AMENDMENTS TO LIMITED LIABILITY ACT, 2008- A BIG STEP TOWARDS GIVING LLP THE RECOGNITION THEY DESERVE
Why has only Companies act been amended from time to time and no heed has been paid to LLP Act?
We all must be thinking that this is because LLP might not be in demand or useful like a company.
To get rid of this misconception the cabinet minister Nirmal Sitharaman, who is in charge of finance and corporate affairs ministry, is amending the LLP Act by easing out a lot of provisions in order to encourage start up ecosystem and also give a boost to existing LLP’s. The requisite amendments will also bridge the gap between the companies and LLP by bringing them on the same playing field.
The cabinet, on Wednesday 28/07/2021, approved the amendments to the LIMITED LIABILITY PARTNERSHIP ACT, 2008 including decriminalizing 12 offences under the law.
The amendments would unleash the entrepreneurial spirit of our youth and remove the fear of criminal prosecution for non-substantive minor and procedural omissions and commissions in the ordinary course of business transactions. The major amendments are as follows:
- Replacement of criminality related sections to penalties / Reduction in the number of penal provisions:
With the amendments the total number of penal provisions under the LLP act will be reduced to 22, compoundable offences will be 7 and non-compoundable offences will be 3. Section 73 of the LLP Act 2008 entailing criminal liability is proposed to be omitted.
A. PRINCIPLES ADOPTED FOR DECRIMINALIZATION OF COMPOUNDABLE OFFENCES
a) Principle 1: Offences that relate to minor/ less serious compliance issues, involving predominantly objective determinations, are proposed to be shifted to the In-house Adjudication Mechanism (IAM) framework instead of being treated as criminal offences. IAM can deal up to 12 defaults instead of referring them to criminal courts.
b) Principle 2: Offences that are more appropriate to be dealt with under other laws, are proposed to be omitted from the LLP Act, 2008.
c) Principle 3: For non-Compoundable offences that are very serious violations entailing an element of fraud, intent to deceive and caused injury to public interest or non- compliance of order of statutory authorities impinging on effective regulation, Status Quo would be maintained.
2. Concept of Small LLP:
A new definition of Small LLP will be introduced under the amended act which would be subject to lesser compliances, lesser fees, lesser penalties in the event of default. This would encourage and incentivize the unincorporated micro and small partnership to convert into the organized structure of LLP.
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 it is proposed that the limited will go upwards to Rs 50 crore and Rs. 5 crore respectively which means the scope of small LLp will expand. The businesses which need a larger turnover and larger contribution will also get the benefits of being small in its definition.
CONCLUSION:
Amendment in LLP act proposes to now remove the criminality angle in respect of violations and will now only entail pecuniary penalty by way of a fine with no criminal action. This will facilitate the middle-level entrepreneur in their business activities and growth. The amendment will make LLPs an even more attractive vehicle and India a more sought-after destination.
The amendments will benefit 2.3 lakh law-abiding corporations and strengthen Aatma Nirbhar Bharat.