The LLP Act was introduced in Rajya Sabha on 30th July 2021. It is all about to amend the existing Limited Liability Partnership Act,2008.
LLPs are becoming popular among start-ups. An amendment is being proposed to the LLP Act for the first time,’ said finance minister Nirmala Sitharaman.
Key Changes in the Bill:
- 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,s and lesser penalties in the event of default.
Earlier Law Amendment Contribution from Partners up to INR 25lakhs May be Increased to INR 5 Crores Turnover Size -INR 40 Lakhs May be Increased to INR 50 Crores
- 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.
- Standards of Accounting and Auditing: Under the Bill, the central government may prescribe the standards of accounting and auditing for classes of LLPs, in consultation with the National Financial Reporting Authority- NFRA.
- 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 order that has been passed with the consent of the parties. Appeals must be filed within 60 days (extendable by another 60 days) of the order.
- De-criminalisation of compoundable offenses: Penal provisions under the LLP Act will be reduced to 22 (With Compoundable offenses to 7 & non-compoundable offenses to 3)
The remaining 12 de-criminalized offenses would then get shifted to In-house Adjudication Mechanism (IAM) thereby de-clogging the criminal courts from routine cases
- Imprisonment: The maximum term of imprisonment has been increased from 2 years to 5 years for any fraudulent activity.
- Special courts: The Bill allows the central government to establish special courts for ensuring speedy trial of offenses under the Act. The special court will consist of: (i) a Sessions Judge or an Additional Sessions Judge, for offenses punishable with imprisonment of three years or more; and (ii) a Metropolitan Magistrate or a Judicial Magistrate, for other offenses. 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.
- Name Change: 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 Rs 10,000 to five lakh rupees. The Bill removes some of these grounds and empowers the central government to allow a new name to such an LLP instead of levying a fine.