The government?s green signal to tabling a legislative Bill allowing limited liability partnerships in the current session of Parliament marks a new era for entrepreneurship in India. It will encourage greater entrepreneurial risk-taking within a framework of transparency in dealings. The legal concept of ?limited liability?, by which promoters of a business are liable to make good on the money they owe?in case of bankruptcy?only to the extent of the capital they chose to invest in the venture, has already played a critical role in giving the world businesses of the huge scale and reach we now see. If an entrepreneur cannot be stripped to his underwear by creditors in case his business goes bust, he is that much more likely to take the sort of risks required to obtain bigger returns that could be ploughed back to expand operations. Joint stock companies have always had their liability restricted to the money on the balance sheet, but private proprietorships and partnerships have always been vulnerable, and thus more cautious in their pursuits.
Granting partnerships the same protection is sure to boost entrepreneurial ambition. There is evidence of ferment already: the annual addition in the number of self-employed people in India has risen from around 3 million in the 1980s to 9.6 million in the first half of the current decade. With knowledge-related business opportunities and private equity possibilities multiplying, the potential for this teeming base to throw up some mega success or the other in the decades ahead is immeasurable. The fear of failure should not be a deterrent to such ambitions. Partnerships tend to serve the purposes of professionals and technical experts very well, so the fast-growing services sector could benefit immensely from the move. The Bill would enable M&As and the like, too, though partnerships will have to hold themselves to higher standards of disclosure and governance. The concept has been mooted by various committees down the years, including the Abid Hussain Committee on small industries and later by both the Naresh Chandra Committee on regulation of private companies and partnerships, and the Dr Irani Committee on the new company law, but it is only after similar Acts passed in the UK and Singapore presented us a model that the Indian Bill has finally made its way to Parliament. Better late than never.
