The Limited Liability Partnership(Amendment) Bill was introduced in Rajya Sabha(Upper House) on July 29, 2021, after the approval of the Union Cabinet on July 28, 2021. Before understanding the LLP Amendment Bill let’s first understand what is LLP.
What is LLP?
Limited Liability Partnership (LLP) is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility in a partnership. It is a separate legal entity, which is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in Limited Liability Partnership. One of the advantages of LLP is that it can continue its validity irrespective of changes in partners. It is capable of joining into new contracts and holding equity in its name.
In this corporate business form, no partner is liable on account of the independent or unauthorised actions of other partners, thus individual partners are shielded from joint liability created by another partner’s illicit business decisions or misbehaviour. Common rights and duties of the partners within a Limited Liability Partnership are governed by an agreement between the partners. However, the LLP is not reassured of the liability for its other obligations as a separate entity. As it contains components of both a ‘corporate structure’ as well as a ‘partnership firm structure’, LLP is called a hybrid between a company and a partnership.
Which are the countries where the LLP form is functional?
Countries like the United Kingdom, United States of America, Australia, various Gulf countries and Singapore are the nations where the LLP structure is functional. As per the advice of experts who have studied LLP legislations in various countries, the LLP Act is extensively based on the UK LLP Act of 2000 and the Singapore LLP Act 2005. Both the Acts allow the creation of LLP in a corporate body form which means as a separate legal entity, separate from its partners.
What is the LLP Amendment Bill & what are the key highlights of the bill?
Limited Liability Partnership Amendment Bill was passed by Rajya Sabha on August 4, 2021. All the members of the Upper House had agreed to pass this bill and have been working towards it since July 29, 2021. The Amendment Bill aims to boost greater ease of living to law-abiding corporates and to legitimize certain provisions of the Act.
Some of the important highlights of the bill are:
- Decriminalize certain offences: As per the Bill, it defines the way of operating the LLP’s provided that violation of these requirements will lead to punishment with a fine varying from 25,000 INR to five lakh INR. The requirements consist of changes in partners of the LLP, change in registered office, filing declaration of account and annual returns & agreement between the partners and an LLP. The bill exacts a monetary fine.
- Punishment on fraud: Under the Act, if a partner or an LLP carry out any forgery activities to their creditors and every individual who is involved in the hoax will be punished with up to two years of imprisonment, along with the 50,000 INR to five lakh INR of fine. The Bill increases the term of imprisonment from two to five years.
- Compounding of offences: The bill amends to provide an officer who will be appointed by the central government, may compound the offences and impose a punishable fine. If the offence was compounded by an LLP or its partners, then in this case a similar offence cannot be compounded within three years.
- Institution of Special Court: This bill enables the central government to establish special courts for assuring active trail of offences under the Act. The special court consists of a Sessions Judge or an Additional Sessions Judge. They will adjudicate offences punishable with three or more years of imprisonment and a Metropolitan Magistrate or a Judicial Magistrate for other offences. They will be selected with the accord of the Chief Justice of the High Court.
- Opening of Small LLP’s: This Bill contributes to the formation of small LLP’s in which the partners contribute up to 25 lakh INR, turnover for the coming year is up to 40 lakh INR. The government can declare certain LLP as start-up LLP.
- Non-compliance with tribunal orders: As per the Act, non-compliance with an ordinance of the National Company Law Tribunal (NCLT) is a punishable offence of up to six months imprisonment and a fine of 50,000 INR. This bill removes such offences.
- Adjudicating Officers: As per the bill, the central government may assign adjudicating officers for allotting penalties under the Act. These officers will be central government officers only. Appeals against the orders of the Adjudicating officer will lie in the hand of the Regional Director.
- Institution of Appellate Tribunal: As per the bill, the appeals cannot be made against an order that he’s passed along with the permission of the parties. The Appeals should be filed within the time frame of 60 days of order.
- Standards of accounting: According to the bill, the central government may specify the criteria of accounting and auditing for groups of LLP in meeting with the National Financial Reporting Authority.
These are the salient parts of the amended bill.