Steps soon to decriminalise Limited Liability Partnership Act

In a move that could propel the growth of Limited Liability Partnerships ( LLPs) in the country, Finance Minister Nirmala Sitharaman on Monday said the government will bring legislative changes to allow decriminalisation of the Limited Liability Partnership Act 2008.

“The decriminalising of the procedural and technical compoundable offences under the Companies Act 2013 is now complete. I now propose to next take up decriminalisation of the Limited Liability Partnership Act 2008,” Sitharaman.

It maybe recalled that a Ministry of Company Affairs ( MCA) appointed panel had recommended that 12 compoundable offences be decriminalised and one penal provision be omitted in the Act.

Panel recommendations

No significant changes had been suggested in the serious non-compoundable offences provided under the LLP Act.

The panel had also recommended that LLPs be permitted to issue non-convertible debentures, which could pave the way for private equity funds to make investments in such instruments.

To facilitate greater ease of doing business, the panel, headed by MCA Secretary Rajesh Verma, also recommended the introduction of a new concept of “Small LLP”.

Creation of a new category of Small LLP is expected to benefit small and micro enterprises as it will reduce the cost of compliance, subject such class of LLP to lesser penalties in the event of default as has been done in the case of companies under Companies Act 2013.

The panel has recommended that LLPs with capital contribution upto ₹25 lakh and turnover not exceeding ₹40 lakh in a financial year be allowed to opt for Small LLP structures.

Experts’ take

Rahul Chadha, Managing Partner, Chadha & Co, said: “Decriminalising various offences under the LLP Act, 2008, on the heels of a similar step of decriminalising some offences under the Companies Act, 2013, will not only mitigate the risk for the management of LLPs for minor non-compliances but also reduce the burden on the judicial system, which is clogged due to the pendency of trivial non-compliance”.

Rudra Pandey, Partner, Shardul Amarchand Mangaldas & Co, said, “The move is in line with the government’s efforts to ensure greater compliance with corporate laws, unclog the criminal justice system and promote a hospitable business environment in India..”