Page 181 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes
“Exactly,” said Wafers. “It promises perpetual succession and a distinct legal identity were
it to become law. Further, it requires only a minimum of two partners, having no cap on
the maximum number of partners a firm can have,” she added. “Section 11,” said China
hurriedly, “of the Companies Act bars the formation of a partnership consisting of more
than 20 persons. Won’t the firm have to register itself as a company?” “Yes and No.” said
Wafers “If LLP becomes law, Section 11 will have to be amended. The idea is to make LLP
a vehicle for business expansion.

“How?” asked Muskan. Replied Wafers, “Because of the legal stipulation of unlimited
liability among partners, Indian partnerships are mostly restricted to family members
and persons who know each other thoroughly.” She added, “LLP being a form of
partnership having characteristics of a company will limit liability in the case of business
failure or professional negligence litigation to the partner responsible.” “You mean, only
the negligent partner will be penalised and not the whole firm,” asked China. “Yes,” said
Wafers.
China played the devil’s advocate. “Is it possible to prove that only a particular partner
was negligent and not the others?” Wafers replied, “They will have to divide work amongst
themselves appropriately. This could create disputes between partners, but crystal clear
division of duties between partners will go a long way in reducing the same.”

“Excellent,” said Muskan. “The LLP form of organisation would help the small and medium
practitioners by encouraging networking and specialisation of functions.”
Wafers had a word of caution, “The decision to go for LLP will be based on the interplay
of costs and benefits.” China continued his black hat thinking, “Other forms of organisation
are tried and tested. Why then should one go for something new?” Wafers answered this
question philosophically quoting John Rockefeller, “If you want to succeed, you should
strike out new paths rather than travel the worn out paths of accepted success.” China
smiled.

Source: thehindubusinessline.com
6.8 Limited Liability Act

The company being a separate person, its members are not as such liable for its debts. Hence, in
the case of a company limited by shares, the liability of members is limited to the nominal value
of shares held by them. Thus, if the shares are fully paid up, their liability will be nil. However,
companies may be formed with unlimited liability of members or members may guarantee a
particular amount. In such cases, liability of the members shall not be limited to the nominal or
face value of the shares held by them. In case of unlimited liability companies, members shall
continue to be liable till each paisa has been paid off. In case of companies limited by guarantee,
the liability of each member shall be determined by the guarantee amount, i.e., he shall be liable
to contribute up to the amount guaranteed by him.
Unlimited liability of a member of a limited liability company. In the following cases, a
shareholder or member shall lose the privilege of limited liability:
1. Where members of the company are reduced below the statutory minimum, viz., 7 in case
of a public company and 2 in case of a private company and the company carries on the
business for more than 6 months while the members are so reduced, every person who is
a member during the time that it so carries on business after those 6 months and is aware
of the fact that it is operating with fewer than the requisite number shall be personally
liable for the whole of the debts contracted during that time (s.45).

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