Cabinet Approves Amendments to LLP Act

On Wednesday, the Union Cabinet approved the amendments to the Limited Liability Partnership (LLP) Act, 2008. The amendments decriminalise 12 offences under the LLP Act and include a new definition for small LLPs. They will promote ease of doing business for the LLPs and also encourage the startup ecosystem. It will be the first time changes are being made to the LLP Act since it came into effect in 2009.

Smt. Nirmala Sitharaman, Corporate Affairs Minister, stated that the government had made many changes in the Companies Act, 2013, for ease of business. She further noted that a similar treatment has to be given to the LLPs since they are the most popular among startups. 

Presently, there are 24 penal provisions, out of which 21 are compoundable offences and three non-compoundable offences. The amendments reduce the total penal provisions under the LLP Act to 22, out of which seven will be compoundable offences, three non-compoundable offences, and the In-House Adjudication Mechanism (IAM) will deal with 12 offences.

Thus, the amendments to the LLP Act will decriminalise 12 offences. Shri. Anurag Thakur, Union Minister, stated that the amendments remove criminality under the LLP Act to provide ease of doing business for the law-abiding corporators in the LLP firms.

The Corporate Affairs Minister stated that the changes in the LLP Act would bring the LLPs on an equal playing field with the corporates under the Companies Act. Earlier, the LLPs did not benefit from the ease of practice or simplified regulation under the proprietorship. 

The amendments will make LLPs attractive and easy to handle. Many startups that prefer the LLP model will feel equal with the corporates under the Companies Act, given the ease of business opportunities. The lower compliances will incentivise small partnerships to convert to the organised structure of an LLP and obtain its benefits.

The government will introduce a new definition of small LLPs based on the contributions by partners or proprietors and turnover size. Presently, there are relaxations for a threshold of turnover size up to Rs.40 lakh and partner’s contribution up to Rs.25 lakh for small LLPs.

The amendment proposes to change the threshold limits for small LLPs. The threshold for turnover size will be up to Rs.50 crore as against Rs.40 lakh and partner’s contribution up to Rs.5 crore as against Rs.25 lakh for small LLPs. Thus, a partner’s contribution of up to Rs.5 crore with a turnover of up to Rs.50 crore will come under the small LLP category.

The amendments approved by the government in the LLP Act will encourage more startups to adopt the LLP model as it decriminalises twelve offences and provides ease of regulations. The new definition of a small LLP expands the scope and will include many LLPs in the small LLP category giving them the benefit of few compliances and lesser penalties. 

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in