Cabinet approves amendments to LLP Act

Our Bureau New Delhi | Updated on July 28, 2021

As many as 12 offences in the existing law will be decriminalised

In a booster shot for the start-up ecosystem in the country, the Union Cabinet, on Wednesday, approved amendments to the Limited Liability Partnership Act 2008 to bring Limited Liability Partnerships (LLPs) on an equal playing field to that of large corporates, which enjoy the ease of doing business due to the government’s recent efforts in decriminalising several provisions of the Companies Act.

Existing law

As many as 12 offences in the exiting LLP law are proposed to be decriminalised through the latest set of amendments.

Once the proposed changes to LLP Act 2008 are effected, the number of compoundable offences under the legislation will come down from 21 to seven, the total number of penal provisions will get reduced to 22 from 24, and there will be only three non-compoundable offences, said Nirmala Sitharaman, Union Finance Minister, in a post-Cabinet briefing.

“We have been doing a lot of changes in the Companies Act and those corporate bodies are getting lot of benefits of ease of doing business due to such changes. Most of the sections that had criminality in its approach are getting decriminalised under Companies Act. “For LLPs, a similar treatment has to be given as LLPs are becoming more popular among start-ups, and many of them have to face situations of criminality because of those sections in the LLP Act,” said Sitharaman.

Sitharaman highlighted that this is the first time the government is proposing amendments to the LLP Act since its enactment in 2008 and the legislation becoming effective in 2009. “Till date, there was never any reason for bringing any amendment whatsoever to LLP Act,” she noted.

The changes are being proposed based on the recommendations of the MCA-appointed Company Law Committee, which went into the functioning of the LLP Act 2008.

As part of the proposed amendments to the LLP Act 2008, the government is also introducing a new definition of Small LLPs.

“We are coming with a new definition of small LLPs. If you can have small companies, why not have small LLPs,” she added.

Commenting on the Cabinet decision, Sawant Singh, co-founding partner, Phoenix Legal, said: “With a view to facilitate ease of doing business, the Bill has decriminalised various offences and expanded the scope of the definition of ‘small companies’ to encourage various small and medium businesses to set up LLPs. This will help small and medium entrepreneurs get organised and also have the benefit of limited liability. Certainly a step in the right direction.”

Sijo Kuruvilla George, Executive Director at Alliance of Digital India Foundation (ADIF), said the amendments will make Limited Liability Partnerships an even more attractive vehicle and India a more sought-after destination.

“We, at ADIF, advocate for a similar progressive exercise being undertaken with respect to private limited companies as well, which will greatly benefit the start-up ecosystem.The move will help simplify the life of founders and exudes confidence in the government’s intent towards bringing about real ease of doing business,” said George.

Published on July 28, 2021

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