The Limited Liability Partnership (Amendment) Bill, 2021 was introduced in the Rajya Sabha on 30 July 2021.

The Ministry of Corporate Affairs (MCA), through its Amendment, has brought in the following changes in the Limited Liability Partnership (LLP) Act:

  • Introduction of Small LLP
  • Change of Name of LLP
  • Meaning of Resident of India
  • Standards of Accounting
  • Special Courts
  • Compounding of Offences
  • Decriminalization of Certain Offences

Introduction of Small LLP

The concept of a small LLP was introduced, where

  1. the contribution from partners is up to INR 2.5 million (which may be increased up to INR 50 million),
  2. turnover for the preceding Financial Year (FY) is up to INR 4 million (which may be increased up to INR 500 million).

The Central Government may also notify certain LLPs as start-up LLPs (as recognized through this notification).

Change of Name of LLP

The Act states that the Central Government may direct an LLP to change its name on certain grounds (such as the name being undesirable or identical to a trademark pending registration). Failing to comply with such direction is punishable with a fine ranging from INR 10,000 to INR 500,000. The Amendment removes some of these conditions and empowers the Central Government to allot a new name to such an LLP instead of levying a fine.

Meaning of Resident of India

In order to be considered a resident of India, the term of staying in India for 182 days during the immediately preceding one year has been reduced to 120 days during the Financial Year.

Standards of Accounting

Under the Bill, the Central Government may prescribe Standards of Accounting and Auditing for certain LLPs in consultation with the National Financial Reporting Authority.

Special Courts

The Bill allows the Central Government to establish Special Courts for ensuring speedy trials for offences under the Act. The Special Court will consist of:

  1. a Sessions Judge or an Additional Sessions Judge, for offences punishable with imprisonment of three years or more; and
  2. a Metropolitan Magistrate or a Judicial Magistrate for other offences.

They will be appointed with the approval of the Chief Justice of the High Court. Appeals against orders of these Special Courts will lie with High Courts.

Compounding of Offences

Under the Act, the Central Government may compound any offence, which is punishable only with a fine. The amount imposed may be up to the maximum fine prescribed for the offence. The Bill amends this to provide that a Regional Director (or any officer above his rank), appointed by the Central Government, may compound such offence. The amount imposed must be within the minimum and maximum fine for the offence. If an offence by an LLP or its partners was compounded, then a similar offence cannot be compounded within a three-year period.

Decriminalization of Certain Offences

The Act specifies the manner of operations of LLPs and provides that violating the below-mentioned matters will be punishable with a fine (ranging between INR 2,000 and INR 500,000).

  1. Changes in Partners of the LLP
  2. Change of Registered Office
  3. Filing of Statement of Account and Solvency, and Annual Return
  4. Arrangement between an LLP and its Creditors or Partners for reconstruction or amalgamation of an LLP.

The Bill decriminalizes these provisions and instead imposes a monetary penalty.

Our Comments

The MCA vide The Limited Liability Partnership (Amendment) Bill, 2021 aims to encourage the start-up ecosystem by decriminalizing certain offences, introducing Special Courts for speedy trials, and increasing the punishment for fraud, as the government intends to reward law-abiding businesses and discourages illegal practices.

The official circular can be viewed by clicking here.

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