LLP Amendment Bill 2021: First ever Amendment to the Act

The Finance Minister in the monsoon session of 2021 introduced THE LIMITED LIABILITY PARTNERSHIP (AMENDMENT) BILL, 2021. By this first ever amendment to the LLP Act the Finance Ministry aims to attract the informal economy into the formal economy by way to LLP formation. It is crucial to know that the Limited Liability Partnership Firm receives benefits of both a partnership firm by limiting the liability of a partner to the extent of his investment as well as recognition of a limited company. The MCA June 2021 report suggested that there are only 2.1 lakhs LLP firms in India which potrays the lack of interest by start-ups into it. The 3 important suggestions which were introduced in the Bill were firstly the reduction of penalties for small limited liability partnership and start up limited liability partnership to 50% for the offences mentioned in specified provisions, decriminilization of 12 procedural and technical offences which do not constitute a fraud and lastly the issuance of non convertible debentures by an LLP.

The offences which have been decriminalised and a monetary penalty instead has been introduced are changes in partners of the LLP, change of registered office, filing of accounts and annual returns, arrangement between an LLP and its creditors or partners, and reconstruction or amalgamation of an LLP. The potential offences for which reduction of penalty to one half of the actual amount are Non compliance of statutory filings, appointment of a designated partner for all compliances and atleast one resident partner, maintaining and informing the registered office, failure to report changes of partners or filing of ITR and MCA returns every year and disclosing details about firm’s official communication.

The most attractive recommendation in the bill for start ups was issuance of non-convertible debentures which would allow the start-ups and small firms to issue the same against loans. If implemented this will allow the start up firms to raise funds from loans beyond banks and financial institutions to other entities.

The amendment has also redefined small LLPs as firms with turnover between INR 40 lakhs to INR 50 crores and partner contribution between INR 25 lakhs to INR 5 crores.

It is important to note that the proposed slash of penalty and decriminalization of certain offences is with the clear goal to attract partnership and other firms to become Limited liability partnership firm which would help in motivating the large section of unorganised economy into formal economy. Moreover the penalty reduction benefit can be availed by only the small and start up LLP firms who have been recognised by the Department for Promotion of Industry and Internal Trade (DPIIT). These start-ups are those who have had not exceeded 10 years from registration and whose business turnover has not exceeded INR 100 crore in any preceeding year and the firms which are into the business of innovation and improvement of goods and services and have a potential of generating job opportunities.

These amendments allow the entrepreneurs the ease of doing business and further the greater inclusion of various sectors into the formal economy. So far, the policies for start-ups have been largely motivating but for start –up LLPs the government may still consider a method for fund raising while being in control of management of the business.