Limited Liability Partnership (LLP) is a new business structure in Pakistan introduced by the Securities & Exchange Commission of Pakistan. The reason for introducing this business structure was to bridge the gap between small organizational units such as sole proprietorships and partnerships, which are most of the times unregistered and limited liability companies that are either governed by the Companies Act, 2017.
A limited liability partnership (LLP) is a partnership concern in which some or all partners have limited liabilities. It therefore can display the essentials of partnerships and companies. In an LLP, each partner is not liable for another partner’s misconduct or negligence. This is an important difference from the traditional partnership under the Partnership Act 1890, in which each partner has joint (but not several) liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a company. Unlike company shareholders, the partners have the right to manage the business directly. In contrast, company shareholders must elect a board of directors under the Companies Act, 2017. An LLP also contains a different level of tax liability from that of a company.
Limited liability partnerships are distinct from limited partnerships in many countries, which may allow all LLP 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, the LLP is more suited for businesses in which all investors wish to take an active role in management.