ALL ABOUT LLP (AMENDMENT) BILL 2021
ALL ABOUT LLP (AMENDMENT) BILL, 2021
With the passage of the Limited Liability Partnership Act of 2008, the concept and idea of a limited liability partnership was introduced for the first time. The Indian Parliament passed this law on December 12, 2008, to give legal approval to the concept of limited liability partnerships (LLPs) in India, and it took effect on March 31, 2009.
This type of partnership was created to make it simple to run a legal business while keeping compliance costs low. A limited liability partnership (LLP) is a legal entity that is responsible for the entirety of its assets. The partners, however, are only liable to a certain extent.
Until now, there have been almost no amendments passed under this act. In order to amend the LLP Act of 2008, the Government of India recently introduced the New Limited Liability Partnership (Amendment) Bill, 2021. On August 4, 2021, the Rajya Sabha passed the Limited Liability Partnership (Amendment) Bill, and on August 10, 2021, the Lok Sabha passed the bill.
These amendments are made to improve the ease of doing business by lowering penalties for various offences and compounding offences specified in the Act of 2008. This Amendment Bill seeks to make life easier for law-abiding corporations by decriminalising some of the existing act’s violations.
The purpose of the New Act – PURPOSE OF AMENDMENT IN VERSION:
- To boost ease of doing business.
- To encourage start-ups in the form of LLP- To popularise Start-ups and encourage small entrepreneurs to incorporate LLP’
- The government seeks to improve the ease of doing business and to encourage new ventures.
- To encourage the incorporation of LLPs in the business class.
- Conversion of Partnership firms into LLP’s
- To alleviate the fear of criminal prosecution for non-substantive minor and procedural omissions and commissions made in the ordinary course of business transactions. Penalty reductions for various offences, as well as the compounding of offences, are mandated by the Act of 2008.
- The objective of the De-criminalization exercise is to eliminate the illegality of offences from company legislation if no malicious intent is present.
Key Highlights of Amendment: Most Important:
Introduction of New Concept of Small LLP.
The primary goals of this bill are to introduce the concept of a “small LLP” and to decriminalise certain offences. The passage of this bill will result in a more liberal economy and a more business-friendly environment in the market system for small businesses and start-ups in the form of LLPs.
- DECRIMINALIZATION PRINCIPLES ADOPTED FOR COMPOUNDABLE OFFENSES:
- a) Principle 1: Offenses relating to minor/less serious compliance issues involving primarily objective determinations are proposed to be transferred to the In-house Adjudication Mechanism (IAM) framework rather than being treated as criminal offences.
- b) Principle 2: The LLP Act, 2008 is being suggested to be amended to remove offences that are better dealt with under other laws.
- c) Principle 3: For non-compoundable offences involving an element of fraud, intent to deceive, and causing injury to the public interest, or non-compliance with orders of statutory authorities impeding effective regulation, the status quo would be maintained.
As per proposed amendment,
- The LLP Act specifies only 22 penal provisions for LLPs.
- Only 7 (Seven) Compoundable Offences
- Only 3 (Three) Non-Compoundable Offences
Crux:
♦ In total, twelve (12) offences are proposed to be decriminalized, and three (3) sections with criminal liability are proposed to be repealed.
♦ The twelve (12) de-criminalized offences would then be transferred to IAM, freeing up space in the criminal courts for routine cases.
- NEW CONCEPTS: The key components of MCA21, which will be implemented in Fiscal Year 2021-22, are listed below:
- a) Small LLP:In accordance with the concept of Small Companies, it is planned to create a new type of LLP called “Small LLP.” Small LLPs would face less compliance requirements, a lower fee or additional cost, and fewer penalties in the case of a default. As a result, a cheaper cost of compliance would encourage unincorporated micro and small partnerships to convert to an LLP and reap the benefits.
- b) Earlier: Small LLPs are those having a contribution of less than or equal to 25 lakh and a turnover of less than 40 lakh.
- c) Proposed Amendment: The 25 lakhs will be transformed to 5 crores, and the total turnover would be counted as 50 crores..
- d) Non-convertible Debentures (NCDs): It is planned to allow LLPs to raise capital by issuing fully secured Non-Convertible Debentures (NCDs) to investors who are regulated by SEBI or RBI (as an alternative to equity participation). This will aid in the development of the debt market and the capitalization of LLPs.
- REDUCTION OF ADDITIONAL FEE:
It is also proposed that Section 69 of the Act be amended in order to minimise the current additional price of Rs. 100 per day for late filing of forms and documents. A lower extra cost is expected to encourage the timely filing of LLP documents and returns, resulting in an updated registry for proper regulation and policymaking.
Change of name of LLP: If an LLP fails to comply with the Act’s rules, the Central government may order it to change its name or pay a fine ranging from Rs 10,000 to Rs 5 lakh. Instead of imposing a punishment, the revised Act now allows the Central government to assign a new name to such an LLP.
The LLP Amendment Bill 2021 makes a total of 30 changes to the LLP Act 2008. The following are some of the most important and necessary changes:
- De-criminalization of compoundable offences:
There are 24 penal/criminal provisions in the current act, 21 of which are compoundable offences and three of which are not. The number will be reduced to 22, with 7 compoundable offences and 3 non-compoundable offences under the new act. The remaining 12 decriminalised offences have been assigned to the In-House Adjudication Mechanism (IAM).
The 12 remaining de-criminalized offences are the less serious or minor offences.
- Concept of Small LLPs
In addition to the already well-established concept of Small Companies under the Companies Act of 2013, this Bill introduces the new concept of Small LLPs. These Small LLPs will face fewer compliances, fees, and penalties in the event of a default.
Small LLPs are currently defined as those with a partner capital contribution of up to 25 lakhs and a turnover of less than 40 lakhs.
However, the proposed bill reduces the limit to Rs 5 crores instead of Rs 25 lakhs in the case of a partner’s capital contribution and to Rs 50 crores in the case of turnover.
III. Reduction of Additional Fee
Section 69 of the LLP Act, 2008 currently charges an additional fee of Rs. 100 per day for late filing of forms. However, the additional fees will be reduced in the proposed bill.
- Accounting Standards
In accordance with the Bill, the central government may also prescribe accounting and auditing standards for LLPs in consultation with the National Financial Reporting Authority (NFRA).
- Special Courts
There is also a provision for the establishment of Special Courts to expedite the prosecution of Act-related offences. These special courts will operate under the same conditions as Sessions judges and Additional Sessions for offences punishable by imprisonment for three years or more, and Metropolitan Magistrate or a Judicial Magistrate for all other offences. The order of this court’s Adjudicating Authority can be challenged and appealed in the High Court.
- Compounding of Offences
The Central Government will authorise the Regional Director in this Bill to compound any offences that will be liable for the fine only from the person who is suspected of having committed an offence under this Act..
The compounding application for offences will be filed with the Registrar, and the application, along with the Registrar’s remarks, will be transferred to the Regional Director or any other officer as directed by the Central Government.
VII. Punishment for fraud
Punishment for fraud: The amended Bill raises the maximum term of imprisonment from two to five years for any person who knowingly participates in an activity to defraud their creditors or for any other fraudulent purpose if an LLP or its partners carry out an activity to defraud their creditors or for any other fraudulent purpose. A fine ranging from Rs 50,000 to Rs 5 lakh may also be imposed. If an LLP or its partners engage in an activity with the intent to defraud their creditors or for any other fraudulent purpose, they will face imprisonment and a fineThe term of imprisonment can be up to 5 years (in the current act, it is only 2 years). Non-compliance with Tribunal orders: The amended Bill repeals the offence of non-compliance with NCLT orders, which was previously punishable by imprisonment for up to six months and a fine of up to Rs 50,000.
VIII. Appellate Tribunal
Similarly to the current LLP Act, 2008, an appeal against an NCLT order must be filed with the National Company Law Appellate Tribunal (NCLAT) within 60 days of the date of the order. However, under the proposed bill, no party can appeal if the order is made with the parties’ consent.
All of the above changes and new provisions have been made to encourage entrepreneurship and make doing business in the form of a corporate business entity easier. In this manner, both the government and the entrepreneurs can satisfy and fulfil their respective interests without causing any loss or hardship to the other.
CONCLUSION:
They are bridging the gap between companies and LLPs and making LLPs far more appealing and easy to manage, so that many of today’s startups, which prefer the LLP model, can feel equally given the ease of business opportunities.
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