LLP AMENDMENT BILL 2021

LLP AMENDMENT BILL 2021

A. Purpose of LLP Amendment Bill 2021:- a)The government looks to improve ease of doing business and encourage start-ups. b)To encourage business class to incorporate LLP’s. c) To make it popular for Start ups d) Conversion of Partnership firms into LLP’s e) To remove the fear of criminal prosecutions for non- substantive minor and procedural omissions and commissions in the normal course of their business transactions. f) The objective of the De-criminalization exercise is to remove criminality of offences from business laws where no mala fide intentions are involved. Key Points of Amendment:- I. Introduction of Small LLPs:-

• 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 lakhs and Rs 25 lakhs, respectively.
• Now, Rs 25 lakh will go to Rs 5 crores and Rs 40 lakh turnover size will now be treated as Rs 50 crores. So, even Rs 5 crores contribution and Rs 40 crores or Rs 50 crores turnover will be treated as a small LLP, which means we are expanding the scope of what can be a small LLP.

II. De-criminalisation of compoundable offences:-

• Penal provisions under the LLP Act will be reduced to 22 (With Compoundable offences to 7 & Non-compoundable offences to 3)
• The remaining 12 de-criminalized offences would then get shifted to In-house Adjudication Mechanism (IAM) thereby de-clogging the criminal courts from routine cases.

III. Accounting Standards and Standards on Auditing for classes of LLPs:-

• The bill proposes the Accounting Standards and Standards of Auditing for a class or classes of limited liability partnership. The Central Government may, in consultation with the National Financial Reporting Authority prescribe the standards of accounting, and prescribe the standards of auditing, as recommended by the Institute of Chartered Accountants of India constituted under section 3 of the Chartered Accountants Act, 1949, for a class or classes of limited liability partnership.

 IV. Compounding of offence:-

• The Regional Director or any other officer not below the rank of Regional Director authorised by the Central Government may compound any offence under this Act which is punishable with fine only, by collecting from a person reasonably suspected of having committed the offence
• Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Regional Director or any other officer not below the rank of Regional Director authorised by the Central Government.

V. Establishment of Special Court for speedy trial of offences:- The Special Court shall consist of- (a) a single Judge holding office as Sessions Judge or Additional Sessions Judge, in case of offences punishable under this Act with imprisonment of three years or more; and (b) a Metropolitan Magistrate or a Judicial Magistrate of the first class, in the case of other offences, who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court. No court, other than the Special Courts referred to in section 67A, shall take cognizance of any offence punishable under this Act or the rules made there under save on a complaint in writing made by the Registrar or by any officer not below the rank of Registrar duly authorised by the Central Government for this purpose. VI. Establishment of the Appellate Tribunal:-

• Any person aggrieved by an order of Tribunal may prefer an appeal to the Appellate Tribunal,
• Every appeal preferred under sub-section (2) shall be filed within a period of sixty days from the date on which the copy of the order of the Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees, as may be prescribed.

 As per proposed amendment,

• LLP shall have only 22 Penal Provisions under the LLP Act
• Only 7 (Seven) Compoundable Offences
• Only 3 (Three) Non-Compoundable Offences Crux:-

♦ In all, twelve (12) offences are proposed to be decriminalized and three (3) section having criminal liability is proposed to be omitted. ♦ The 12 de-criminalized offences would then get shifted to IAM thereby de-clogging the criminal courts from routine cases.  B. NEW CONCEPTS:- The key components of MCA21 to be launched during Fiscal Year 2021-22 are:- a) Small LLP:-It is proposed to create a class of LLP called as “Small LLP” in line with the concept of Small Companies. Such Small LLPs would be subject to lesser compliances, lesser fee or additional fee and lesser penalties in the event of default. Thus, lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits. b)Earlier:LLPs with contribution less than or equal to 25 lakh and turnover less than 40 lakh are treated as small LLPs c)Proposed Amendment:-25 lakhs will go over to 5 crores and the turnover size will be treated as 50 crores.  d)Non-convertible Debentures (NCDs):-It is proposed to allow LLPs to raise capital through 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. C. REDUCTION OF ADDITIONAL FEE:- It is also proposed to amend Section 69 of the Act with a view to reduce the additional fee of Rs. 100 per day which is presently applicable for the delayed filing of forms, documents. A reduced additional fee is expected to incentivize smooth filing of records and returns of LLPs and consequently result in an updated registry for proper regulation and policy making.