Parliament passes LLP Amendment Bill to boost start-ups, ease of business

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Lok Sabha Monday passed the Limited Liability Partnership (Amendment) Bill, which seeks to encourage the start-up ecosystem and further boost the ease of doing business, amid uproar by the Opposition over the Pegasus snooping row and other issues.

The bill, which seeks to decriminalise 12 offences under the law and help improve the ease of doing business by amending the Limited Liability Partnership (LLP) Act, 2008, was passed through a voice vote.

Finance Minister Nirmala Sitharaman said it is a very important bill and will bring positivity to the LLP ecosystem. She stressed the legislation will lead to ease of doing business. She said that with the passage of the bill, criminal offences will be brought down while ease of doing business will go up and partners will have more flexibility.

The bill proposes to introduce the concept of small limited liability partnership in line with the concept of the small company under the Companies Act, 2013.

It will also amend certain sections of the Act so as to convert offences into civil defaults and to convert the nature of punishment provided in the said sections from fines to monetary penalties.

Currently, there are 24 penal provisions in the Act — 21 compoundable offences, three non-compoundable.

The proposed bill seeks to reduce the total number of penal provisions under the LLP Act to 22 — seven compoundable offences, three non-compoundable and 12 defaults to be dealt with under the ‘In-House Adjudication Mechanism’. Compoundable offences are those which can be settled by paying a certain amount of money.

Offences that relate to minor or 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.

The bill also seeks to insert a new section 34A so as to empower the Central government to prescribe “Accounting Standards” or “Auditing Standards” for a class or classes of limited liability partnerships. This is the first time that changes are being made to the Act.

At present, there are relaxations for thresholds up to turnover size and partner’s contribution of Rs 40 lakh and Rs 25 lakh, respectively. Once the amendment is in place, the thresholds will be revised upwards.

Key features of the Bill

  1. De-criminalization of procedural & technical defaults under the LLP Act, 2008 will incentivize compliance and reduce the burden on NCLT and special courts.
  2. The amendments are expected to significantly *enhance the confidence of LLPs in the Government’s resolve to reduce the burden on the criminal justice system, provide greater Ease of Doing Business and accord the highest respect to honest wealth creators in the country.*

Few Key Highlights

  • In addition to introducing the idea of “small restricted legal responsibility partnership”, in keeping with the idea of “small firm” underneath the Firms Act 2013, the Invoice additionally seeks to transform a number of offences specified within the LLP Act 2008 into civil defaults and convert the character of punishment from fines to financial penalties.
  • Besides introducing the concept of “small limited liability partnership”, in line with the concept of “small company” under the Companies Act 2013, the Bill also seeks to convert several offences specified in the LLP Act 2008 into civil defaults and convert the nature of punishment from fines to monetary penalties.
  • Small LLP Concept

The Bill defines a “small LLP” as a limited liability partnership where the contribution does not exceed ₹25 lakh or such higher amount — not exceeding ₹5 crore — as may be prescribed; and the turnover in the preceding financial year does not exceed ₹40 lakh or such higher amount — not exceeding ₹50 crore — as may be prescribed.

  • Additionally, the Centre is now proposed to be empowered to prescribe “accounting standards” or “auditing standards” for a class or classes of LLPs. The Centre is also proposed to be empowered to establish or designate as many “special courts” as may be necessary for speedy trial of offences under the LLP Act.
  • Once the proposed changes are effected, the number of compoundable offences under the legislation will drop to seven from 21 at present, the number of penal provisions will reduce to 22 from 24, and there will be only three non-compoundable offences.

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