Government clears amendments to LLP Act; to decriminalise 12 offences

New Delhi: Continuing efforts to foster ease of doing business as well as encourage startups ecosystem, the government on Wednesday approved amendments to the Limited Liability Partnership (LLP) Act, including decriminalising 12 offences under the law.

Besides, a new definition for small LLPs will be introduced under the amended Act, which is being implemented by the corporate affairs ministry.

The Union Cabinet on Wednesday cleared the amendments to the LLP Act. This will be the first time that changes are being made to the Act since it came into effect in 2009.

Nirmala Sitharaman, who is in charge of finance and corporate affairs ministries, said that a lot of changes have been done in the Companies Act, 2013 in terms of ease of doing business and similar treatment has to be given to LLPs since "LLPs are among more popular amongst startups".

Currently, there are 24 penal provisions and 21 are compoundable offences, while 3 are non-compoundable ones.

With the proposed amendments, the total number of penal provisions under the LLP Act will be reduced to 22, compoundable offences will be 7, non-compoundable offences will be 3 and the number of defaults to be dealt under the In-House Adjudication Mechanism (IAM) will be only 12, the minister said.

"So, a total of 12 offences are to be decriminalised for LLPs. Three sections are (to be) totally omitted," she said and emphasised that the changes would help bring LLPs on an equal playing field with corporates that come under the Companies Act.

"... we are bridging this gap. And making LLPs far more attractive and easy to handle... so that many of the startups today, which prefer the LLP model can also feel equally given the ease of business opportunities," Sitharaman said. Generally, compoundable offences are those which can be settled by paying a certain amount of money.

Besides, the government would be introducing a new definition of small LLPs based on their turnover size and contributions by partners or proprietors.

At present, there are relaxations for thresholds up to turnover size and partner's contribution of Rs 40 lakh and Rs 25 lakh, respectively.

Once the amendment is in place, the thresholds will be revised upwards. "Now, what we are saying is that Rs 25 lakh will go to Rs 5 crore and Rs 40 lakh the turnover size will now be treated as Rs 50 crore. So, even Rs 5 crore contribution and Rs 40 crore or Rs 50 crore turnover will be treated as a small LLP, which means we are expanding the scope of what can be a small LLP.