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Limited Liability Partnership (LLP) Act 2008 to Undergo Drastic Changes Soon

  • February 27, 2024

Limited Liability Partnership (LLP)  Act  2008 was enacted with an intention to corporatize small and medium enterprises retaining the  flexibility of partnership in their internal functioning and management.  However, LLP begun to fade its attraction as a corporate business entity because of the stringent provisions incorporated   in the Act  for mere  procedural or technical violations of the Act.

Two  of the annual  mandatory compliance requirements of an LLP  are  the  filing of     (i) Annual Return  before 30th of May  and (ii) Statement of Account and Solvency before 30th October every year.  

If the LLP cannot file Annual Return or Statement of Account and Solvency in time , because of inadvertence or otherwise, both the LLP and the designed partners shall be punishable with certain some of fine .  “Fine” is a monetary punishment imposed by a Court  ( economic offence court ) after conviction of the accused person through the process of criminal trial. This entails the ignominy of conviction and there is a risk of the convicted person being disqualified or becoming ineligible for various posts, designations etc”.  This is akin to ‘sword of Damocles’ on those who runs the LLP form of business.  Now, in tune with the initiative of Government of India for ease of doing business  and in view of  recommendations of  the Company Law Committee on Decriminalization of the Limited Liability Partnership Act, 2008, the government plans  to reduce the gravity of the said non compliances by  prescribing lesser punishment;  changing fine to penalty.   Penalty is a lesser punishment compared to fine.  Because,  “a penalty is a punishment imposed by an appropriate authority in a judicial or quasi-judicial proceedings for failing to comply with the provisions of the Act. Penalties as a mode of punishment are deemed more appropriate for violations of the provisions of business laws where no harm to the public interest is caused or where no criminality is intended.” 

Likewise  there are some more  provisions  which consider  mere  procedural or technical violations of the Act as  offence of criminal nature.    There is a proposal to treat twelve such violations    as civil offence imposing penalty only.  If  the proposal became law,  it will ‘ facilitate greater ease of doing business and thereby greater ease of living for corporates and stakeholders in the country.’

Another change that may come to the Limited Liability Partnership (LLP)  ACT  2008 is the recognition  of  Small LLPs which requires less legal compliance. This will attract more  professional firms and micro enterprise to do their business in the form LLP having corporate identity.

The proposed changes are  based on the  report of Company Law Committee on Decriminalization of the Limited Liability Partnership Act, 2008 dt. 04/01/2021. You can access the report by clicking here.