Ground Report | New Delhi: What is new limited liability partnership bill; Parliament on Monday approved the ‘Limited Liability Partnership (Amendment) Bill, 2021’ brought in to further enhance the ease of doing business and encourage the ‘startup’ environment.
The bill has already been passed in the Rajya Sabha and was approved by the Lok Sabha on Monday amid uproar by the opposition members. Under this, 12 acts mentioned in the original Act have been removed from the criminal category.
In addition, small limited liability partnerships (LLPs) have been defined under the amended law.
Finance and Corporate Affairs Minister Nirmala Sitharaman, while placing the bill for discussion and passage in the House, said that the Limited Liability Partnership Amendment Bill is an important legislation through which efforts have been made to bring equality in partnership with large companies.
She said that it lays emphasis on reducing the number of criminal acts and ensuring ease of doing business.
What is new limited liability partnership bill 2021?
A limited liability partnership is a corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP is a separate legal entity, which is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution to the LLP. It can continue its existence notwithstanding changes in partners and is able to enter into contracts and hold assets in its own name.
Key amendments proposed
Criminalization of offences: The Bill seeks to decriminalize 12 offences under LLP. At present, the LLP Act has 24 penal provisions, 21 compoundable offences and 3 non-compoundable offences. After the amendments, the penal provisions will be reduced to 22 and compoundable offences will be reduced to 7 and non-compoundable offences will remain the same. Non-criminal cases will be shifted to an “in-house adjudication mechanism” (IAM) which will help in reducing the burden of criminal courts.
Introduction of ‘Small Limited Liability Partnership’: The Bill proposes to introduce the concept of ‘Small Limited Liability Partnership’ (Small LLP) at par with ‘Small Company’2 under the Companies Act, 2013.
An LLP in which the aggregate contribution does not exceed INR 25,00,000 (can be increased to INR 5,00,00,000) and does not exceed INR 40,00,000 (can be increased to INR 50,00,00,000) for the immediate preceding financial year can be classified as a small LLP. 3 Simultaneously, the Bill seeks to introduce the concept of ‘start-up LLP’, which shall mean an LLP incorporated under the Act and shall be recognized as such in accordance with the notifications issued by the Central Government from time to time.
The Bill prescribes relatively lesser penalties for non-compliance by small LLPs and start-up LLPs as compared to other LLPs.
Compounding offences: The Bill provides that the Regional Directors authorized by the Central Government may compound any offense under this Act, which is punishable with fine only, by collecting it from a person reasonably suspected of having committed the offence.
An application for compounding of an offense shall be made to the Registrar who shall forward the same with his comments to the Regional Director or any other officer not below the rank of Regional Director authorized by the Central Government.
Special Courts: The Amendment Bill provides for the establishment of special courts for speedy trial of offences under the Act. Special courts shall 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 Judicial Magistrate for other offences.
Appeals can be made to the High Courts against the decisions of these special courts.
Standards of Accounting: Under the Bill, the central government may, in consultation with the National Financial Reporting Authority, prescribe standards of accounting and auditing for classes of LLPs.
This is the first time that changes are being made to the Act. At present, there are exemptions up to the turnover size and Rs.40 lakhs and Rs.25 lakhs respectively for partner’s contribution.
Once the modification is done, the threshold will be revised upwards.
In India, LLP’s vehicle has gained a lot of traction during the last few years. This is evident from the fact that the number of active LLPs has increased to 2,13,014. During the financial year 2020-2021, the number of LLPs incorporated has shown an annual growth of about 17 percent. Many of these LLPs are part of the MSME sector, and many are run by budding entrepreneurs as start-ups. About 75 percent of LLPs are working in service sector, 23 percent of industrial sector and about 1.75 percent of LLPs are working in agriculture sector.
Therefore, the Bill has introduced new concepts of ‘Small LLP’ and ‘Start-up LLP’, to provide the benefit of less compliance, lower fees and lesser penalties in case of minor violations by such classes of LLPs.
The quantum of additional fee in case of delayed filing was hard-coded in the LLP Act of 2008 and was a source of much pain for many LLPs, who had to pay a large amount due to additional charges for delayed filing.
In a significant relief, now, the government will exercise powers to provide quantum of additional fee through rules, thereby allowing itself to decide what it is for a class of LLPs on the basis of size.