New Concept of Small LLP and other Changes in LLP Act in Budget 2021

In the Budget 2021, our hon’ble financial minister announced about Amendment in LLP Act. In continuation of the same, the Ministry of Corporate Affairs issued a press release on 03^rd February 2021.

Introduction of New Concept of Small LLP.

Purpose of Amendment in Version:

1. the object of unleashing the entrepreneurial spirits of our youth and to remove the fear of criminal prosecutions for non-substantive minor and procedural omissions and commissions in the normal course of their business transactions.
2. decriminalization of compoundable offenses. The objective of the De-criminalization exercise is to remove criminality of offenses from business laws where no mala fide intentions are involved
3. Introduction of certain new concepts.

PRINCIPLES ADOPTED FOR DECRIMINALIZATION OF COMPOUNDABLE OFFENCES:

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 offenses.

Principle 2: Offences that are more appropriate to be dealt with under other laws, are proposed to be omitted from the LLP Act, 2008.

Principle 3:  For non-compoundable offenses that are very serious violations entailing an element of fraud, intent to deceive and caused injury to the public interest, or non-compliance of the order of statutory authorities impinging on effective regulation, Status Quo would be maintained.

Crux:

• In all, twelve (12) offenses are proposed to be decriminalized and one (1) provision (Section 73) entailing criminal liability is proposed to be omitted.
• The 12 de-criminalized offenses would then get shifted to IAM thereby de-clogging the criminal courts from routine cases

NEW CONCEPTS:

The key components of MCA21 to be launched during the Fiscal Year 2021-22 are:

• Small LLP: It is proposed to create a class of LLP called “Small LLP” in line with the concept of Small Companies. Such Small LLPs would be subject to lesser compliances, lesser fees or additional fees, and lesser penalties in the event of default. Thus, a lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits.

• Non-convertible Debentures (NCDs):  It is proposed to allow LLPs to raise capital through the 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.

• REDUCTION OF ADDITIONAL FEE: It is also proposed to amend Section 69 of the Act with a view to reducing 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 policymaking. 

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