India Allows Accounting Firms to Set Up LLPs - Wall Street Journal

By SANGEETA SINGH OF MINT

NEW DELHI --The Ministry of Corporate Affairs, through the issue of two notifications, has allowed chartered accountants to form limited liability partnership firms.

The circulars have removed the ambiguity around the terms "partnerships" and "body corporates", which would otherwise have required amendments to the Companies Act, 1956, and the Chartered Accountants Act, 1949.

A limited liability partnership is a business structure that combines the limited liability benefits of a company with the flexibility of a partnership. India allowed these entities to be set up in 2008 and, as of May 30 this year, had 4,989 of them, according to the Ministry.

"The idea is to allow [chartered accountants] to form [these partnerships] without waiting for [the legislative] amendments," said a senior ministry official, who did not want to be identified.

Accounting firms currently function as partnership firms where they cannot have more than 20 partners.

"Besides having more than 20 partners, [chartered accountants] will be able to enjoy the benefits [associated with limited liability partnerships]," the official said.

The move is expected to benefit professionals such as company secretaries, cost accountants, lawyers and venture capitalists and chartered accountants. Limited liability partnerships have had limited appeal due to regulatory hurdles such as their treatment as "body corporates" (companies) and the lack of clarity on tax issues, among other things.

"Under the Companies Act, an auditor cannot function as a body corporate but only as a partnership firm," said G. Ramaswamy, president of the Institute of Chartered Accountants of India. "The Ministry's circular has clarified (that) an LLP, which is a body corporate by definition, will allow auditors to function as LLPs, which is a big relief."

The Ministry has clarified that chartered accountant limited liability partnerships will be treated as body corporates for the limited purpose of section 226 (3) (a) under the Companies Act, according to a circular issued by the ministry last week.

But more needs to be done, said Harinderjit Singh, partner at Price Waterhouse, an audit firm affiliated to PricewaterhouseCoopers.

"Professional bodies should expedite the changing of their rules and regulations to usher (in) the concept of [limited liability partnerships] in the interest of their members," Mr. Singh said.

He added that there needs to be a focus on the concept of multidisciplinary practice to make these entities attractive and efficient vehicles for various types of professionals. Amendments to three acts governing Institute of Chartered Accountants of India, the Institute of Company Secretaries of India and the Institute of Costs and Works Accountants of India will allow them to form entities that offer multiple services under one roof.

"This will help these professionals work together yet be responsible to their own institutions," the Ministry official said. "For this, I guess, professionals will have to wait for amended rules."

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