For long, the private sector has been neatly divided into joint-stock public limited corporations and unlisted privately owned firms. The business boom since liberalisation has been a phenomenon associated mostly with the former. For unlisted firms, a decision to ?go public? by enlisting the firm?s shares on a stock exchange?in effect, letting strangers own a slice of the company?has always been a difficult one, with the extra burden of rules/disclosures to be weighed against the most attractive distinguishing feature of public ownership, namely limited liability, by which shareholders cannot be made to bear losses beyond the money they have specifically put into the company. Now, with the Limited Liability Partnership (LLP) Bill ready for Parliamentary approval at last, the law will allow private partnerships to gain the best of both worlds. The Bill will create a new legal business entity?distinct from one governed by the Indian Partnership Act, 1932?that will spare its owners both the procedural requirements of listed companies, and the fear of being reduced to personal penury in case the business fails and creditors call in their funds. This part, the limiting of liability to the sum ventured, is a significant change for small enterprises and service outfits. Fear of failure has held back enterprise in this country, and the Bill will go a long way in encouraging entrepreneurship, especially in fields that are not suited to industrial scale operations/stockmarket listings?such as law firms, clinics and business consultancies. Though the services sector is expected to be the main beneficiary, LLPs will be allowed in any trade, profession or occupation. Foreign LLPs will also be allowed to do business in India.
If the benefits are so obvious, how come LLPs did not exist before? The answer is that the finances of small businesses have historically been prone to being treated as the personal property of those who own/run them. The accounts, though audited, escaped ?public scrutiny?, and lenders were willing to loan such firms money only on the assurance that the partners were fully enjoined by law to pay back. For LLPs to work, this aspect?of clean books and creditworthiness?must be paid special attention. Thankfully, financial transparency enabled by infotech tools make this possible.
