Continuing efforts to foster ease of doing business as well as encourage startups ecosystem, the government on Wednesday approved amendments to the Limited Liability Partnership (LLP) Act, including decriminalising 12 offences under the law. Besides, a new definition for small LLPs will be introduced under the amended Act, which is being implemented by the corporate affairs ministry.
The Union Cabinet on Wednesday cleared the amendments to the LLP Act. This will be the first time that changes are being made to the Act since it came into effect in 2009. Nirmala Sitharaman, who is in charge of finance and corporate affairs ministries, said that a lot of changes have been done in the Companies Act, 2013 in terms of ease of doing business and similar treatment has to be given to LLPs since “LLPs are among more popular amongst startups”.
Currently, there are 24 penal provisions and 21 are compoundable offences, while 3 are non-compoundable ones. With the proposed amendments, the total number of penal provisions under the LLP Act will be reduced to 22, compoundable offences will be 7, non-compoundable offences will be 3 and the number of defaults to be dealt under the In-House Adjudication Mechanism (IAM) will be only 12, the minister said.
“So, a total of 12 offences are to be decriminalised for LLPs. Three sections are (to be) totally omitted,” she said and emphasised that the changes would help bring LLPs on an equal playing field with corporates that come under the Companies Act. “… we are bridging this gap. And making LLPs far more attractive and easy to handle… so that many of the startups today, which prefer the LLP model can also feel equally given the ease of business opportunities,” Sitharaman said.
Generally, compoundable offences are those which can be settled by paying a certain amount of money. Besides, the government would be introducing 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. Once the amendment is in place, the thresholds will be revised upwards.
“Now, what we are saying is that Rs 25 lakh will go to Rs 5 crore and Rs 40 lakh the 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 businesses, which need a larger turnover, larger contribution of the proprietors, will also get the benefit of being small in its definition,” Sitharaman noted.
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 offences. Further, offences that are more appropriate to be dealt with under other laws are proposed to be omitted from the LLP Act.
For non-compoundable offences 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, the ministry had said in February this year. In her 2021-22 Budget speech, Sitharaman had said that decriminalising of the procedural and technical compoundable offences under the Companies Act, 2013, is now complete and that she would next take up decriminalisation of the LLP Act, 2008.
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