The election frenzy is over and the country is on its way to the first historic handover of one democratic government to another, reviving a new hope and vision for Pakistan. Accordingly, time is most apt for suggesting reforms in the law that will go a long way to deal with an already crippled economy. Pakistan is faced with a most critical balance of payments deficit in years. The existing infrastructure, growing energy crisis, unprecedented levels of corruption, costly war on terror and security situation have only led to further problems and discouraged local as well as foreign investment. Although, the investors primarily look at economic viability before taking the decision to invest, they also take the legal viability of a venture into account to ensure the protection of their investments and rights in any given economy before they actually invest. So, it is safe to conclude that an attractive legal infrastructure, which provides a variety of flexible business models to choose from and caters to the needs and demands of different investors is of great importance to an investor.Against this backdrop, Pakistan as of now only has four major business and organisation models for investors to choose from, namely:iTo incorporate as a ‘company’ under the Companies Ordinance 1984; iTo register as a ‘society’ under the Societies Registration Act 1860;iTo form a ‘partnership’ under the Partnership Act 1932;iTo set up a ‘trust’ under Trust Act 1882. Doing business as a sole proprietor though is possible, but it is hardly ever a business model for investors with a big agenda.In my opinion, these traditional forms of business models are not adequate to accommodate the existing realities prevailing in the world today. As investors tend to avoid risks and/or minimise them, they value greatly the concept of ‘limited liability’ that, unfortunately, is only available to companies under Pakistani law. We are still far behind in the world as regards extending this cover to partnerships and this lag is proving to be one of the more pressing obstacles in fuelling innovation, growth and development in the economy. This is because by not incorporating the concept of Limited Liability Partnerships (LLPs), we are not allowing a suitable and attractive business model for smaller and medium scale investors, who may not wish to incorporate a company and attract all its formalities; but who may still be prepared to invest in smaller more innovative ventures if their liability was somehow ‘limited’ to the investment they would make. The only way this could happen is by embracing, as the world has, the LLP model.LLP is a partnership in which all partners, except at least one, have limited liabilities. In addition to that the registrar of companies usually also maintains the register for LLPs. It, therefore, exhibits elements of both, partnerships and companies.Furthermore, in LLP, a partner is not responsible or liable for another partner's misconduct or negligence. This is an important difference from the traditional unlimited partnerships, in which each partner has joint and several liability. Unlike corporate shareholders, the partners have the right to manage the business directly. Also, LLP contains a different level of tax liability from that of a company. It, however, should be noted that LLPs are distinct from Limited Partnerships (LP) in some countries, which may allow all LLP partners to have limited liability (Source: Wikipedia). Many countries are now adopting and accommodating this model of business in their legislative framework to attract investment from the smaller and medium scale investor, who will be more likely to invest in smaller but more innovative ventures if their assets are secured. In India for example, the Limited Liability Partnership Act was passed in 2008. The concept also exists in other countries, including Kazakhstan, UAE, USA, Canada, Greece, China and Japan. In UK, Act to that effect was passed in 2000 and in England and Wales alone, the number of registered LLPs as of March 31, 2013, was 53,472 (Source: Companies House Enquiries, UK).With the Nawaz government now stepping in and taking centre stage, it is hoped that they would hold true to the pro-business community perception that PML-N has and would pay urgent heed to the reform of law of business organisations in Pakistan. Hence, to inculcate the concept of LLPs so that the dying economy can have the necessary injections for immediate resuscitation that only innovation can bring forth.
Nida Mehmood-Law Consultant
The writer holds LLB (Hons) and LLM in Law and Development from the University of London. She is currently working as an Independent Investment Law Consultant in Lahore. Email: nidamahmood@yahoo.com
