Sameer Sah and Paridhi Rasiwasia1

With a view to encouraging start-ups and facilitating greater ease of conducting business, the Limited Liability Partnership (Amendment) Bill, 2021 (Bill) was introduced in the Rajya Sabha on 28 July 2021. Limited liability partnership (LLP), as a corporate form, was introduced through the Limited Liability Partnership Act, 2008 (Act) to provide an alternative to the traditional partnership form and encourage entrepreneurs to operate with greater flexibility and efficiency, while ensuring better and more predictable liability. Over the years, the commercial and industrial sector in India has witnessed considerable growth through start-ups and small business houses, especially in the form of LLPs. In a supportive move to encourage young entrepreneurs to continue growing their businesses productively, the Bill, on the one hand, proposes certain new enabling concepts while, on the other hand, proposes to streamline the penalizing and/or criminalizing provisions under the Act.

Key amendments proposed under the Bill

  • Introduction of 'small limited liability partnership': The Bill proposes to introduce the concept of 'small limited liability partnership' (Small LLP) along lines similar to a 'small company'2 under the Companies Act, 2013. An LLP having aggregate contribution not exceeding INR 25,00,000 (may be increased to INR 5,00,00,000) and turnover for immediately preceding financial year not exceeding INR 40,00,000 (may be increased to INR 50,00,00,000) shall be classified as a Small LLP.3 Simultaneously, the Bill also seeks to introduce the concept of a 'start-up LLP', which shall mean an LLP incorporated under the Act and recognized as such in accordance with the notifications issued by the Central Government from time to time.4 The Bill stipulates relatively reduced penalties for non-compliance by Small LLPs and start-up LLPs in comparison to other LLPs.
  • Decriminalization of offences: The Bill envisages conversion of certain offences into civil defaults by prescribing penalties instead of fines. The Act has 24 penal provisions, out of which a total of 12 offences have been proposed to be decriminalized and one omitted altogether by the Bill. An interesting departure from the previous regime is the demarcation in severity of penalty for the LLPs and the partners of such LLPs. Instead of prescribing the same threshold of penalty for both the LLP and the partners constituting such LLP, the Bill now seeks to prescribe different upper limits of penalties applicable to both, thereby recognizing the LLP and its members distinctively and independently. While the penalizing provisions have been sought to be eased, the Bill has also simultaneously proposed enhancing the punishment for severe violations; for instance, the maximum term of imprisonment for fraud has been increased to five years from two years.5
  • Compounding, special courts and adjudication: Extending the power of compounding beyond the Central Government, the Act is proposed to be amended to provide that a regional director authorised by the Central Government may compound any offence under the Act which is punishable with fine only. Detailed procedure for such compounding has been laid down by the Bill.6 Further, by introducing Section 67A into the Act, the Bill proposes to bring about speedy trials of offences under the Act. It proposes to empower the Central Government to establish as many special courts as may be required for this purpose and also lays down the procedure and powers of such courts.7 The Bill proceeds a step ahead and seeks to shed more light on the procedure of filing an appeal before the appellate authorities in the event a person is aggrieved by the judgment of the tribunal.8 In addition to the aforesaid provisions, appointment of adjudicating officers to determine and award penalties under the Act is proposed to be enabled by insertion of Section 76A into the Act thereby facilitating a smooth and speedy redressal mechanism under the Act.9

While we wait for the provisions of the Bill to be officially notified, the impact of the proposed amendments on the nation's economy and the degree of its implementation in the Indian business sector can be assessed only with time. Nevertheless, assuming effective implementation of the proposed amendments in line with the objects of the Bill and the envisaged impact, the Bill appears to spearhead the start-up ecosystem towards considerable growth and development.

Footnotes

1. Sameer Sah is a Partner, and Paridhi Rasiwasia is an Associate with the Corporate & Commercial Practice of Khaitan & Co. They can be reached on editors@khaitanco.com. Views expressed herein are personal and are not attributable to the firm.

2. Section 2(85) of the Companies Act 2013 defines "small company" as a company, other than a public company - (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees.

3. Section 3(g) Limited Liability Partnership (Amendment) Bill, 2021.

4. Section 25 Limited Liability Partnership (Amendment) Bill, 2021.

5. Section 12 Limited Liability Partnership (Amendment) Bill, 2021.

6. Section 16 Limited Liability Partnership (Amendment) Bill, 2021.

7. Section 19 Limited Liability Partnership (Amendment) Bill, 2021.

8. Section 22 Limited Liability Partnership (Amendment) Bill, 2021.

9. Section 25 Limited Liability Partnership (Amendment) Bill, 2021.

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