The Limited Liability Partnership (Amendment) Bill, 2021 has been the focus of the legal fraternity during the course of the past few weeks. The bill, which was introduced on July 31, 2021, was passed by both the Rajya Sabha and the Lok Sabha by August 9, 2021. Even as the focus of the Parliament was on the recent controversy surrounding the Pegasus spyware leading to protests from the opposition, the bill was introduced and got passed without a lot of hassles.
According to the Minister of State for Corporate Affairs, Rao Inderjit Singh, the bill which amends the Limited Liability Partnership Act, 2008, ‘seeks to encourage the startup ecosystem and facilitate greater ease of doing business for the law-abiding corporates in the country’.
What is a Limited Liability Partnership?
A Limited Liability Partnership (LLP) is a form of business in which a few or all the partners in a partnership have limited liability. It, therefore, acts like a combination of a partnership and a corporation. The advantage in an LLP is thus that a partner will not be responsible or be held liable for the acts of another partner.
What is the Limited Liability Partnership Act, 2008?
The Limited Liability Partnership Act, 2008 was introduced in order to legally recognize and sanction LLPs in India. The Act covers various provisions concerning LLPs like incorporation, liability, disclosures, conversion, dissolution, criminalization of offences, investigation procedures, and so on. It is noteworthy that the Act had not been amended even once before, until the bill in 2021.
The Limited Liability Partnership (Amendment) Bill, 2021: What are the changes?
The new bill brings in a few key changes to the original act which will be of huge importance to LLPs. The changes range from decriminalisation of certain offences to changes in accounting requirements and procedures to introduction of small LLPs and special courts, among others.
The aforesaid changes are dealt with in detail as follows
- Decriminalization of offences: A host of changes in provisions relating to criminalization and compounding of offences have been brought in by the bill. This includes decriminalization of certain acts like omissions in accounting, non-filing of statements and annual returns, etc. In this manner, a total of 12 offences have been decriminalized, thereby reducing the overall number of provisions concerning crimes in the Act to 22. Similarly, on the topic of compounding of offences, the Act provides that the Central government (through the Regional Director or any officer above his rank) can compound offences that entail only a fine. The procedure for applying for compounding is also provided.
- Accounting Procedure: The bill provides that the Central Government, in consultation with the National Financial Reporting Authority would prescribe the standards of accounting and auditing.
- Small LLPs: The bill introduces the concept of small LLPs where the capital contribution from partners is lesser and so is the turnover. It allows the Central government to categorize LLPs in this regard as ‘start-up LLPs’ or ‘small LLPs’. Such LLPs will enjoy certain benefits like fewer compliance requirements, subsidies in fee payment, more lenient penalties, etc.
- Special Courts, Appellate Tribunals and Adjudicating Officers: The bill empowers the Central government to establish special courts as well as appellate tribunals in order to ensure speedy justice and disposal of cases. The composition and procedure to establish them have also been given in the bill. Also, the government can appoint as many officers as it deems fit as adjudicating officers to decide on penalties.
- Change of name: If a name that was chosen by an LLP was deemed to be inappropriate on certain grounds, the penalty was a fine ranging from Rs. 10,000 to Rs. 5,00,000 under the Act. However, the bill has stated that the government can now just allot a new name instead of imposing the fine.
- Other changes in punishments: While a major chunk of changes provided for by the bill has been about decriminalizing offences, the bill increases the punishments provided for in case of certain other offences. For example, the term of imprisonment for defrauding creditors has been increased from imprisonment of two years to five years.