Highlights of Limited Liability Partnership (Amendment) Act, 2021

December 10, 2022
Company Law
CA. Kavit Vijay

Limited Liability Partnership is a new concept as compared to Companies and still, it is one of the most used forms of business. With the emerging use of Limited Liability Partnership (LLP), the government is amending provisions of the Limited Liability Partnership Act to bring the same in sync with business requirements. The government is also aligning provisions of the LLP Act with the Companies Act as limited liability is a common feature in both forms of business.

Accordingly, the Limited Liability Partnership Act, of 2008 was amended vide Limited Liability Partnership (Amendment) Act, 2021.

The aim behind this Amendment Act was to facilitate law-abiding corporates with decriminalization of various offenses turning them to civil ones, introducing new concepts like small LLPs and start-up LLPs and an additional hierarchy of Special Court for the speedy resolution of disputes.

If you are also running a business through an LLP vehicle, this piece of write-up is right for you to make yourself aware about amendments made.

1. Introduction of small LLP

In line with the concept of small companies, the LLP Amendment Act, 2021 provided for Small LLPs to ensure ease of doing business. Small companies have the advantage of relaxation from various provisions under the Companies Act, 2013. Similar benefits are provided to LLPs as well.
An LLP complying following criteria shall fall under a small LLP:

contribution does not exceed INR 25 lakh (the threshold can be exceeded to INR 5 crore by the Government);
whose turnover for the immediately preceding financial year, as per the statement of Accounts and solvency, is up to INR 40 lakh. Such a threshold can be increased to INR 50 crore by the Government.
other requirements or terms and conditions as may be prescribed.

Small LLP is introduced to provide easier compliance for small enterprises.

2. Introduction of Start-up LLP

Hearing the word start-up, everyone celebrates entrepreneurship in the country. The Government also encourages the development of entrepreneurship entities in the country and hence, continuously provides relaxations in regulatory laws for start-ups.
In this sequence, the concept of start-up LLP is also recognized by the Ministry of Corporate Affairs in the LLP (Amendment) Act, 2021.
Hence, a start-up LLP is an LLP constituted under the LLP Act, 2008 which is notified under the notifications issued by the Government.

3. Relaxed stay period for a resident partner

It is mandatory that every LLP has a resident designated partner who had stayed in India for at least 182 days in the immediately preceding financial year.
Many foreign investors are showing interest in doing business in India without setting up a base in our country. This restriction sometimes creates a hurdle for those investors.
Now, the Government has relaxed this period from 182 days to 120 days to qualify as a resident designated partner.

4. Accounting or auditing standards for an LLP

LLPs are bound to follow generally accepted accounting principles before the (Amendment) Act of 2021.
Now, LLP Amendment Act, 2021 has inserted new Section 34A to provide that the Ministry of Corporate Affairs (MCA) in consultation with NFRA may prescribe:
- Standards on auditing or
- accounting standards

as recommended by ICAI. These accounting or auditing standards shall apply to specified class or classes of LLPs.

This amendment is provided to bring the financial statements in sync with the financial statement of companies.

5. Compounding of offenses under LLP Act, 2008

Compounding is a mid-way window that provides for the settlement of offenses with lesser penalties.
Similarly, The LLP (Amendment) Act, 2021 has conferred power upon the regional director or any other officer, not below the rank of regional director to compound any offense under the LLP Act which is punishable with a fine only.
Offenses shall be compounded by collecting a sum not exceeding the amount of the maximum fine provided for the offense in the Act. However, such an amount shall not be less than the minimum amount provided for offenses.
Each application for the compounding of an offense shall be made to the registrar. He shall forward the same, together with his comments thereon, to the regional director or any other officer not below the rank of regional director authorized by the Central Government.
In case an offense by an LLP or its partners is compounded, then a similar offense cannot be compounded in the next 3 years.
Where any offense is compounded, whether before or after the institution of any prosecution, intimation thereof shall be given to the Registrar within 7 days from the date on which the offense is so compounded.
Where any offense is compounded before the institution of any prosecution, no prosecution shall be instituted in relation to such offense.

6. Establishment of Special Courts for speedy trial of offenses

For the purposes of speedy trial of offenses regarding LLP, the Central Government has provided for the establishment of Special Courts for different specified areas.

The Special Court shall consist of—

a single judge holding office as sessions judge or additional sessions judge, in case of offenses punishable under LLP Act, 2008 with imprisonment of three years or more; and
a Metropolitan Magistrate or a Judicial Magistrate of the first class, in the case of other offenses who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court.

Procedure and Powers of Special Court are given under Section 67B. Some of the powers of a special court are:

all offenses shall be triable only by the Special Court established or designated for the area in which the registered office of the LLP is situated.
While trying an offense under this Act, a Special Court may also try an offense other with which the accused may, under the Code of Criminal Procedure, 1973 be charged at the same trial.
Notwithstanding anything contained in the CPC, the Special Court may, if it thinks fit, try in a summary way any offense under this Act that is punishable with imprisonment for a term not exceeding 3 years

7. Penalties and additional fee

7.1 Penalties for contravention of provisions of Designated Partners (Section 7 of LLP Act)

Earlier penalty for contravention of provisions of Section 7 was a fine of a minimum of INR 10,000 and a maximum of INR 5,00,000.
However, such penalty has been changed to a minimum of INR 10,000 and in case of continuous default, an additional penalty of INR 100 per day for each day during which such contravention continues. However, the maximum penalty shall be INR 1,00,000 for the LLP and INR 50,000 for every partner of such a limited liability partnership.

7.2 Penalty for delayed filing of Annual Return

If any LLP fails to file its annual return before the expiry of the due date, such LLP and its designated partners shall be liable to a penalty of INR 100 for each day during which such failure continues, subject to a maximum of INR 1 Lacs for the LLP and INR 50,000 for designated partners.

7.3 Additional Fee

If any document, required to be registered or filed with Registrar, is not filed within the due date then the such document can be registered or filed after that time, on payment of such additional fee as may be prescribed. Additional Fee shall be in addition to the fee payable for filing of such document.
Different fees or additional fees may be prescribed for different classes of LLPs and for different documents or returns.

8. Establishment of Appellate Tribunal

As per Section 72(2) of the LLP Act, Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate Tribunal.
However, no appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with the consent of the parties.
The appeal shall be filed within a period of 60 days from the date on which the copy of the order of the Tribunal is made available to the person aggrieved. The appeal shall be accompanied by the prescribed fee.
The Appellate Tribunal may entertain an appeal after the expiry of the said period of sixty days, but within a further period of not exceeding 60 days, if there exists sufficient cause for delay in filing.
On the receipt of an appeal, the Appellate Tribunal shall, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying, or setting aside the order appealed against.
The Appellate Tribunal shall send a copy of every order made by it to the Tribunal and the parties to the appeal

9. Adjudication of penalties

Adjudication of penalties is provided by newly inserted section 76A which empowers Central Government to appoint as many officers as adjudicating officers. The Central Government shall specify the jurisdiction appointing adjudicating officers.

The adjudicating officer may, by an order:

impose the penalty on LLP or its partners or designated partners or any other person stating non-compliance or default under LLP Act.
However, in case of default in filing of a statement of solvency (section 34(3) of LLP Act) and annual return (Section 35 of LLP Act), if the default is rectified either prior to or within 30 days of the issue of the notice by the adjudicating officer, no penalty shall be imposed and proceedings under this section for such default shall be concluded.
However, if the penalty is payable for non-compliance with any of the provisions of the LLP Act by a Small LLP or Start-up LLP or by its partner or designated partner then such penalty shall be one-half of the penalty specified in such provisions subject to a maximum of INR 1 lacs for LLP and INR 50,000 every partner or designated partner or any other person.

The adjudicating officer shall give an opportunity of being heard before imposing any penalty.
Any person aggrieved by an order of adjudicating officer may prefer an appeal to the Regional Director having jurisdiction in the matter.
The appeal shall be filed within a period of 60 days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person. However, Regional Director extends the period of filing an appeal by not more than 30 days.
Where an LLP fails to comply with the order within a period of 90 days from the date of receipt of the copy of the order, such LLP shall be punishable with a fine which shall not be less than INR 25,000 but may extend to INR 5 Lacs
Where a partner or designated partner fails to comply with an order within a period of 90 days, such person shall be punishable with imprisonment which may extend to 6 months, or with a fine of a minimum of INR 25,000 which may extend to INR 1,00,000, or with both

10. LLP provisions in alignment with the Companies Act, 2013

The LLP Act, 2008 had reference to the Companies Act, of 1956 wherever provisions relating to companies were mentioned, whereas, the Companies Act, 2013 has already replaced the 1956 Act. With the LLP (Amendment) Act, 2021, alignment of the new Companies Act, 2013 is made in the entire LLP Act, 2008 by substitution for the words and figures “the Companies Act, 1956” wherever they occur, the words and figures “the Companies Act, 2013”. A few instances of such change in the following sections are:

11. Increasing term of imprisonment in case of fraud

The Central Government is decriminalizing certain offenses for non-serious matters. However, the control over serious cases like fraud has not been left and the Government is still harsh on such crimes. Therefore, where it is found that an LLP or its partners are carrying out an activity to defraud their creditors, or for any other fraudulent purpose, every person party to it knowingly is now punishable with imprisonment of up to 5 years as against 2 years earlier prescribed along with a minimum fine of INR 50,000 and which may exceed up to five lakh rupees.