Cabinet approves amendments to LLP Act

Limited Liability Partnership Amendment Bill, 2021

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

Definition of Small Company

1. 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.
2. '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.

Lower compliance will incentivise unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits. The corporate affairs ministry is also working towards setting up an e-adjudication platform as part of the new version of the MCA21 portal.

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