- Quick Contact:
- +91 22 2167 8100
Highlights of LLP Amendment Bill, 2021 - MMJC
The Limited Liability Partnership (LLP) is an alternative corporate business vehicle. It has advantages of being a body Corporate, but at same time internal governance and inter-se relations among partners and LLP can be regulated by the LLP Agreement and not necessarily by the statutory provisions of LLP Act, 2008 (“the Act”) and Rules issued thereunder.
It has been emerged as one of the most popular business vehicles for professionals and Micro, Small and Medium Enterprises (MSME).
In order to provide greater ease of doing business in India to law abiding LLPs, the Company Law Committee (CLC) had been constituted in 2019 with a wide mandate such as reviewing offences under LLP Act, 2008, improving functioning of the authorities under LLP Act and other changes aimed at promoting the ease of doing business in India.
The CLC submitted report in January, 2021 and the based on that report and public comments invited thereon, Limited Liability Partnership (Amendment) Bill, 2021 was introduced in Rajya Sabha on July 30, 2021 and passed on 4th August, 2021. Further same is also passed in Lok Sabha on 9th August, 2021.
The highlights of the Bill are as follows:
1. Introduction of Concept of Small LLP
Based on LLPs turnover and Contribution by partners, the new concept of Small LLP is introduced in Bill. The rationale behind it is to create a class of LLP which shall be subject to lesser compliances and lesser penalties. The criteria prescribed is as follows.
- the contribution of which, does not exceed 25 lakh rupees or such higher amount, not exceeding 5 crore rupees, as may be prescribed; and
- the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed; or
- which meets such other requirements as may be prescribed, and fulfils such terms and conditions as may be prescribed;
2. Rectification of name of limited liability partnership.
The Bill proposes to provide for allotment of a new name to the LLP by the Central Government, in case the LLP is in non-compliance of section 17 of the Act, i.e., not changing name even after directions from Central Government directing the change of name. The amendment proposes deletion of imposing fine for non-compliance for such default.
3. Punishment for fraud
Under the Act, if an LLP or its partners carry out an activity to defraud their creditors, or for any other fraudulent purpose, every person party to it knowingly is punishable with imprisonment of up to two years and a fine. The Bill proposes to increase the maximum term of imprisonment from 2 years to 5 years.
4. Non-compliance of orders of Tribunal:
Currently, non-compliance with an order of the National Company Law Tribunal (NCLT) is punishable with imprisonment up to 6 months and a fine up to Rs 50,000. The Bill proposes to remove this offence. It is in line with the amendment made in the Companies Act, 2013 as for non-compliance with orders of the NCLT, the Committee felt that utilising contempt jurisdiction of the NCLT may be preferable to invoking separate offences for such non-compliance.
5. Compounding of offences
As per LLP Act,2008, the Central Government may compound any offence under the Act which is punishable only with a fine. The Bill amends this to provide that a Regional Director (or any officer above his rank), appointed by the Central Government, may compound such offences. The amount imposed must be within the minimum and maximum fine for the offence. If an offence by an LLP or its partners is compounded, then a similar offence cannot be compounded within a three-year period.
6. Adjudicating Officers:
The Central Government is empowered to appoint adjudicating officers for awarding penalties under the Act. These will be Central Government officers not below the rank of Registrar. Appeals against orders of the Adjudicating Officers will lie with the Regional Director.
7. Special courts:
The Bill empowers Central Government to establish special courts for ensuring speedy trial of offences under the Act.
The special court will 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 a Judicial Magistrate, for other offences. 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.
8. Standards of accounting and auditing:
The Bill empowers Central Government to prescribe the standards of accounting and auditing for classes of LLPs, in consultation with the National Financial Reporting Authority (NFRA).
9. Certain offences decriminalised
12 offences under LLP Act, 2008 are proposed to be decriminalised which includes
(i) change in partners of LLP
(ii) Change of registered office
(iii) failure to file Form 8 and Form 11 (Statement of Account and Solvency and Annual return)
(iv) General penalties etc.
10. LLP shall not be amalgamated with Company
By inserting explanation to Sec. 62 which deals with reconstruction or amalgamation of limited liability partnerships, the Bill proposes to prohibit amalgamation of LLP and Company.
A copy of this Bill is available on the following link: