Key Highlights of LLP Amendment Bill 2021

With reference to  Limited Liability Partnership Amendment Bill, 2021:

The Cabinet on 28th day of July, 2021, Wednesday, approved amendments to the Limited Liability Partnership (LLP) Act for decriminalising offences under the law as the government looks to improve ease of doing business and encourage start-ups. LLPs are becoming popular among start-ups.

Currently, there are 24 penal provisions in the LLP Act, 21 compoundable offences, and three non-compoundable offences. After the amendments, the penal provisions will be cut to 22, compoundable offences will be only seven and non-compoundable will remain the same.

Key Highlights:

  1. Total of 12 offences to be decriminalized under LLPs.
  2. Many of the start ups can also benefit from the ease of doing business.
  3. Criminality has been removed to provide ease of doing business to law-abiding corporates in LLP firms.
  4. The 12 decriminalised offences will then get shifted to an internal adjudication mechanism to help unclog criminal courts from routine cases.
  5. The government has also approved creation of a class of small LLPs to encourage entrepreneurs. These LLPs will be subject to fewer compliances, reduced fee or additional fee, and smaller penalties in the event of default.
  6. The changes, including removing criminal action for failure to comply with provisions of the Act, will help about 2.30 lakh such firms in the country.
  7. “A penalty in the form of a fine has been decided for violations of general trends. This boosts Aatmanirbhar Bharat.

New Concepts:

The key components of MCA to be launched during Fiscal Year 2021-22 are: a)Small LLP: It is proposed to create a class of LLP called as “Small LLP” in line with the concept of Small Companies. Such Small LLPs would be subject to lesser compliances, lesser fee or additional fee and lesser penalties in the event of default. Thus, lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits. The government will also introduce a new definition of small LLPs based on their turnover size and contributions by partners or proprietors. 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, Rs 25 lakh will go to Rs 5 crore and Rs 40 lakh turnover size will now be treated as Rs 50 crore. So, even Rs 5 crore contribution and Rs 40 crore or Rs 50 crore turnover will be treated as a small LLP, which means we are expanding the scope of what can be a small LLP. The above amendment can be summarised as follows:

Particulars New Current
Partners Contribution Rs. 25 Lakh Rs. 5 Crore
Total Turnover Rs. 40 Lakh Rs. 50 Crore
  1. b)Non-convertible Debentures (NCDs):It is proposed to allow LLPs to raise capital through issue of fully secured Non-Convertible Debentures (NCDs) (as an alternative to equity participation) from investors who are regulated by SEBI or RBI. This will help deepen the Debt Market and enhance the capitalization of LLPs.
  1. c)Reduction of Additional Fee: It is also proposed to amend Section 69 of the Act with a view to reduce the additional fee of Rs.100 per day which is presently applicable for the delayed filing of forms, documents. A reduced additional fee is expected to incentivize smooth filing of records and returns of LLPs and consequently result in an updated registry for proper regulation and policy making.