Commencement of the Amendment Act
The Amendment Act is set to come into force on the date appointed by the Central Government in the Official Gazette. Different dates may be appointed for the enforcement of different provisions of the Amendment Act.
Key Highlights of the Amendment Act
- Introduction of small limited liability partnerships
The Amendment Act has introduced the concept of Small LLP which is aimed to be in line with the concept of small companies under the Companies Act, 2013. The Amendment Act has defined Small LLP as a limited liability partnership:
- the contribution of which is up to INR 2,500,000 (Rupees twenty five lakhs) or such other amount as may be prescribed, not exceeding INR 5,00,00,000 (Rupees five crore); and
- turnover of which is up to INR 40,00,000 (Rupees forty lakhs) or such other amount as may be prescribed, not exceeding INR 500,000,000 (Rupees fifty crore), for the preceding financial year.
- Introduction of start – up liability partnerships ('Start up LLP')
The Amendment Act has recognised the concept of start-up LLP. The Central Government has been afforded the power recognise certain LLPs as start-up LLPs.
- Penalties for Small LLPs and Start up LLPs
- Pursuant to the Amendment Act, Small LLPs and start up LLPs will have an advantage over other LLPs when facing penalties in event of default.
- The Amendment Act provides that the penalty payable for non-compliance of the LLP Act by a Small LLP or a Start-Up LLP or by its partner or designated partner shall be one-half of the penalty specified, subject to a maximum of INR 1,00,000 (Rupees one lakh) for limited liability partnership and INR 50,000 (Rupees fifty thousand) for every partner or designated partner or any other person, as the case may be.
- Modification to the meaning of partner resident in India
- In terms of the LLP Act, every LLP is required to have at least 2 (two) designated partners, out of which at least 1 (one) has to be a resident of India. The LLP Act previously defined the term resident of India as a person who has stayed in India for 182 (one hundred and eighty-two) days during the immediately preceding 1 (one) year.
- Pursuant to the Amendment Act, a person who has lived in India for not less than 120 (one hundred and twenty) days during the financial year is also entitled to become a designated partner of an LLP.
- Offences under the LLP Act
- The Amendment Act has decriminalised various offences. This implies that violations of certain provisions under the LLP Act shall not lead to criminal consequences, but will entail monetary penalty. This includes provisions such as:
(a) Changes in partners of LLP;
(b) Change of Registered Office;
(c) Filing of Statement of account and solvency;
(d) Arrangement between LLP and its creditors or partners; and
(e) Reconstruction or amalgamation of an LLP.
- The term for imprisonment in case of fraud by an LLP has been increased from 2 (two) years to 5 (five) years. The LLP and its partners will face imprisonment if they carry out an activity to defraud their creditors or for any other fraudulent purpose.
- The Amendment Act has reduced the quantum of general penalty from INR 5,00,000 (Rupees five lakhs) to INR 1,00,000 (Rupees one lakh) for offences where no specific penalty has been laid down.
- Other amendments
- Power of Central Government to change the name of
Pursuant to the Amendment Act, the Central Government has the power to direct an LLP to change its name, within 3 (three) months, if the same is identical to a trademark or resembles another LLP's name. The Central Government also has the power to allot a new name for the LLP, if it itself fails to do so within 3 (three) months.
- Compounding of offences
The Amendment Act has allowed the Regional Director or any other officer not below the rank of a Regional Director, duly authorised by the Central Government, to compound offences under the LLP Act. Further, if an offence by an LLP or its partners is compounded, then a similar offence cannot be compounded for a period of 3 (three) years. It has also been clarified that any second or subsequent offence, shall be deemed to be a first offence if that offence has been committed after the expiry of 3 (three) years from date on which it was previously compounded.
- Establishment of special courts and appointment of
The Amendment Act has provided for the establishment of special courts by the Central Government for speedy adjudication of offences under the LLP Act. It has been clarified that no court, other than the special courts, can take cognizance of any offence that is punishable under the LLP Act and the rules made thereunder except for a complaint made in writing by the Registrar or an officer not below the rank of Registrar.
The Amendment Act has further allowed the Central Government to appoint adjudicating officers, not below the rank of the Registrar for imposition of penalties for any non-compliance or default committed under the relevant provisions of the LLP Act. An appeal against an order of such adjudicating officers can be made to the Regional Director having jurisdiction over such matter.
In terms of the Amendment Act, an appeal cannot be made with the National Company Law Appellate Tribunal, against an order of National Company Law Tribunal if such order was passed by the consent of both the parties. Further, the appeal has to be made within 60 (sixty) days from when the copy of the order is made available.
Auditing and Accounting Standards for
In terms of the Amendment Act, the Central Government has been given the power to prescribe the standards of auditing and accounting, in consultation the National Financial Reporting Authority, and as recommended by the Chartered Accountants of India.
- Additional fees
- In terms of the Amendment Act, any document or return not filed within the prescribed period can be submitted after the due date by payment of additional fees.
The latest amendments to the LLP Act largely focus on the ease of doing business for various LLPs. The introduction of Small LLPs and Start up LLPs together with decriminalization of offences is likely to attract investors and allow flexibility in working under less stringent provisions.
The establishment of special courts and appointment of adjudicating officers is a step towards fast disposal of trials in an efficient manner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.