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May 18, 2009

Indian firms ‘wait and see’ on LLPs

By Nicholas Moody

(FREE) Indian mid-tier firms are adopting a wait and see approach on new ownership rules despite largely welcoming the changes.

The Limited Liability Partnership (LLP) Law was passed by the Indian Ministry of Corporate Affairs earlier this year although no changes can take place until three professional bodies – the Institute of Chartered Accountants of India, the Institute of Company Secretaries of India and the Institute of Cost and Works Accountants of India – amend their own regulations.

The law change paves the way for the creation of one-stop multidisciplinary firms that can offer cost accounting, chartered accounting and company secretary services.

Rahul Divan, a partner at Kreston International member firm Rahul Gautam Divan & Associates, said it will help his firm work with overseas clients, reduce administration burdens around company registration and provide a much stronger legal shelter.

“You can easily offer [overseas clients] company formation, audit, tax advisory and company secretarial work all under one roof, so there can be one point of contact for any client and a seamless progression,” he said.

Brahmayya & Co managing partner Kumar Brahmayya is in favour of multidisciplinary firms coming into existence but is waiting to see what sort of restrictions will be placed on their operations because of potential conflict of interest issues.

The new LLPs introduce a minimum of two partners with no cap on the number of partners, unlike the current limit of 20 per firm.

Divan said the new legislation is unlikely to stimulate a rush of consolidation.

“The larger entity picture is already there, even though there was a restriction of 20 partners. The Big Four already have more than 20 partners but they are within three to four different firms,” he said.

For India’s smaller firms, it is the difficulty of matching strategies, rather than size, which stops firms growing, he added.

Brahmayya agreed that removing the cap on partners will be of more benefit to larger multinational firms.

“For us [the new LLP status] is not an issue, it is more helpful for multinationals because of the sheer volume of clients they have. Previously, they have been restricted and now they can expand,” he said.

Both partners welcomed the added legal protection the limited liability structure will grant to partners.

“The legal part of liability brings in a lot of comfort for partners, but we still need to see how this works out in terms of limitation of damages to third parties and professional coverage. It is still early days, we don’t know how it is going to work out,” Brahmayya said.

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