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20 Aug2021
  • By Authored by CA Manish Gupta & assisted by CS Richa Gulati
  • Category Company and LLP Compliances
  • Views 499

The idea and concept of Limited Liability Partnership were introduced in 2008 for the first time with the enactment of the Limited Liability Partnership Act, 2008. This act was enacted by the Indian Parliament on 12th December 2008 to give legal sanction to the concept of LLP in India, and it came into force on 31st March 2009.

This form of partnership was introduced to make it easy to carry a lawful business to earn profit at low compliance costs. An LLP is a legal body liable to the extent (total) of its assets. However, the partners have limited liability only.

There were practically no amendments passed under this act till now. The Government of India recently introduced a New Limited Liability Partnership (Amendment) Bill, 2021, to amend the LLP Act 2008. The Rajya Sabha passed the Limited Liability Partnership (Amendment) Bill on 4th August 2021, and on August 10, 2021, Lok Sabha passed the bill.

These amendments are made to boost further the ease of doing business, reduce penalties for various offences, compounding offences stipulated in the Act of 2008. This Amendment Bill seeks to facilitate the ease of living to law-abiding corporates and decriminalize some of the violations under the existing act.

The purpose of the New Act

• To boost ease of doing business.

• To encourage start-ups in the form of LLP

• Reduction in penalties for various offences and compounding of offences stipulated in the Act of 2008

• To encourage the small entrepreneurs to incorporate LLP

Key Highlights of Amendment:

The key objectives of this bill are to introduce the concept of ‘small LLP’, de-criminalization of certain offences. The implementation of this bill will create a more liberal economy and business-friendly environment in the market system for small businesses and start-ups in the form of LLP.

There is a total of 30 amendments to the LLP Act 2008 by LLP Amendment Bill 2021. Some of the major and essential amendments are:

I. De-criminalization of compoundable offences:

In the existing act, there are 24 penal/criminal provisions, 21 are compoundable offences and 3 are non-compoundable. Through this new act, the number will get reduced to 22, with 7 compoundable offences and 3 non-compoundable. The residual 12 de-criminalized offences are now being assigned to the In-House Adjudication Mechanism (IAM).

The 12 residual de-criminalized offences consist of the less crucial or minor offences.

II. Concept of Small LLPs

In line with the already well-established concept of Small Companies under the Companies Act, 2013, the new idea of Small LLPs is now introduced through this Bill. These Small LLP will attract lesser compliances, lesser fees and lesser penalties in case of defaults.

Currently, LLPs with Partner’s Capital Contribution up to 25 Lakhs and turnover less than 40 Lakhs are considered as small LLP.

However, according to the Proposed Bill, the Limit will be Rs 5 Crores instead of Rs 25 Lakhs in case of partner's capital contribution and Rs 50 crores in the case of turnover.

III. Reduction of Additional Fee

Currently, as per section 69 of the LLP Act, 2008, the additional fee of Rs. 100 per day is charged in the case of delayed filing of forms. However, in the proposed bill, there will be a reduction in the additional fees.

IV. Accounting Standards

Under the Bill, the central government may also prescribe the standards for accounting and auditing for LLPs, in consultation with the National Financial Reporting Authority (NFRA).

V. Special Courts

There is also a provision for the establishment of Special Courts for the speedy trial of offences under the Act. These special courts will follow the conditions laid down for Sessions judges and Additional Sessions for the offences punishable with the imprisonment of three years or more and Metropolitan Magistrate or a Judicial Magistrate for other offences. The order of the Adjudicating Authority of this court can be challenged and appealed for in the High Court.

VI. Compounding of Offences

In This Bill, the Regional Director will be authorized by the Central Government to compound any offences which will be liable for the fine only from the person who is suspected of having done an offence under this Act.

The compounding application of offences will be filed before the Registrar & the same application along with the registrar's remarks thereon will be transferred to the Regional Director or any other officer as directed by the Central Government.

VII. Punishment for fraud

If an LLP or its partners carry out an activity knowingly to defraud their creditors or for any other fraudulent purpose, then the punishment will be in terms of imprisonment and fine. The term of imprisonment can extend up to 5 years (it is 2 years in the current act)

VIII. Appellate Tribunal

Same as the current LLP Act, 2008, the appeal against the order of the NCLT is required to be filed with the National Company Law Appellate Tribunal (NCLAT) within 60 days from the date of order. However, in the proposed bill, no party can appeal if the order passed is with the consent of the parties.

All the above amendments and new provisions have been made to promote entrepreneurship and ease the way of doing business in the form of a corporate business entity. This way, both the government and the entrepreneurs can satisfy and fulfil their interests without any loss or hardship to the other.

Authored by CA Manish Gupta & assisted by CS Richa Gulati
For any queries and suggestions contact at info@manishanilgupta.com

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