Govt may retain powers to exempt LLP firms from audit requirements
May, 07th 2008
Entrepreneurs, including budding small and medium entrepreneurs, opting for limited liability partnership (LLP) structure of business form could do so without any fears of high compliance costs. The proposed LLP law is likely to stipulate that the Government may exempt any class or classes of LLP from requirements of getting their accounts audited.
In other words, the Government has retained the powers to decide on exempting such classes of LLPs as it deems fit from auditing of their accounts.
However, to ensure financial discipline among such entities, the Limited Liability Partnership Bill, 2008, is likely to propose that the LLP will be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs and submit the same to the registrar of companies or LLPs as the case may be.
A senior Corporate Affairs Ministry official said, This would help smaller companies. The compliance cost for such entities would come down.
Currently, companies have to get their accounts audited, which requires appointment of an auditor, even though their turnover is very low. In fact, the most common nature of default among the companies has been this. It is felt that to encourage SMEs, this could be a good option. Besides, the crux of the LLP form is the flexibility of the partnership.
There was a thinking to put a cap or a limit like in the Income-Tax Act, where a company with a turnover of Rs 40 lakh and above has to get its accounts audited, he said. Since the LLP concept is not restricted to certain classes of professionals only and would be available for use to any enterprise which fulfils the requirements of the LLP law, the proposed exemption is likely to help the smaller entities with low turnover, the official said.
LLP concept is not restricted to professionals and service sector, but includes manufacturing sector as well.
An LLP is an alternative corporate business form that gives the benefits of limited liability but allows its members flexibility of organising their internal structure as a partnership based on agreement.
SMEs, according to the official, would benefit most from LLP form, as it would allow an entrepreneur to get into the business without exposing his full assets to it. In an increasingly litigious market environment, the prospect of being a member of a partnership firm with unlimited personal liability is considered risky and unattractive, the official explained.