Limited Liability Partnership (Amendment) Act | Key Highlights

After receiving the approval of Union Cabinet on 28th July, 2021, the Ministry of Corporate Affairs (MCA) had tabled the ‘Limited Liability Partnership (Amendment) Bill, 2021’, in the upper house of the Indian Parliament. On 4th August, 2021, the bill was passed by the upper house (Rajya Sabha).

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Key Highlights:

1. Decriminalization of certain offences
2. Introduction of the concept of Small LLPs
3. Appeals to Appellate Tribunal
4. Issue of NCDs
5. Non-compliance of Orders of Tribunal
6. Promoting Registrations of LLPs in India
7. Establishment of Special Courts
8. Rectification of name of LLP
9. Standards of Accounting and Auditing
10. Punishment for Fraud
11. Adjudicating Officers
12. Compounding of Offences

1. Decriminalization of Certain Offences

Presently, there are 24 penal provisions, out of which 21 are compoundable offences and three non-compoundable offences. The amendments reduce the total penal provisions under the LLP Act to 22, out of which seven will be compoundable offences, three non-compoundable offences, and the In-House Adjudication Mechanism (IAM) will deal with 12 offences.

2. Introduction of the Concept of Small LLPs

The Corporate Affairs Minister stated that the changes in the LLP Act would bring the LLPs on an equal playing field with the corporates under the Companies Act. Earlier, the LLPs did not benefit from the ease of practice or simplified regulation under the proprietorship.

The amendments will make LLPs attractive and easy to handle. Many startups that prefer the LLP model will feel equal with the corporates under the Companies Act, given the ease of business opportunities.

These LLPs will be subject to fewer compliances, reduced fee/additional fee, and smaller penalties in the civil defaults. Lower compliance will incentivise unincorporated micro and small partnerships to convert into the organised structure of an LLP and derive its benefits. The “small limited liability partnership” is in line with the concept of “small company”under the Companies Act, 2013.

Threshold Contribution and Turnover Size

The amendment proposes to change the threshold limits for small LLPs. The threshold for turnover size for LLPs has been enhanced up to ` 50 crore as against ` 40 lakh and partner’s contribution up to ` 5 crore as against ` 25 lakh for small LLPs. Thus, a partner’s contribution up to ` 5 crore with a turnover up to ` 50 crore will come under the small LLP category.

3. Appeals to Appellate Tribunal

Under the Act, appeals against orders of the NCLT lie with the National Company Law Appellate Tribunal (NCLAT). The Bill adds that appeals cannot be made against an orders that have been passed with the consent of the parties. Appeals must be filed within 60 days (extendable by another 60 days) of the order.

4. Issue of Non-Convertible Debentures (NCDs) 

The amendment allows the LLPs to issue fully secured Non-Convertible Debentures from investors regulated by SEBIor the RBI. It will facilitate the raise of capital and financing operations of LLPs.

5. Non-compliance of Orders of Tribunal

Under the Act, non-compliance with an order of the National Company Law Tribunal (NCLT) is punishable with imprisonment up to six months and fine up to ` 50,000. This offence has been removed under the new Amendment.

6. Promoting Registrations of LLPs in India

Currently, no two NRIs can form an LLP in India; one of the partners has to be an Indian resident. Moreover, the Foreign Direct Investment (FDIs) in an LLP can only happen through the government route and therefore, the time required to form this partnership is much more.

Apart from decriminalisation of offence, it is also important that the norms for registering and establishing LLPs in India are entrepreneur-friendly and they find India a favourable place for setting up their startups.

7. Establishment of Special Courts

The New Amendment allows the Central Government to establish special courts for ensuring speedy trial of offences under the Act. The special court will consist of:

(i) Sessions Judge or an Additional Sessions Judge, for offences punishable with imprisonment of three years or more; and

(ii) 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. Rectification of name of LLP

The Act states that the central government may direct an LLP to change its name on certain grounds (such as the name being undesirable or identical to a trademark pending registration). Failing to comply with such direction is punishable with a fine ranging from ` 10,000 to five lakh rupees. The Bill removes some of these grounds, and empowers the Central Government to allot a new name to such an LLP instead of levying a fine.

9. Accounting and Auditing Standards

The Accounting Standards and Auditing Standards for LLPs have been introduced by inserting the Section 34A in the bill. This is done to bring standardisation in the procedures as the LLPs were not enjoying the kind of standard accounting systems that their counterpart companies are enjoying under the provisions of the Companies Act, 2013. The Central Government may prescribe the standards of accounting and auditing for classes of LLPs, in consultation with the National Financial Reporting Authority (NFRA).

10. 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 between ` 50,000 and five lakh rupees. The New Amendment increases the maximum term of imprisonment from two years to five years.

11. Adjudicating Officers

Under the New Amendment, the Central Government may 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.

12. Compounding of Offences

Under the Act, the Central Government may compound any offence under the Act which is punishable only with a fine. The amount imposed may be up to the maximum fine prescribed for the offence. The New Amendment provides 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 was compounded, then a similar offence cannot be compounded within a three-year period.