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April 28, 2009

National election delays Indian LLP law changes

By Nicholas Moody

Recent changes to India’s limited liability rules are expected to lead to increased consolidation and the creation of inter-disciplinary firms, potentially spelling an end to the country’s multitude of micro practices.

But before these changes come into force, three professional bodies – the Institute of Chartered Accountants of India, Institute of Company Secretaries of India and Institute of Cost and Works Accountants of India (ICWAI) – need to amend their regulations to allow the new structures in their institutes.

ICWAI president Kunal Banerjee said this process will take several months for the ICWAI as no changes can be made until the Indian general election has been completed.

The changes, made to address a gap in the business structure to enable high growth in the professional service sector, were made possible by the passing of the Limited Liability Partnership (LLP) Law by the Indian Ministry of Corporate Affairs earlier this year.

The amendments allow the formation of multi-disciplinary firms providing a range of services. Previously firms could only be formed between members of the same professional body.

The new LLPs require a minimum of two partners. In a break with the old legislation there is no limit on the maximum number of partners. The current limit is 20.

Banerjee has welcomed the modernising move but says it is too early to know how many firms will adopt the new status.

“I think this will be a good step forward. Today if you want the services of a cost accountant you go to a cost accountant firm, if you want the services of a chartered accountant you go to a chartered accountant firm. This is going to allow you a single window solution. It may also give rise to larger firms coming into force,” he said.

Consolidation could be significant. By some estimates there are about 65,000 practising chartered accountants in India and about 40,000 to 45,000 chartered accounting firms.

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