A free e-book on Limited Liability Partnership (LLP) - 2005

To download the full version of the free e-book on Limited Liability Partnership (LLP) - Click on the below link: http://bit.ly/YoFR3K

 

Limited Liability Partnership

This book was written in 2005 and aims to cogitate the raison d'être, which beget the evolution of the limited liability partnership (LLP) form of business structure. It discusses the LLP Statutes in United States of America, Channel Island of Jersey, United Kingdom, United Arab Emirates, Singapore and Australia. It further draws a comparison of the limited liability partnership laws prevalent in these places and identifies the best practices, which with apposite adaptations can be made a part of a similar legislation in India.

Methodology

This book adopts a desk research method, which involves Internet research, literature review and analysis, and correspondence with the relevant authorities in the places studied.

Acknowledgement

I would like to acknowledge the valuable contributions made by a number of people who helped me in the development and refinement of this text. First I would like to thank Prof. Prem Sikka, Professor of Accounting, Department of Accounting, Finance and Management, University of Essex, UK for his guidance on the subject.

Special thanks go to Ms. Toh Wee San, Senior Assistant Registrar ACRA, Singapore who gave my queries a patient listening and guided me in understanding the most technical issues of the subject.

CHAPTER 1: INTRODUCTION

INTRODUCTION

The inclination to collaborate to accomplish certain commercial objectives has a long history. The commercial magnetism of such collaborations and a need to govern their business ultimately led to the codification of corporate and partnership laws.

Corporations and Partnerships have been a primary form of business structure for a long time now. For more than a century, partnership law has offered an all-embracing and lucid alternative to corporate law. Although, the two bodies of law have much in common, historically they differed sharply on the role of the contract and private ordering in structuring the firm.

Partnership law encourages private ordering through bargaining by providing a set of statutory default norms that, with only a few exceptions, yield to agreements negotiated by partners. In contrast, corporate law historically has provided a mandatory framework for firm structure highly resistant to shareholders’ attempts to define their relationships through bargaining[1]. Proponents of private ordering within firms prefer the freedoms of partnership law to the mandates of corporate law, and over time they have enjoyed success in extending the bargaining model from partnership law to corporate law.

However, the inherent limitations of both these forms of businesses have made them unsuitable for certain businesses and ultimately hybrid forms of business structures such as limited partnerships, limited liability partnership, limited liability limited partnerships etc. evolved.

GENESIS AND DEVELOPMENT OF PARTNERSHIP LAWS

Partnership laws around the world have evolved over a period of time in consonance with the changing business requirements. Broadly, the partnership laws can be classified in three generations viz. General Partnership Laws (First Generation), Limited Partnership Laws (Second Generation) and Limited Liability Partnership Laws (Third Generation).

First Generation

The UK Partnership Act, 1890 is an archetypal example of first generation of partnership laws. A general partnership firm is not a separate legal entity. A partner is considered as the agent of the firm and of other partners for the purpose of the business of the firm. Further, every partner is liable, jointly and severally with all the other partners, for all acts of the firm done while he is a partner. Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefore to the same extent as the partner.

General partnership is regarded by the public as the type of business structure providing the optimal protection to members of the public, because partners are not protected by limited liability and the claimants can always go after the personal assets of each partner to meet his or her claim.[2]

The characteristic of "unlimited liability" ensures that the partners maintain a direct interest in the affairs of the partnership and conduct of its partners, especially in small practices where the partners are likely to work in the same location. For large practices, they may have offices in several places, and thus partners may not be able to keep track of all aspects and transactions of the partnership. Nonetheless, under a general partnership, partners still have to share the liabilities for the negligence of those partners whom they may barely know or meet.[3]

The advantage of this structure is that its business affairs are entirely private. A partnership agreement is also a private confidential document providing the flexibility in which the partners can determine how the internal structure and relationship between partners and between partners and the partnership are governed.[4]

Second Generation

The UK Limited Partnership Act, 1907 is an archetypal example of second generation of partnership laws. A limited partnership is different from a general partnership to the extent that it classifies the partners into two classes: a general partner and a limited partner. Limited partnerships must have at least one general and one limited partner. The essence of a limited partnership is that it bestows on the partnership the benefit of limited liability to a certain extent. In a limited partnership, the liability of the limited partner is limited to the amount of his contribution. He is like an investor and usually does not take part in the management or day-to-day running of the firm.

However, if a limited partner takes part in the management, he can be held liable for all debts and obligations of the firm incurred while he so takes part in the management, as though he were a general partner. As against this, the general partner is responsible for the management of the firm and has unlimited liability. Further, limited partnerships do not specifically deal with the issue of joint and several liabilities. Partners can still be held liable for the wrongful acts or omissions of their fellow partners. For tax purposes, a limited partnership is not considered as a taxable entity and its income and capital transactions flow through to the partners. Limited Partnerships are increasingly being used for private equity and fund investment businesses.

Third Generation

The UK Limited Liability Partnership Act, 2000 is an archetypal example of third generation of partnership laws. A limited liability partnership (LLP) is an alternative corporate business vehicle that not only provides the benefits of limited liability but also allows its partners the flexibility of organizing their internal structure as a general partnership. The limited liability partnership is a separate legal entity and, while the LLP itself will be liable for the full extent of its assets, the liability of the partners will be limited. In LLP, each partner is the agent of the LLP but not of other partners.

The limited liability partnership structure has gained importance in the last one decade and is now available in United States of America, Channel Island of Jersey, United Kingdom, United Arab Emirates, Singapore and Australia.

The push for the creation of limited liability partnership grew from several factors, such as general increase in the incidence of litigation for professional’s negligence and the size of claims; the risk to a partner's personal assets, when the claim exceeds the sum of the assets and insurance cover of the partnership; the growth in the size of partnerships; increase in specialization among partners and the coming together of different professions within a partnership.

There are also concerns about the shifting of the business structure of a firm from a general partnership to an LLP, albeit there is no empirical data supporting them. One of the concerns is about the impact upon the culture of a law firm. For instance, the practice of law in high-risk areas often yields high rewards commensurate with the increased risk of liability. Partners in a general partnership usually share both the risk and risk-related gains with their fellow partners. If a shift to an LLP causes a member/partner to shoulder a higher risk of liability than others, he or she may demand a larger share of the rewards. Similarly, the risk of some members/partners may increase where the legislation provides that members/partners of LLPs have to be liable for the acts of those under their direct supervision; in particular, if some members/partners have to supervise less experienced lawyers or staff.[5]

 

Some consider that shifting from the general partnership status to the LLP status may result in less incentive for members/partners to monitor and control the quality of work by other members/partners of the firm, as they are no longer liable for the acts of their fellow members/partners. The breakdown of internal procedures at Arthur Andersen, the accounting firm operating as an LLP, in connection with the collapse of the Enron Corporation, is often quoted as an example of such disincentive.[6]

However, the level of protection that an LLP affords partners of a LLP is an important factor in why LLP is fast becoming the preferred structure for major professional services firms.

 

Failing Organizations - The Dump Truck Syndrome

A link to this document - https://www.dropbox.com/sh/3cgnyzcmpn3bjqr/9X4YPAJRX2 

Link to the document

The Future of Education

The Future of Education

Introduction

As India moves ahead on the path of globalization, it needs to overhaul its education system to meet the future demands. While the world population is ageing, India’s working population (25-59 years) is slated to continuously increase. This phenomenon will make India a supplier of workforce to the entire world. In the wake of this reality, the Indian education system should therefore be able to produce a workforce which is globally competitive and thus reap its demographic dividend. There is, therefore, an acknowledged need for disruptive and innovative models of education to address the challenges of educating the “digital natives”.

How will this new model of education be different? It will be flexible, creative, challenging, and complex. It will be focused on addressing the needs of a rapidly changing world filled with fantastic new problems as well as exciting new possibilities. In the following paragraphs, we will attempt to peep into the future and see how technology will be leveraged to address some of our dire needs of creating knowledge that is meaningful and fun filled. We will also attempt to visualize the future of school education, school leaders & teachers and how the job market will evolve with several careers getting extinct and many more emerging.

Peeping into the Future

It is certain that the future will be shaped by emerging and ever evolving technologies. An analysis of the history of technology shows that technological change is exponential, contrary to the common sense “intuitive linear” view. We are living in exponential times – consider this- a week’s worth of the New York Times contains more information than a person was likely to come across in a lifetime in the 18^th century. It is estimated that 4 extrabytes (4 x 10^19) of unique information will be generated this year, which is more than the information generated in the last 5,000 years. So we won’t experience 100 years of progress in the 21^st century – it will be more like 20,000 years of progress.

One of the reasons which can be attributed for this exploding growth of knowledge is the concept of “Sapiential circles”. The concept was coined by Prof. Warren Bennis, a distinguished professor from Southern California’s Marshall School of Business — he was referring to how the knowledge of a group tended to increase exponentially as new members were added to the group.

What we are witnessing in the world of today is a dramatic increase in our own ‘human sapiential circles’ as a result of global connectivity. Quite simply, we have connected the minds of people around the world who share an interest in a topic or issue — they become a ‘sapiential circle’. And the result is dramatic — for example, the amount of medical knowledge doubles every eight years; it is said that half of what an engineering student learns in their first year is obsolete or revised by the time they graduate.

Changes of this magnitude require a complete rethinking of education systems, both in terms of the curriculum, and in the development of pedagogies that ensure that every student acquires high level of skills needed to thrive in the dynamic world of the 21^st century. In addition to the basic skills of literacy and numeracy, every learner must also master the "three C's:" Communication, Collaboration, and Creative Problem Solving.

Beyond these are the equally important skills of knowing how to use numbers and data in real-world tasks, the ability to locate and process information relevant to the task at hand, technological fluency, and, most of all, the skills and attitudes needed to be a lifelong learner. Teachers need to not only teach children what to learn, but they need to teach young people how they can continue to learn in the future.

Education of the future will be extensively driven by technology and will not be limited in time or to one place. Learning can happen anytime, anywhere, and can meet needs based on interest. Students will be motivated by a structure that allows them to explore and learn in innovated and interest-driven environments.

Schools in the 21^st century will be laced with a project-based curriculum for life aimed at engaging students in addressing real-world problems, issues important to humanity, and questions that matter. 

This will be a dramatic departure from the factory-model education of the past.  It is abandonment, finally, of textbook-driven, teacher-centered, paper and pencil schooling.  It means a new way of understanding the concept of “knowledge”, a new definition of the “educated person”. 

Schools will go from ‘buildings’ to 'nerve centers', with walls that are porous and transparent, connecting teachers, students and the community to the wealth of knowledge that exists in the world.”

A school of tomorrow will thus focus on ensuring that students and teachers understand that they must be prepared to engender a mindset that involves adaptability, flexibility; a mindset that embraces and does not fear constant change; a mindset in which they will view a future of constant change with wonder and awe, rather than concern.

The Future of Learners

Technology will serve as a means to the resources that students will be able to utilize in order to broaden their learning. Several new technologies are slated to emerge that will make learning fun and more personalized.

Things like emotion sensors will detect student boredom. Thus, student learning will be continuously monitored and the learning systems will be capable of adapting themselves to maintain student attention and interest.

Electronic translators will ensure complete irrelevance of language. Thus, language will no longer be the barrier to learning.

Things like 3D holography will ensure that a teacher can be present across the world and her lessons can be viewed by the student at his own pace and for any number of times, anytime - anywhere.

Technologies like 3D printing which came into scene in 2003 will get more advanced. The costs of 3D printers will also come down substantially. This will bring 3D printers from industrial use to home use and each house will have a 3D printer. Children will be able to print their models and work of art at home. This will fuel development of innovative products.

Students will be able to work at their own speed to attain competencies of choice. Students will be matched to projects that align with their own learning levels and abilities. Each student plan could be paced differently based on what a student needs. Learning will be more personalized, inclusive and experimental.

Overall, students will take the responsibility of their own learning and teachers will just be a facilitator – encouraging self-directed learning; learning by doing; learning from experience; students will design and complete their own growth plans. Continuous and lifelong learning will become the way of life.

This will result in a need for developing competency-based curriculum in which students demonstrate their competencies and can move forward if the skill is proven as mastered, rather than repeating those skills.

Currently, educators hope that the knowledge, behaviours, and skill learned in the classroom will be effectively transferred to relevant situations in the real world. However, the current education system does not prepare a child in a way that classroom learning can be effectively applied in the real world. It is foreseeable that simulation and immersive learning technologies will come to the fore and enhance knowledge, verify expertise and improve learning outcomes.

Through these technologies, a student will not only be able to do focused and repetitive practice to gain expertise but also get assessed in a real time mode on his technical competencies. Such learning systems will also have the capabilities to support multi learner environment and assess not only individual performance but also group cohesion and team dynamics.

Broadcasting networks and technologies, which provide access to educational content even in the remote areas will gain momentum. Online collaboration platforms will enable teachers, students and families to interact and build educational content. Online learning platforms will be developed which can be customized and tailored to the needs of the students, even outside the mainstream education system.

The Future of School Teachers & Leaders

In future, knowledge will become freely available. Lesson plans, videos, books, text, articles, blogs will all be digitized and will be available freely. Teachers will become facilitators of knowledge and no longer the “only expert” because of the rapid and constant changes and additions to information that can be found. Schools will work in partnership with the community to provide services for students and provide an educational team that will meet all needs. Within this team there will be experts in areas that will help the team look at the “whole child” and help that child create a plan based on skill strengths, interests, and community needs.

The teacher will guide students through learning – no longer the one who possesses all the knowledge will lecture and “give” all the knowledge to the students. It will be impossible for teachers to have all the knowledge with technology that is capable of finding much more than what can be learned.

Thus, teachers will play the role of a facilitator. The role of the teacher will be to help the students with resources; help students learn where to locate information and help students evaluate sites and resources for validity.

This would require continued professional development of teachers for which teachers will have to be empowered and made partners in change. They will have to keep themselves abreast of the latest technologies as the world ahead will be a more connected world with growing numbers of virtual schools.

However, continuing to train teachers to perform in a world of monolithic, teacher led content delivery, where the key skills are in holding students’ attention to subjects that are being taught to the dominant type of learner in each subject, trains teachers for the past.

Future teachers will need the skills to work one on one with different type of learners as they study in a student centric way. The tools that teachers build and distribute in the user networks of the future will play a key role in making learning student-centric. The next generation of teachers needs to learn how to build these tools for different types of learners.

The Future Job Market

Today, everyone knows that education is taking on more and more importance around the world. In the last decade, international competition in higher education and the job market has grown dramatically. As the New York Times columnist Thomas Friedman famously pointed out, the world economy has indeed "flattened." Companies now digitize, automate, and outsource work to the most competitive individuals, companies, and countries.

If our challenge could be limited to preparing people for the kinds of jobs available today, we would still have a lot of work to do. Unfortunately, the challenge is even greater. Many of the jobs that will be available at the turn of the century have yet to be invented. Research shows that the top 10 in-demand jobs in 2010 did not exist in 2004. It is believed that majority of the jobs our current kindergartners will be filling in the year 2050 haven’t been invented yet.

It is predicted that all jobs, which do not require creativity will get automated in near future. So the kind of jobs that would be on offer will be more creativity based in nature. Thus, critical thinking and problem solving skills will be in high demand.

Workers of the future will change jobs many more times during their lives as compared to workers of present — and parallel careers will become the norm as people will extract themselves from professions that are becoming extinct. Educators need to know what is happening; how careers go extinct; how people survive extinction; and how they use extinction to thrive. Knowing this will once again help them in preparing young people to cope and thrive in a world of constant, relentless change.

Road to the Future

As a developing country develops an industrial based economy, studying science, math, and engineering offer big rewards that ensure students an escape from poverty. When the same country achieves stability and prosperity, students have more freedom to study subjects that they find fun and intrinsically motivating.

India needs to identify its own paths to the future in intrinsically innovative way. If we keep doing what we're doing, we're not going to get there.

Conclusion

There is much one could envision for education in the future—the rise and fall of nation-states, changes in global values and financial systems, developments in nanotechnology, rethinking private/public space, or changing aspirations for living standards that might influence a child’s work ethic. Unimagined global possibilities exist. As we look to education’s future, we trust our experience that humans will do what interests them. In education, learning has always succeeded when students actively engage in projects they care about.

There is no question that we are experiencing a fierce pace of change in an increasingly global economy. Schools that ignore the trends shaping tomorrow will cease to be relevant in the lives of their students, and will quickly disappear. We must transform all formal institutions of learning, from pre-K through college, to insure that we are preparing students for their future, not for our past.

The challenge of transforming education in India cannot be met by quick-fix solutions or isolated reforms. It can only be accomplished with a clear, coherent, and coordinated vision of reform. The important thing to note here is that anything we do today to fix our schools will take fifteen to twenty years to show significant results. Leaders of today will need to have clear understanding of how the world may be different 15 to 20 years from now.

We know we do not have all the answers to our educational challenges. Yet not having all the answers cannot become an excuse for inaction. The immediate need to provide an excellent education for every child is a right that cannot be postponed. The time for change is now.

***