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Online Personal Finance Magazine
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Ambiguity in the tax structure and inefficient functioning of the Limited Liability Partnership (LLP) portal are the two factors that have made it difficult for lawyers to register these arrangements
Despite lower cost of formation and reduced compliance requirements, the LLP Act—enacted in 2008—has not generated much interest among individual businessmen and lawyers. According to the data available on the LLP website, there have been only 426 registrations for LLPs till 30 November 2009.
Industry sources reveal that ambiguity in LLP laws have made it difficult for lawyers to register LLPs. “Although the Act was enacted in January 2008, the tax component was only clarified in June 2009. The law was in effect from
1 April 2009,” said Sharada Balaji, founder of NovoJuris Services.
“If clients approach us for registration of an LLP, we tell them to register as a private limited company because of the complicated procedure (involved in LLPs),” said Ashfaq Baig, company secretary, A Baig & Co, a firm of practicing company secretaries.
Another factor behind the low LLP registration figure is believed to be the inefficient functioning of the LLP portal. “We are finding it easy to register a private limited company compared to an LLP. The portal of the ministry of corporate affairs is more user-friendly compared to the LLP portal,” added Mr Baig.
An LLP is a partnership in which some or all partners have limited liability. It is useful for small and medium enterprises in the general and services sectors like professionals (lawyers, chartered accountants) and knowledge-based enterprises.
LLPs can lead to considerable savings and can avoid the cumbersome procedures involved in setting up private limited companies. LLPs, however, cannot raise funds from the public.
Ms Balaji added that there will be a growth in the number of LLP registrations once the awareness about the law spreads.