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Limited Liability Partnership

Parliament passes the LLP (Amendment) Bill, 2021

Ashish M. Shaji

| Updated: Aug 11, 2021 | Category: Limited Liability Partnership

Parliament passes the LLP (Amendment) Bill, 2021

The Lok Sabha recently passed the Limited Liability Partnership (Amendment) Bill, 2021, with a view to encourage the start-up ecosystem and facilitate greater ease of doing business. This is the Ist time that amendments have been proposed in the Limited Liability Partnership Act 2008 since its enactment. A total of 30 amendments have been made to the LLP Act 2008 by the introduction of the LLP (Amendment) Bill, 2021.

Meaning of Limited Liability Partnership or an LLP

An LLP is a corporate business structure that extends the benefits of limited liability of a company and provides the flexibility of a partnership. An LLP is a separate legal entity that is liable entirely of its assets, but the liability of partners is limited to contribution in such LLP.

It may continue its existence regardless of changes in partners and can enter into contracts and also hold property in its name.

What is the main objective of the amendments introduced vide LLP (Amendment) Bill, 2021?

 The main objective behind the amendments is as follows:

  • To improve ease of doing business & encourage start-ups;
  • To encourage business class to incorporate Limited Liability Partnership;
  • Conversion of partnership firms into LLPs;
  • To make it an attractive option for start-ups;
  • To eliminate the fear of criminal proceedings for non-substantive minor and procedural omissions and commissions in the normal course of their business transactions;
  • The objective behind the De-criminalization of offence is to remove the criminality of offence from the business law where there is no malafide intention.

Key amendments vide LLP (Amendment) Bill, 2021

In this segment, we shall discuss some of the key amendments.

Key amendments vide LLP (Amendment) Bill, 2021
  • Decriminalization of offences

The LLP (Amendment) Bill, 2021[1], has proposed to decriminalise 12 offences under LLPs. Presently there are 24 penal provisions under the LLP Act, 21 compoundable offences and 3 non-compoundable offences. After the amendments are put in place, the penal provisions shall be reduced to 22 with 7 compoundable offences, and the non-compoundable offences shall remain the same. The decriminalized cases would be shifted to an In-House Adjudication Mechanism. It will help in reducing the burden of criminal courts.

In case of non-compoundable offences, which are serious violations having an element of fraud, intent to deceive and caused injury to public interest or non-compliance of order of statutory authorities, status quo will be maintained.

  • Small LLPs

The bill also introduces new concept called the small LLP, just like the concept of small company under the Companies Act 2013. Currently, there are relaxations for thresholds up to a turnover size and partner’s contribution of 40 lakh rupees and 25 lakh rupees, respectively.

Now 25 lakh rupees contribution would go to 5 crore rupees, and 40 lakh rupees turnover size will be raised to 50 crore rupees. Therefore 5 crore rupees contribution and 50 crore rupees turnover would be treated as a small LLP, thus expanding the scope of corporate business. Moreover, the Central government can notify some LLPs as start-up LLPs.

Further, these small LLPs would be subject to reduced fee, less compliance and small penalties in case of a default.

  • Compounding of Offences

The bill states that the regional directors authorised by the Central Government can compound any offence under this Act that is punishable with fine only by collecting it from the person suspected of having committed an offence. 

The application for compounding of offence has to be made to the registrar who would forward it with his comments to the regional director or any other officer not below a rank of regional director authorised by Central Government.

  • Special Courts

The bill also provides for establishment of special courts for quick trial of offences under the Act. The special court shall comprise of sessions judge or an additional sessions judge for offences punishable with an imprisonment for 3 years or more and a metropolitan magistrate/judicial magistrate in case of other offences.

It is worth mentioning here that the decisions of the special courts may be appealed in high courts. 

  • Non-convertible Debentures

It has been proposed to permit LLPs to raise capital through the issue of fully secured NCDs from investors regulated by SEBI/RBI. It will assist in the deepening the debt market and enhance the capitalization of LLPs.

  • Appellate Tribunal

As per the LLP Act 2008, appeals against the NCLT orders lie with the National Company Law Appellate Tribunal.  The amendments provide that the appeals can’t be made against the orders passed with the consent of the parties, and appeals should be filed within 60 days period of the order.

  • Reduction of Additional Fee

Further, it has been proposed to amend Section 69 to reduce the additional fee of 100 rupees per day applicable presently for delayed filing of forms, documents. A reduced additional fee will incentivize smooth records filing and returns of LLPs and will eventually result in an updated registry for proper regulation.

  • Punishment for Fraud

The bill has also proposed to increase the maximum term of imprisonment from 2 years to 5 years in case of any fraudulent activity, and a fine can also be levied between 50000 to 5 lakh rupees.

  • Accounting and Auditing Standards

The accounting and auditing standards for LLPs have been introduced by adding section 34A in the bill. It is done to bring standardization in the procedure.

Conclusion

LLPs are the most flexible form of business structure, and with the latest amendment, a lot of small and large enterprises are covered. The LLP (Amendment) Bill, 2021, seeks to improve the ease of doing business and encourage start-ups to go ahead with the LLP business structure.

Read our article:MCA Initiates Process of Decriminalisation of Compoundable Offences under LLP Act

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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