Limited Liability Partnership ( Amendment) Bill, 2021

Economic Affairs Make in India

Context: In this episode of The Big Picture based on Limited Liability Partnership (Amendment) Bill, 2021. The government on Friday introduced in the Rajya Sabha the Limited Liability Partnership (Amendment) Bill, which seeks to encourage the startup ecosystem and further boost ease of doing business in the country. In this episode we will discuss and analyse all aspects of this issue.
Introduction of Small LLPs

The Bill seeks to amend the LLP Act to introduce the concept of “Small Limited Liability Partnership” in line with the concept of “Small Company” under the Companies Act, 2013. As per the Bill, a small limited liability partnership shall mean an LLP having contribution up to Rs. 25 lakh [ Govt. may raise the limit upto maximum 5crores] or the turnover of Rs. 40 lakhs in the preceding financial year [the limit can be hiked to Rs. 50 crores by Govt.]

II. De-criminalisation of monetary penalties

There are now 24 criminal provisions, 21 of which are compoundable and three of which are non-compoundable. The overall number of criminal provisions under the LLP Act will be reduced to 22, with compoundable offences reduced to 7, non-compoundable offences reduced to 3, and the number of defaults dealt with via the In-House Adjudication Mechanism (IAM) reduced to only 12.

III. Accounting Standards for classes of LLPs

In order to align with the Companies (Accounting Standards) Rules, the bill proposes the Accounting Standards for a class or classes of limited liability partnership. The Central Government may, in consultation with the National Financial Reporting Authority prescribe the standards of accounting; and prescribe the standards of auditing, as recommended by the Institute of Chartered Accountants of India constituted under section 3 of the Chartered Accountants Act, 1949, for a class or classes of limited liability partnership.

IV. Compounding of offence

The Bill proposes to allow the Regional Director or any other officer not below the rank of Regional Director to compound any offence under the LLP Act which is punishable with a fine only. 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 or any other officer not below the rank of Regional Director authorised by the Central Government.

V. Establishment of Special Court for speedy trial of offences

The Bill proposes to empower Central Government to establish or designate Special Courts with a view to providing speedy trial of offences under the LLP Act. The Special Court shall consist of a single Judge holding office as Sessions Judge or Additional Sessions Judge, in case of offences punishable under this Act with imprisonment of three 3 or more; and a Metropolitan Magistrate or a Judicial Magistrate of the first class, in the case of other offences. The bill seeks to empower Special Courts to try an offence other than an offence under this Act with which the accused may, under the Code of Criminal Procedure, 1973 be charged at the same trial.

VI. Establishment of the Appellate Tribunal

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. Moreover, it has been proposed to appoint as many officers as adjudicating officers to adjudicate penalties under the LLP Act.

Key Points

The amendments include a new definition for small LLPs and would benefit the 2.3 lakh LLP firms currently operational in the country.

At present, there are relaxations for thresholds up to turnover size and partner’s contribution of Rs 40 lakh and Rs 25 lakh, respectively.

“Now, Rs 25 lakh will go to Rs 5 crore and Rs 40 lakh turnover size will now be treated as Rs 50 crore.

So, even Rs 5 crore contribution and Rs 40 crore or Rs 50 crore turnover will be treated as a small LLP, which means we are expanding the scope of what can be a small LLP.

Moreover, Law-abiding corporates were to get Ease of Doing Business benefits and part of the criminality related sections would be replaced with penalties.

Key Amendment

An amendment has been proposed in the Limited Liability Partnership Bill for the first time.

Currently, there are 24 penal provisions in the LLP Act, 21 compoundable offences, and three non-compoundable offences.

Of the 24 penal provisions in the Act, one would be omitted and a total of 12 cognisable offences were being decriminalised.

After the amendments, the penal provisions will be cut to 22, compoundable offences will be only seven and non-compoundable will remain the same.

About Limited Liability Partnership (LLP)

The Limited Liability Partnership Act, 2008 was enacted by the Parliament to introduce and legally sanction the concept of LLP in India.

A limited liability partnership (LLP) is a formal partnership between at least two business partners.

Each business partner is provided with limited liability, which means they aren’t fully responsible for the business’ debts or liabilities.

Unlike the general partnerships in India, LLP is a body corporate and legal entity separate from its partners, have Perpetual succession and any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.

LLP has provided a platform to small and medium enterprises and professional firms of company secretaries, chartered accountants, advocates etc. to conduct their business/profession efficiently which would, in turn, increase their global competitiveness.

LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.