Limited Liability Partnership (Amendment) Act, 2021

INTRODUCTION

• The Limited Liability Partnership Act, 2008 herein referred as “LLP Act” was validated by the Parliament of India to introduce and legally sanction the concept of LLP in India. As defined in section 3 of the LLP Act, an LLP is a separate legal entity from its partners, has perpetual succession, and any change in the partners of an LLP has no effect on the LLP’s existence, rights, or liabilities.
• The amendment in the LLP Act, 2008 was firstly announced in the Union Budget 2021 by our Finance Minister. In continuation of same, Ministry of Corporate Affairs issued a press release on February 3rd, 2021. In furtherance to that the Limited Liability Partnership (Amendment) Bill, 2021 was introduced in Rajya Sabha on July 30, 2021 and received the approval of the President on August 13th, 2021 and became Limited Liability Partnership Act (Amendment), 2021 herein referred as “LLP Amendment Act. The Cabinet has passed “LLP Amendment Bill, 2021 with total 29 Amendments to the LLP Act, 2008.
• The LLP Amendment Act, basically introduced to support the initiative “Ease of Doing Business” of the Government by providing a helping hand to the Start-up’s in India. The Amendment aims to make life easier for law-abiding businesses by decriminalizing some provisions of the Act, to introduce various new concepts like Small LLP and provides appointment of Adjudicating Officers and Special Courts.
• In Continuation of the LLP Amendment Act, 2021, Central Government has also issued the LLP Amendment Rules, 2022:
  1. Limited Liability Partnership (Amendment) Rules, 2022.
  2. Limited Liability Partnership (Second Amendment) Rules, 2022.

LLP AMENDMENT ACT, 2021

OBJECTIVE

• The objective of the Act is to improve ease of doing business and encourage start-ups across the country
• To encourage the business community to form limited liability partnerships (LLPs)
• Similar to the Companies Act of 2013, the Act seeks to remove the fear of criminal prosecution for non-substantive minor and procedural omissions and commissions in the ordinary course of business transactions
• The goal of the De-criminalization process is to remove criminality from business laws where there are no ambidextrous intentions
• The amendments would bring an equal playing field for Limited Liability Partnerships (LLPs), compared to large companies which come under the Companies Act, 2013. As a total of 12 offences are to be decriminalized for LLPs.

KEY DEFINITIONS

Regional Director: The amendment act has defined “Regional Director” by inserting a new Clause “ra” under Section 2 whereas it stated that “Regional Director” means a person appointed as such by the Central Government for the purposes of this Act or the Companies Act, 2013, as the case may be;

Regional Director term is only defined in the Amendment Act as the same is even not defined in the Companies Act, 2013.

KEY PROVISIONS

1. Introduction of concept of Small LLP and Start-up LLP (Addition of Section 2(1)(ta) – “Small Limited Liability Partnership” means a limited liability partnership:
   • The contribution of which, does not exceed twenty-five lakh rupees or such higher amount, not exceeding five core rupees
   • The turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty core rupees which meets such other requirements as may be prescribed, and fulfills such terms and conditions
   • The Act established the concept of a small LLP, which is similar to the concept of a small companies similar as the Companies Act, 2013. Small LLPs are those with a contribution of less than Rs 25 lakhs, which can be extended to Rs 5 crores, and a turnover of less than Rs 40 lakhs, which can be increased to Rs 50 crores
   • In the Act, the concept of startup LLPs is introduced. While the government has yet to announce the definition of a start-up LLP, the move is being hailed as a boon to the start-up ecosystem, as it provides an alternative operating structure for businesses that do not want to register as corporations
   • Small LLPs will pay a lower cost, have less compliance, and faceless penalties if they default.
2. Compounding of Offences (Section 39) – This section is fully substituted.
   • The Regional Director or any other officer not below the rank of Regional Director authorized by the Central Government may compound any offence under this Act which is punishable with fine only
   • A sum which may extend to the amount of the maximum fine provided for the offence but shall not be lower than the minimum amount provided for the offence
   • It is hereby clarified that any second or subsequent offence committed after the expiry of the period of three years from the date on which the offence was previously compounded, shall be deemed to be the first 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.
3. Residency Requirement for Designated Partners
   The erstwhile provision of Section 7 of the Act required every LLP to have at least one designated partner who is a ‘resident in India’ (As similar to the residency requirement for directors under the Companies Act, 2013). To fulfill this requirement, such designated partner had to stay in India for a period of not less than 182 (One Hundred and Eighty-Two) days during the immediately preceding year. This tenure has been relaxed by the Amendment Act and the resident designated partner is now required to stay not less than 120 (One Hundred and Twenty) days during the financial year.
4. Adjudicating Officers for Adjudging Penalties (Section 76A)
   The Central Government may appoint adjudicating officers to award penalties under the Act under the New Amendment. These will be officers in the Central Government with at least the rank of Registrar. The Regional Director will hear appeals against the Adjudicating Officers’ orders.
5. Establishment of Special Courts (Section 67A)
   The Act allows the central government to establish special courts for expediting the trial of offences under the Act. The special court will consist of:
   • a Sessions Judge or an Additional Sessions Judge, for offences punishable with imprisonment of three years or more and
   • a Metropolitan Magistrate or a Judicial Magistrate, for other offences.
     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.
6. Procedure and Powers of Special Courts (Section 67B) – This is New Section inserted after Section 67A.
   • All offences specified under sub-section (1) of section 67A shall be triable only by the Special Court established or designated for the area in which the registered office of the limited liability partnership is situated in relation to which the offence is committed.
   • Where there are more than one Special Courts for such area, by such one of them as may be specified in this behalf by the High Court concerned.
7. Establishment of Appellate Tribunal (Section 67C)
   Under the Act, appeals against orders of the NCLT lie with the National Company Law Appellate Tribunal (NCLAT). The Act adds that appeals cannot be made against an order that have been passed with the consent or permission of the parties and that appeals must be submitted within 60 days following the order of National Company Law Tribunal (NCLT). Provided that the NCLAT may, for sufficient cause, entertain an appeal even after the expiry of the said period of 60 (Sixty) days but provided the appeal is preferred within a further period of 60 (sixty) days. In other words, a maximum appeal time of 120 (One Hundred Twenty) days has been prescribed under the LLP Amendment Act.
8. Accounting /Auditing Standards (Section 34A)
   In consultation with the National Financial Reporting Authority (NFRA) established under the Companies Act, 2013, a new section 34A under the LLP Amendment Act has been introduced to allow the Central Government to prescribe Accounting Standards or Auditing Standards for a class or classes of limited liability partnerships.
9. Change of Name of LLP (Substitution of Section 17)
   According to the Act, the central government has the authority to order an LLP to change its name for certain reasons (such as the name being undesirable or identical to a trademark pending registration). Failure to follow such instructions can result in a fine ranging from Rs 10,000 to Rs 5 lakh rupees. Instead of imposing a fine, the Act removes some of these grounds and empowers the central government to assign a new name to such an LLP.
   If the limited liability partnership fails to comply with any direction, the Central Government shall assign the limited liability partnership a new name in the manner prescribed, and the Registrar shall enter the new name in the register of limited liability partnerships in place of the old name, and issue a new certificate of incorporation with the new name, which the limited liability partnership shall use thereafter.
10. Non-Compliance Of Orders Of Tribunal
    Non-compliance with an order of the National Company Law Tribunal (NCLT) is punishable by up to six months in prison and a fine of up to Rs 50,000 under the Act. This offence is abolished by the Act.

LLP AMENDMENT RULES, 2021

The Ministry of Corporate Affairs (MCA) has notified the Limited Liability Partnership (Amendment) Rules, 2022 by amending the Limited Liability Partnership Rules, 2009. The brief notes on such amendments are enumerated as under:

IMPLICATION OF CHANGES

• The goal of the Small LLP concept is to create a class of LLPs with fewer compliance requirements. Small LLP is a concept that aims to create a class of limited liability partnerships (LLPs) that are subject to fewer compliance requirements, lower fees, or additional fees, and so on, in order to reduce compliance costs.
• LLP Amendment takes a more business-friendly approach, allowing the central government to give the LLP a new name rather than imposing a fine.
• The LLP Act 2008 required LLPs to intimate in case of change in partners/change in registered office address and file statements of accounts, insolvency, annual returns, arrangement between an LLP and its creditors etc. Prior to the LLP Amendment, violation of these provisions attracted criminal liability. However, the LLP Amendment Act has de-criminalized these provisions and has restricted the liability to the monetary penalty. Earlier there were total 24 (Twenty-Four) penal provisions in the Limited Liability Partnership (LLP) Act, 2008 in which 21 are Compoundable and 3 are Non-Compoundable offences. The LLP Amendment Act, 2021 has reduced the penal provisions to 22 (Twenty-Two) now out of which only 7 (Seven) are Compoundable offence and 3 (Three) are Non-compoundable and the remaining 12 (Twelve) will be considered through In-House Adjudication Mechanism (IAM).
• Compounding of offences will speed up through a designated official to oversee the process.
• Fixing a time limit for filing appeals will cut down on unnecessary appeal litigation.
• The Statement of Account and Solvency may be signed by Interim Resolution Professional (IRP) or Resolution Professional (RP), or Liquidator or Limited Liability Partnership Administrator on behalf of LLP. Prior to these amendments, Rule 24 (6) of the LLP Rules, 2009 prescribed that the Statement of Account and Solvency of the LLP to be signed by its designated partners only. There were no provisions with regard to the signing of the Statement of Account and Solvency of the LLPs under the Insolvency.

CONCLUSION

The Act’s goal is to promote the concept of a limited liability partnership (LLP) as a vehicle for professional expertise and entrepreneurial initiative in a flexible, innovative, and efficient manner in order to give better working environment. The Act contains long-awaited changes that will provide coverage to a lot of small and large enterprises and provide the benefits of a company as well as traditional partnership firms, particularly decriminalization of offenses, which will encourage compliance and promote a friendly business climate. The Limited Liability Partnership (Amendment) Rules, 2022 is a significant move by the Ministry of Corporate Affairs. As these changes will help the businesses registering as LLPs to ease the process of Incorporation of an LLP in efficient and smooth way and less costly now.

Disclaimer

The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.