Introduction: Limited Liability Partnership (LLP) serves as a unique business entity blending limited liability features with the flexibility of partnerships. In 2021, the Indian government proposed amendments through the LLP (Amendment) Bill, focusing on further enhancing the business environment.
1. What is Limited Liability Partnership (LLP)?
LLP is a alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. LLPs are common in professional business-like law firms, accounting firms, and wealth managers.
2. All About LLP (Amendment) Bill, 2021
The LLP (Amendment) Bill, 2021 was introduced in Rajya Sabha on 30th July 2021. The Bill seeks to amend the Limited Liability Partnership Act, 2008. The Act provides for regulation of limited liability partnerships (LLP). LLP is a alternative corporate body form to traditional partnership firms. Under LLP, a partner’s liabilities are limited to their investment in the business. The Bill converts certain offences into civil defaults and changes the nature of punishment for these offences. The said Bill was passed by the Cabinet on Wednesday, 28th July 2021.
3. Purpose of Amendment in LLP Act:
a) To encourage start-ups and improve ease of doing business.
b) To encourage businesses to incorporate LLP’s.
c) To make it popular and convenient for Startups.
d) To remove the fear of criminal prosecutions.
f) The objective of the De-criminalization is to remove criminality of offences from business laws where no malafide intentions are involved.
4. Key features of the Bill include:
1. Introduction of Small Limited Liability Partnership(s)(LLP)
The Bill proposes to introduce the concept of “Small LLP” in line with the concept of “Small Company’s” under the Companies Act, 2013. It proposes to a new definition of small LLPs based on their turnover size and contributions by partners or proprietors. Currently, there are relaxations for thresholds up to turnover size and partner’s contribution of Rs 40 lakhs and Rs 25 lakhs, respectively.
According to the Bill a Small LLP shall mean an LLP having
1. contribution up to Rs. 25 lakh or such higher amount, not exceeding five crore rupees, as may be prescribed or
2. Turnover of Rs. 40 lakhs in the preceding FY or such higher amount, not exceeding fifty crore rupees, as may be prescribed.
3. which meets such other requirements as may be prescribed.
4. De-criminalisation of offences which are compoundable
The Act specifies that the Penal provisions under the LLP Act will be reduced to 22 (With Compoundable offences to 7 & Non-compoundable offences to 3 and the 12 de-criminalized offences which would get shifted to In-house Adjudication Mechanism (IAM) that might help in resulting less blockage on the criminal courts from routine cases. Example of some offences are as under: –
1. “Under section 13(4) If any default is made in complying with the requirements of this section, the limited liability partnership and its every partner shall be liable to a penalty of five hundred rupees for each day during which the default continues, subject to a maximum of fifty thousand rupees for the limited liability partnership and its every partner;”
2. “Under section 25(4) If the limited liability partnership contravenes the provisions of sub-section (2), the limited liability partnership and its every designated partner shall be liable to a penalty of ten thousand rupees; “
3. “Under section 25(5) If the contravention referred to in sub-section (1) is made by any partner of the limited liability partnership, such partner shall be liable to a penalty of ten thousand rupees.”
2. Compounding of offence
For the purpose of compounding of offences under the LLP Act, the bill gives power to the Regional Director or any other officer not below the rank of Regional Director, for the offences which are punishable with fine only.
Such Application shall be made by the applicant to the Registrar who shall forward along the with his comments to the Regional Director or any other officer not below the rank of Regional Director as authorised by the Central Government.
3. Establishment of Special Court for speedy trial
The Bill gives the power to the central government to establish special courts for ensuring speedy trial of offences under the Act. The special court will consist of:
1. For offences punishable with imprisonment of three years or more, a Session Judge or an Additional Session Judge; and
2. For other offences, a Metropolitan Magistrate, or a Judicial Magistrate, they will be appointed with the concurrence of the Chief Justice of the High Court, appeals against orders of these special courts will lie with High Courts.
The Special Courts referred under section 67A, shall take cognizance of any offence punishable under this Act or the rules made thereunder save on a complaint in writing made by the Registrar or any officer not below the rank of Registrar authorised by the CG for this purpose.
4. Establishment of Appellate Tribunal
For the purpose providing the relief to the person aggrieved by the order of Tribunal an Appellate Tribunal will be Established under the Act.
Any person aggrieved may file an appeal within a period of 60 days from the date of order to the Appellant Tribunal, along with the requisite documents and fees as may be prescribed.
5. Accounting Standards for classes of LLPs and Auditing Standards
The bill introduced the Accounting Standards for a class or classes of limited liability partnership. The CG may in consultation with the National Financial Reporting Authority (NFRA) and in recommendation with Institute of Chartered Accountants of India prescribe the Accounting as well as Auditing Standards for a class or classes of LLP’s.
6. Non-convertible Debentures (NCDs)
It allows LLP’s to raise capital by issue of fully secured Non-Convertible Debentures (NCDs) (as an alternative to equity Capital) from investors who are regulated by Securities Exchange Board of India (SEBI) or Reserve Bank of India (RBI). This will help in extending the funds from the Debt Market and enhance the capitalization of LLPs.
Conclusion
1. The Bill facilitates the Ease of Doing Business and encourage startup’s across the country.
2. The amendments would help to bring an equal playing field for LLP’s, compared to large companies which are governed by the Companies Act, 2013.
3. Earlier, LLPs didn’t have the benefits of either simplified regulation or ease of business under proprietorship as would be provided now.
4. The latest amendments would provide coverage to many small and large enterprises and will provide the benefits of a company as well as traditional partnership firms.
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