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.