By Amol Pushp

Published On: August 29, 2021 15:45 IST

Introduction

The Limited Liability Partnership (Amendment) Bill, 2021 was recently passed by the upper house by the Parliament on August 4th and subsequently been passed by the lower house on August 9th, 2021. It seeks to amend the Limited Liability Partnership Act, 2008. The purpose behind the proposed amendments were to boost the startup infrastructure in the form of LLP, to promote Ease of doing business and encourage small entrepreneurs to incorporate LLP and startups ecosystem.

The amendments were done on the recommendations of the Company Law Committee (CLC), which was set up by the Ministry of Corporate Affairs in September 2019.  This was done in alignment to the similar amendments that were made to the Companies Act, 2013 in the year 2020.

What is Limited liability partnership?

Limited liability partnership is a hybrid between two types of Organization and incorporates the benefits of both Companies as well as Partnerships. It is an alternative Corporate Business vehicle which provides benefits of Limited liability but allows its members the flexibility of organizing their internal structure as partnership.

A Limited Liability Partnership is a Separate Legal Entity from its Partners. The Partners are not liable for the misconduct or negligence of other partners and can be held liable only for their own acts as compared to Partnerships wherein they can be held liable for the acts of their partners as well.

In an LLP, some partners may have a form of Limited liability similar to that of the shareholders of a corporation. Very less restrictions and compliance are enforced on a LLP, as compared to the restrictions imposed on a Company.

Therefore, A Limited Liability Partnership is one of the most flexible form of business and provides much-secured business environment to the partners. This in turn motivates small entrepreneurs to start businesses with ease.

What are the key amendments introduced?

  • Decriminalization of Compoundable offences

The new Act decriminalized 12 compoundable offences reducing the overall number of criminal provisions under the LLP Act to 22, with compoundable offences reduced to 7, non-compoundable offences reduced to 3.

These offences will now be adjudicated by the In-house Adjudication Mechanism (IAM). Section 77A was added thereby enabling the Central Government to appoint officers for adjudging penalty under the provisions of the LLP Act.  The result of this would be that the burden of the courts will be reduced relating to non-serious matters  and the conflicts could be resolved rapidly.

A list of the offences decriminalized are as follows[i]:

  • Section 9- Changes in Designated Partners
  • Section 10- Punishment for contravention of Section 7,8 and 9
  • Section 13- Registered office of Limited liability partnership and change therein
  • Section 21- Publication of name and Limited liability
  • Section 25- Registration of changes in partners
  • Section 34- Maintenance of books of account, other records and audit, etc.
  • Section 35- Annual Return
  • Section 60- Compromise, or arrangement or Limited liability partnerships
  • Section 62- Provisions for facilitating reconstruction or amalgamation of Limited liability partnerships
  • Section 74- General penalties

Concept of Small LLPs

The Bill provides for the concept of small LLPs where the contribution of Partners ranges between 25 lakhs to 5 crores, or the annual turnover is between 40 lakhs to 50 crores. The concept was introduced to be in line with the concept of “Small Company” under the Companies Act, 2013. These small LLPs will enjoy certain privileges such as:-

  • Reduced filing fees;
  • Lesser compliances;
  • Lesser additional fees;
  • Lesser penalties;
  • Accounting Standards for only certain class of LLPs mainly engaged in manufacturing LLPs

Issuance of non-convertible debenture

Though the amendment and the Act facilitates the issuance of non-convertible debentures by LLPs through the insertion of Section 2(1)(i). However the NCDs can only be issued to bodies corporate and trusts which are regulated by SEBI or RBI. The motive behind it was to promote the ease of doing business and to deepen the bond market.

  • Compounding of offences

Section 39 was substituted wherein, the Central government may compound any offence under the Act which is punishable only with a fine. This will be done under the authority of the Regional Director or any other officer not below the rank of Regional Director authorized by the Central Government. Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Regional Director. The amount imposed may be up to the maximum fine prescribed for the offence.

  • Establishment of special courts

Through the insertion of Section 67, special courts is proposed to be established under the Bill to ensure speedy trial of offences under the act. The special court will consist of:

  • A Sessions Judge or an Additional Sessions Judge, for offences punishable with imprisonment of three years or more; and
  • A Metropolitan Magistrate or a Judicial Magistrate, for other offences.

These judges will be appointed with the concurrence of the Chief Justice of the High Court.

  • Establishment of the Appellate Tribunal:

By amending the Section 72(2) of the Act, any aggrieved party can approach the National Company Law Appellate Tribunal (NCLAT) against the order of NCLT, provided that the order was not made by the Tribunal with the consent of parties. Appeals must be filed within 60 days which is further extendable by another 60 days of the order. In order to provide relief to the aggrieved party, the Bill seeks to bring more clarity on the filing of an application to the Appellate Tribunal if a person is not satisfied with the judgement of the Tribunal[ii].

  • Punishment for Fraud

The imprisonment in case of Fraud was increased from 2 years to 5 years through Section 30(2) of the Amendment. This will be applicable if its partners carry out an activity to defraud their creditors, or for any other fraudulent purpose. a fine between Rs 50,000 and five lakh rupees could also be imposed.

  • Reduction in filing fees

The Bill proposes to reduce the filling and additional fees in case of delayed filings of documents and returns under the LLP Act, by amending Section 69. According to the 2008 Act, the additional fee for such filing delays is Rupees 100 Per day. The imposition of such huge amount,  for such procedural technical defaults imposes a huge financial burden on the LLPs. Further, it is proposed to recommend different filing fees for different classes of LLPs.[iii]

  • Adjudicating Officers

By the insertion of Section 68, the Bill proposes to appoint as many officers as adjudicating officers to adjudicate penalties under the LLP Act. These will be Central government officers not below the rank of Registrar. This change was done in line with the provisions of Section 396 of the Companies Act, 2013.

  • Insertion of Accounting and Auditing Standards

According to Section 34 of the Bill, The Central Government is authorized to prescribe standards of accounting and auditing for a class or classes of Limited liability partnerships, particularly LLPs engaged in manufacturing activities.

Conclusion

Several significant and crucial amendment introduced through the amendment which is much needed in the realm of Indian Economy. The number of LLPs in India has grown rapidly in the recent years.

There are more than 2,13,014 registered LLPs according to the Corporate Affairs Ministry. During the financial year 2020-2021, the number of LLPs incorporated has shown an annual growth of about 17%. The bulk of LLPs being small and medium enterprises. They will be befitted with amendments tending to less compliance, lower fees and lesser penalties in case of minor violations and encourage even more start-up infrastructure in India.

The Amendment, deal with most crucial aspect of making LLPs entrepreneur friendly by decriminalising certain offences and re-establishing the nature of penalization for various offences. Numerous other changes can be established to strengthen the Limited Liability Partnerships in India. The increase in excess of Angel investors, by reducing stringent norms and encouraging the Registrations of LLPs in India.

The latest amendments is welcoming change in the corporate infrastructure of India and would allow the gradual progress of making India a corporate Haven.

To read the Act:

[embeddoc url=”https://egazette.nic.in/WriteReadData/2021/228686.pdf”]

[i] Proposed Changes Under LLP Act – Traversing Beyond Decriminalization, available at- lawstreetindia.com (last visited on August 25,2021)

[ii]LLP Amendment Bill 2021, available at- firstpost.com (Last visited on August 25, 2021)

[iii] An Insight Into The Limited Liability Partnership (Amendment) Bill, 2021, available at- livelaw.in (Last visited on August 25, 2021)

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