New Delhi: The corporate affairs ministry will propose changes in the laws governing three professional institutes in the budget session of Parliament so that their members are allowed to form limited liability partnerships (LLPs).
The Institute of Chartered Accountants of India (Icai), the Institute of Company Secretaries of India (ICSI) and the Institute of Cost and Works Accountants of India (Icwai) were established under laws passed in Parliament in 1949, 1980 and 1959, respectively.
The ministry will soon propose the amendments to the cabinet, a senior official said on condition of anonymity.
“We are ready with the details of the Bills to be placed for consideration and passage in the budget session of Parliament,” the official said.
The LLP structure would be beneficial to the relatively smaller firms, according to ICSI president Anil Murarka.
“Imagine the kind of advantage LLP will bring to relatively smaller firms. From saving on rents, logistics, etc., they can offer audit, costs and works accounts and company secretary jobs under one roof,” he said. “It will do wonders to building up clientele.”
An LLP is a business structure that combines the limited liability benefits of a company with the flexibility of a partnership. India allowed LLPs to be set up in 2008.
So far, only 3,722 such firms have been formed.
The changes will help audit firms follow a multidisciplinary approach, said Harinderjit Singh, partner at Price Waterhouse, an audit firm affiliated to PricewaterhouseCoopers (PwC).
PwC’s advisory and tax services are currently conducted through a private limited company and its auditing services are offered by partnership firms. “The two can be easily merged as (an) LLP,” Singh said.
The proposed changes would provide opportunities to cost accountants to work closely with other professionals, said Icwai president B.M. Sharma.
“LLP is a good vehicle for doing multidisciplinary business, especially in the age of globalisation,” he said.
Although draft legislation to change the relevant laws were introduced in Parliament last year, they were referred to specialized committees for suggestions.
The amendments will not only allow chartered accountants to form LLPs with any number of partners, but will also enable them to form multidisciplinary LLPs with cost and works accountants, company secretaries, lawyers as well as chartered engineers.
“Each of them will be governed by his own parent institute and the respective institute can take action against them in case of wrongdoing, if the amendments are passed,” the ministry official said.
Audit firms, which are run as partnerships, can currently have only 20 partners.
The LLP structure allows them to have any number of partners.
Price Waterhouse’s Singh, however, was cautious on some details of the proposed changes.
“One is the tax issue relating to conversion to LLP, which needs to be addressed by the government,” he said.
“Then, in the case of auditors, Icai needs to lay down guidelines focusing on their jurisdiction.”
The ministry is lobbying the finance ministry to relax tax norms governing firms seeking to convert to LLPs.
Current rules allow only those firms converting to LLPs exemption from paying capital gains tax if they have a turnover of less than Rs60 lakh in any of the preceding three years. Singh said this amount is too low.