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A limited liability partnership is a business structure that combines the characteristics of both partnerships and companies. In this structure, some or all partners have limited liabilities, meaning each partner is not responsible for another partner's misconduct or negligence. This is a significant departure from traditional partnerships governed by the Partnership Act 1890, where partners share joint liability. Instead, partners in this structure enjoy limited liability similar to that of company shareholders.
Unlike company shareholders, the partners have the right to manage the business directly. In contrast, company shareholders are required to elect a board of directors under the Companies Act, 2017. Furthermore, this structure provides a distinct tax advantage compared to companies.
This innovative business framework was introduced in Pakistan by the Securities & Exchange Commission of Pakistan (SECP). It was designed to bridge the gap between smaller business units, such as sole proprietorships and partnerships—which are often unregistered—and limited liability companies governed by the Companies Ordinance, 1984, or the Companies Act, 2017.
Limited liability partnerships are distinct from limited partnerships in many countries, which may allow all partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries, this structure is more suited for businesses in which all investors wish to take an active role in management.
We pride ourselves in the ability to bring to clients the freedom to form a business organization of their liking, under the tenets of the corporate law of Pakistan. Our team of skilled attorneys, owing to their substantial experience in corporate and business affairs in Pakistan, specialise in the forming of businesses of various types, whether it be companies or partnerships. Our expertise in law enables our clients to understand better the provisions and requirements of the formation of such structures and help register, incorporate, litigate, or dissolve them. We bring to you, as per the relevant Act and Regulations, the ability to establish your own business structure and can help you acquire its registration.
We will prepare your deed, which will be signed by all partners and two witnesses and will get it notarised. It will then be submitted to SECP along with copies of NICs of all partners and copies of Passports of Foreign Partners accompanied by prescribed SECP Fee. The Fee must be deposited either in United Bank Limited (UBL) or Muslim Commercial Bank Limited (MCB).
The benefits of choosing this structure over the old type of partnership firms are manifold. The relevant Act and Regulations enable the partners of the entity to enjoy a limited liability previously extended only to limited companies and denied to partnerships under the old Partnership Act, 1932. Another benefit is that a Firm is established via the Partnership Deed, which evokes an upper limit of 20 for the number of partners that a firm may have; however, there is no such limitation regarding partners in this structure.
The registering organisations differ for the two types of partnerships as well since the Registrar of Firms in each province registers Firms under the Partnership Act, 1932, whereas this structure is being registered by the Securities and Exchange Commission of Pakistan. This entails that the entity will be a ‘Body Corporate,’ which has a separate legal existence that is distinct from its partners. This also provides the ability to hold property in its name, whereas a Firm is unable to do so. Such entities cannot be dissolved by the partners owing to the separate legal identity; however, a Firm may be dissolved at will. According to the act, the registration of this structure is mandatory, but a Firms’ is optional.
Any two or more persons associated with business with an intention to make profit may, after registration with the SECP as per the relevant Act and Regulations, establish such an entity.
The process begins with the selection of a name subject for the organization and the submission of an application (Form I- Part I) to the registrar of the Securities & Exchange Commission of Pakistan (SECP) for the reservation of the chosen name, which can be submitted online or in physical form. The chosen names are subject to the criteria set under Sec. 6 of the Act. In accordance with the availability of the select name, the submission of all relevant documents and the payment of the prescribed fee, the entity will be registered within 2 days.
With the satisfaction of the Registrar, the applicant shall be allowed to apply for incorporation as per the Form I-Part II within 30 days. Next, the applicant shall apply for incorporation as per the Form III, which requires all relevant documents and the payment of the prescribed fee. This can also be done online or in physical forms. If satisfied, the Registrar will issue a certificate of incorporation under the Act and register the entity.
In case of refusal of application, the applicant may file an appeal to the Appellate Branch of the Commission within a time period of 60 days.
The relevant Act also allows for the conversion from a Firm or a private limited company into this structure. This is to be done in accordance with Form VI, which is to be submitted to the Registrar along with the relevant documents and fee. If the Registrar is satisfied with the application, the Registrar shall issue a certificate of incorporation in accordance with Annexure II and register the entity.
Dissolution of this structure can be either voluntary or through court. The Registrar may also decide to strike down the name of the entity from the register in case it does not operate in accordance with the Act or fails to comply with any of its provisions. In this case, the Registrar must issue a cause to the partners of his intention. After a period of one month passes, the Registrar may strike down the name of the entity from the register via an order in writing and officially publish a notice of such in the Gazette. The entity therefore stands dissolved.
The entity will have a Designated Partner to handle the affairs relating to administrative matters as required under Sec. 10 of the Act.
With the prior approval of the Registrar, the physical forms of documents and records of the entity kept at the Registration Office may be destroyed after the expiration of, firstly, a period of ten years from the filing of the record in question in case the entity exists, and secondly, the expiration of five years from the date of dissolution of the entity in case it stands dissolved. If the said documents are not a part of any current court proceedings and are not ordered by the Court, the Commission, or any competent authority, then the records shall be preserved until the termination of said proceedings.
The documents filed via the online services of the SECP shall be preserved permanently. It must also be ensured that the destroyed records are permanently preserved in electronic forms.
The SECP amended the Limited Liability Partnership Regulations, 2018 via the SRO # 126(1)/2018 as follows:
According to a notice issued by the SECP, books related to the state of affairs for each year of existence must be maintained at the registered office in accordance with the double-entry, accrual-based accounting system.
The financial statements must be prepared within a period of four months, starting from the end of each financial year. These statements must be filed in accordance with the notice of the Commission along with the payment to the Registrar.
A resolution for approval of the financial statements must be passed either by a majority number of the partners, along with the signature of the designated partners, or in case there are no designated partners, by the approval of all partners.
With the approval of the partners, an auditor or auditors shall be appointed. This shall be done by passing a resolution by the majority of partners. The books must be preserved in good form and order for a period of at least 10 years.