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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.

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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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