Key Takeaway of the LLP (Amendment) Act, 2021

A “Limited Liability Company (LLP)” is a contemporary type of a limited liability legal entity. It is a unique corporate structure offering the benefits of not only the limited liability at a low compliance cost but also authorizes the partners to organize their internal structure like a typical partnership. Because an LLP incorporates features of both a “corporate structure” and a “corporate partnership structure“, it is known as a “hybrid” between a corporation and a partnership.

In Budget 2021, our hon’ble monetary priest reported an amendment to LLP Act. In continuation of the same, the Ministry of Corporate Affairs (MCA) gave a public statement on 3rd February 2021. MCA starts the course of de-criminalisation of compoundable offences of LLP.

In addition, on Wednesday, July 28th, 2021, the Cabinet enacted the LLP Amendment Bill, 2021. It is the first time the Act has been amended since its enforcement in 2009. The LLP Amendment Bill 2021 contains 29 revisions to the LLP Act 2008.

The LLP Amendment Bill, 2021 has been adopted by both houses of Parliament. Finally, on August 13th, 2021, the President of India approved the LLP Amendment Act, 2021. This is 2021 Act No. 31. The purpose of this Amendment Act is to alter the LLP Act of 2008.

The objective behind the Amendment

• The government seeks to increase efficiency and transparency and to stimulate new ventures.
• To stimulate the incorporation of LLPs in the business class.
• To popularise it for Startups.
• The transition of Partnerships to Limited Liability Partnerships.
• To alleviate the risk of criminal charges for non-substantive trivial and regulatory omissions and commissions in the ordinary course of commercial dealings.

Key Features of the Amendment 

• The emergence of Small LLP: “Small Limited Liability Partnership” indicates a limited liability company with a maximum capital contribution of Rs 25 lakh or any such higher amount but not higher than Rs 5 Crore, or whose turnover, as reported in the statement of accounts and solvency for the immediately preceding fiscal year, does not exceed forty lakh rupees or a greater amount, not exceeding fifty crore rupees, as prescribed; or if it meets other required standards and prescribed terms and conditions.

• Decriminalizing Monetary Sanctions: Under the LLP Act of 2008, the total number of criminal provisions will be lowered to 22, with compoundable offences reduced to seven and non-compoundable offences reduced to three. The LLP Act of 2008 decriminalises a total of 12 offences
• Financial Reporting standards FOR LLP CLASSES: Section 34A of the LLP (Amendment) Act, 2021 got inserted after Section 34 of the LLP Act, 2008.  The Government of India might, in agreement with the “National Financial Reporting Authority” established under Section 132 of the Companies Act, 2013,—
  •  Set up regulations for accounting
  • Enact auditing standards

• Compounding of Offense: The LLP (Amendment) Act, 2021 has completely replaced Section 39 of the LLP Act, 2008. The following are the fundamental changes introduced into the law in this regard:
  • The Regional Director or any other official not less than the rank of Regional Director authorized by the central government could aggravate any offence under this law which is punishable only by a fine.
  • Any request for aggravation of the crime must be addressed to the Chancellor, who will forward it, together with his observations on the matter, to the Regional Director.
  • The Regional Director or other Official can collect from a person reasonably suspected of having committed the offence, which can exceed the maximum penalty imposed for the offence but cannot be less than the minimum penalty established for the offence. It is now clarified that any second or subsequent crime committed after the expiry of the three-year term from the date on which the crime was previously aggravated will be considered the first crime.

• Special Court for Speedy Trial: The LLP (Amendment) Act, 2021 has inserted Section 67A after Section 67 of the LLP Act, 2008, which provides the provisions relating to the establishment of Special Court as follows- The Central Government through notification enacts a certain number of Special Courts as it deems fit for such   area or areas, as may be specified in the notification, to provide speedily.

• Institution of the Appellate Tribunal: Section 72 (2) of the LLP Act of 2008 has been completely superseded by the LLP (Amendment) Act 2021. The following are its main features-

• • Anyone who is not satisfied with a court order can go to the Court of Appeal. However, no appeal can be brought to the appeals court against an order issued by the court with the consent of the parties.
  • An appeal must be filed within sixty days from the date on which the copy of the court order is made available to the injured party, in the form and together with the corresponding fees.
  • After the 60-day period has elapsed, but within a subsequent period of 60 days, the appellate court may decide on a complaint, provided it is satisfied that the complainant was unable to file the complaint within this period for sufficient reasons to insert. 

• Indian Resident: The LLP (Amendment) Act, 2021 replaced the phrase “eighty-two days during the immediately previous one year“ with “twenty days during the financial year” in “Section 7(1) of the LLP Act, 2008”. As a result, a person who is only in India for 20 days throughout the fiscal year might be designated as Designated Partner.
• Prohibited Name: The LLP (Amendment) Act 2021 supersedes the following matters in Section 15 (2):

• No Limited Liability Company would get registered under a name that, in the view of the Government of India would be identical or too similar to that of any other already registered Limited Company. 
• Liability company, corporation, or trademark of someone else’s liability under the Trademark Act of 1999.
• Altered name of LLP: The LLP (Amendment) Act, 2021 completely replaced Section 17 of the LLP Act, 2008 and eliminated Section 18 of the LLP Act, 2008. The key features of the amended Section 17 are as follows: In the case of the same name, the Central Government may direct to change the name within three months of the date of such direction, and the proprietor of registered trademarks can make application within three years of the date of incorporation, registration, or change of name of the limited liability partnership under the LLP Act, 2008.
• Registration Bureau: Section 68A of the LLP (Amendment) Act of 2021 was added after Section 68 of the LLP Act of 2008. The following are its key features:

• • Exercise the powers and perform the functions conferred on the central government by or under of this law or the rules dictated by it, and for the registration of limited liability companies pursuant to this law, the central government, by notification, establishes the registry offices it deems appropriate, specifying their competence.
  • The central government may appoint as many registrars, additional registrars, joint registrars, registrars and registrars as it deems necessary for the registration of limited liability companies and for the fulfilment of other duties under the 2008 LLP Act.

Final Words

The Bill’s aims to stimulate the formation of LLPs, support the development of a startup eco-system, rationalise the implementation of fines for non-compliance, establish special courts for adjudication, and apply harsher penalties for fraudulent actions. The notion of tiny LLPs has been enlarged, and they will be subject to lower fees, less compliance, and smaller penalties if they fail to comply.