Dr. Sanjiv Agarwal
Limited Liability Partnerships (LLPs) which kicked off in India in 2009 and had a slow start so far are now in revival mode with more and more people now inclined to form LLPs and regulators also encouraging firms to go in for LLPs.
LLPs are a hybrid form of business enterprise which is a combination of a partnership firm and a company. A LLP is considered as a body corporate like any after company, enjoys tax treatment like a partnership firm, limits the liability of the partners to the extent of contribution as in case of company and entry or exit of partners is simpler. A LLP is easier to form and close with lesser regulatory compliances. World over, LLPs are a successful investment and business vehicle . LLPs are considered as an efficient alternative business model which provides the best of both worlds – a firm and a company. The LLP has lesser compliance requirements than a company and also lesser liability than a partnership firm.
Recently SEBI, securities market regulator has allowed limited liability partnerships to be admitted as members of stock exchange to enable them to get registration as stock brokers. Hitherto, only individuals, firms and companies were acting as stock brokers. Since LLPs came into being only from 2009 onwards in India, securities laws (SCRA) did not had mention of LLPs. However, since LLPs are a body corporate as per LLP Act, 2008, LLPs can now be considered for registration as stock brokers and registered with SEBI. Stock exchanges can now consider granting of membership to LLPs subject to a LLP complying with securities laws as LLPs are akin to partnership firms and companies.
In another major development, company secretaries, chartered accountants and cost accountants can now form multi disciplinary LLPs which they were not allowed all these years.
In case of chartered accountants, body corporates can not be appointed as auditors of companies and since as per LLP Act, a LLP is to be considered as body corporate, there was a deadlock in appointment of LLPs as auditors. Ministry of Corporate Affairs (MCA) has clarified that LLP will not be treated as a body corporate for the limited purpose of appointment as statutory auditors. With this, the practicing chartered accountant can now take the advantage in forming or realigning their firms as LLP. With LLPs allowed to be appointed as statutory auditors, LLPs are now gaining its importance and opening up now opportunities for professionals.
India has presently over 5500 LLPs registered as against over 8 lakh companies. Of these, nearly 50% of LLPs are registered in west and just over 1000 in north India. So next time when you decide upon your business venture, just explore LLP option.
I want to know the Financial accounting aspects of LLP along with taxability of LLP firms.