Concept of Limited Liability Partnership:
“Limited Liability Partnership= Limited Liability + Partnership”
Governing Statute: The Limited Liability Partnership Act, 2008
The concept of Limited Liability in Partnership is arrived from the Companies where the shareholders are liable to the extent of amount unpaid towards the shares held by them, which came into existence in 1897 through a Landmark judgement: Salomon v Salomon & Co Ltd. The same kind of protection is also given to the Limited Liability Partnership wherein the designated partners are not personally liable.
Pros of Forming a Limited Liability Partnerships:
- Separate Legal Entity
- Perpetual Succession ( change in partners do not affect the rights and existence of LLP)
- Minimum 2 Partners required ( one of whom should be resident in India)
- Lesser and simplicity in compliance compared to Company
- Flexibility in operations ( as LLP is bound by the agreement , the partners have right to choose the clauses in the agreement)
- Audit is not mandatory if threshold limits does not cross 40 lakh rupees in any financial year or contribution does not exceed 25 lakh rupees
- The Profit will be taxed to the LLP separately & not to the Partners which avoids double taxation issues.
Small Limited Liability Partnership:
Limited Liability Partnership (Amendment) Act, 2021 introduced the concept of Small Limited Liability Partnership (Section 2(1)(ta)) means a Limited Liability Partnership in which the total contribution does not exceed rupees twenty five lakhs AND the turnover as per the statement of Accounts and solvency for the immediately preceding year does not exceed rupees forty lakhs.
Noteworthy:
To come under the ambit of Small Limited Liability Partnership, both contribution and turnover criteria has to be satisfied.
Important Amendments under Limited Liability Partnership Amendment Act, 2021 which brought ease in doing business:
Limited Liability Partnership (Amendment) Act, 2021 dated 13th August,2021 which is effective from 1st day of April, 2022 brought in the following major provisions to facilitate the ease in doing business and promote forming of new Limited Liability Partnerships.
1. Decriminalization of Offences: Under the following sections, the offences are decriminalized, this is a welcome move and great boost to the start-ups and the small businesses to change their business set up from Sole proprietorship to LLP form. Such decriminalisation is aimed at removing fear of criminal prosecutions for non-substantive and minor omissions.
| Section of Principal Act | Description |
| Section 10: Punishment for contravention of Sections 7, 8 and 9 | While completely omitting contravention under Section 8, the Amendment Act, decriminalizes punishments under Sections 7 and 9 which deal with general obligations of designated partners |
| Section 13: Registered office of LLP and change therein | Contravention pertaining to registered office of the LLP and change therein |
| Section 17: Change of name of LLP | Failure to comply with the directions of the Central Government in relation to change of name of LLP |
| Section 21: Publication of name and limited liability | Failure to display basic information regarding LLP on invoices, official correspondences, and publications |
| Section 25 – Registration of changes in partners | Failure to notify the Registrar regarding changes in the partners of the LLP within stipulated time |
| Section 34 – Maintenance of books of account, other records, and audit etc. | Failure of compliance with respect to maintenance of books of accounts as prescribed and filing of a Statement of Account and Solvency within a period of 6 months from the end of each financial year |
| Section 35 – Annual return | Non-filing of Annual Return with the Registrar within 60 days of closure of its financial year |
| Section 60 – Compromise, or arrangement of LLPs | Non-filing of the Order passed by the NCLT with the Registrar within the prescribed time |
| Section 62 – Provisions for facilitating reconstruction or amalgamation of LLPs | Non-filing of the Order passed by the NCLT with the Registrar within the prescribed time |
| Section 74 – General penalties | General penal provision for instances where no penalty or punishment is provided for contravention under the Principal Act |
2. Recognition to Start-up Limited Liability Partnerships: – Limited Liability Partnership (Amendment) Act, 2021 has given the power to Central Government to recognise certain LLPs as Start- up LLP.
3. Reduced Penal Fees for delay in filing of forms: To promote ease in doing business, the Ministry has reduced the penalty from Rs. 100 per day of delay to slab based system for all the forms except Form 8 and Form 11. Filing fee for Small LLP is Rs. 50 and other LLPs is Rs. 150.
Form 8 and 11 LLPs the normal filing fees is determined based on the contribution of the LLP and in case of Small LLPs: For delay in filing Form 8 and Form 11 beyond 360 days :- 15 times normal filing fees plus Rs. 10 per day for every day delay beyond 360 days.
In case of other LLPs: For delay in filing Form 8 and Form 11 beyond 360 days :- 30 times normal filing fees plus Rs. 20 per day for every day delay beyond 360 days
Keeping in mind the small and growing business, this kind of reduced penalties and change in penalty rates will result in lot of savings for the entrepreneur in case they miss out the timelines.
Conclusion:
The article aims to highlight on advantages of forming a Limited Liability Partnership and some important amendments which were brought out through the Limited Liability (Amendment) Act, 2021 towards ease of doing business.
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