SMALL and medium enterprises (SME) — the largest job creators in the country accounting for 9% of the GDP — can look forward to greater access to credit by the end of the year. The ministry of corporate affairs will remove certain ambiguities in the limited liability partnership (LLP) Bill to ensure that besides entities in the services sector, firms in the manufacturing sector too can get converted to LLPs. The facility to get converted to LLPs, together with a set of corporate governance norms soon to be introduced for SMEs, are set to give SMEs a legal form and governance culture well appreciated by banks.
The manufacturing sector is now dominated by SMEs most of which are registered as partnerships and not as a company due to the high compliance cost. Once the bill is passed, they could get converted to LLPs, a new business structure which has an internal governance system that financial institutions and banks would like to see in them, experts tracking the sector said.
Now, 95% of industrial units in the country are SMEs and about 40% of value addition in the manufacturing sector takes place in the segment. Over 90% of SMEs are registered as proprietorships, about 2%to 3% as partnerships and less than 2% as companies as per a survey conducted by the ministry of small-scale industries.
Officials in the ministry of corporate affairs said they would amend the bill’s statement of objects suitably and that they would prefer to introduce the bill in the winter session of the Parliament after a parliamentary committee okays it. The new legislation would allow even corporate houses to set up LLPs with individuals as other partners.
The National Foundation for Corporate Governance, an initiative of the ministry and the industry, is now evolving corporate governance norms for SMEs. “This is meant to be adopted voluntarily and would go a long way in satisfying lenders,” said an official.