unit 6: Partnership Act and Limited Liability Act

Notes

Case Study Demystifying Limited Liability Partnership

—by V. Pattabhi Ram & Mithun D’Souza
f she weren’t a shade confused, she wouldn’t be Wafers! Her uncle, a star CFO, was her
inspiration and she wished to be like him - jet setting, globe trotting and
Iknowledgeable. At the campus interview her senior had picked a job for ` 9 lakh and
gosh he wasn’t even a rank holder. Wafers knew that the industry offered fat pay packs but
her heart actually lay in consulting. She wanted to join one of the Big Four firms with the
long-term goal of becoming the next C. K. Prahalad. Her professor had once told the class,
“In life, you should do what the heart tells you.” He was talking about careers!
China said, “For chartered accountants there are a plethora of opportunities in the new
international trading regime.” Wafers agreed. She recalled reading in the ICAI website
that “Opportunities would emerge at three fundamental levels in the WTO regime. At the
government level, at the revenue authorities level and at the business unit level.” China
was surprised. “Wow! These CA students are so analytical,” he told himself. “You mean to
say, accounting firms will have opportunities at the international level,” queried Muskan,
Wafer’s niece. She was in Class X.
“Yeah,” said Wafers. And added, “Actually, the opportunities are not just in the industry.
They are in practice as well.” China remarked, “But that comes with a huge price. If the
pink papers are to be believed, accounting firms in the US have millions of dollars worth
of legal suits pending against them.” Muskan asked, “So?” “So,” replied China, “the
liberalised trade scenario which offers potential to provide services across international
borders will augment greater liability to firms in case of default.” Muskan looked definitely
confused.
Wafers explained. “Legally, accounting firms in India are allowed to function as sole
proprietary concerns or as partnership firms. A partnership is the relationship between
persons who have agreed to share the profits of a business carried on by all or anyone of
them acting for all.” This set Muskan thinking. “So will I be liable for my partners’
shortcomings even if I have been honest in conducting my duties,” she asked. “That’s the
general idea,” said China impressed by the kid asking the right questions.

“This traditional model is not equipped to meet the multi-competency, multi-disciplinary
and multi-locational requirements of today’s global and domestic clients,” said China.
Wafers added, “Moreover, the major chunk of all benefits is drawn by the creamy layer of
large firms.” She had read a research report on “Who are India’s top auditors and how
much do they charge,” which had, among others, documented the great divide in the
accounting profession. “This is why the accounting fraternity is in favour of limited liability
partnership,” (LLP) she added. “But what is LLP?” asked China. Ha, that’s why she loved
China. The walking encyclopaedia had no inhibitions about seeking a clarification on a
doubt, if he had one.
“A limited liability partnership is a form of organisation which shields a partner’s assets
from limitless liabilities that may accrue from the omissions and commissions of other
partners,” answered Wafers. Not for nothing was Wafers considered strong in law. “In
LLP, every partner will be an agent of the partnership and not of the other partners,” she
added. “Isn’t this a merger of the partnership form of organisation and the company
form?” remarked China.
Contd...

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