Amendments to the Limited Liability Partnership Act, 2008

In News

Recently, the Cabinet has cleared amendments to the Limited Liability Partnership (LLP) Act of 2008, to whittle down several provisions.

Proposed Amendments

• Decriminalising Offences: Of the 24 penal provisions in the Act, one would be omitted and a total of 12 cognisable offences were being decriminalised under the Limited Liability Act, 2008 which deal with procedural and technical violations. 
• Reducing Compoundable Offences: As many as 21 of the provisions are compoundable offences, which the amendments propose to whittle down to just seven. Now, it will have only 22 penal provisions, 7 compoundable offences and 3 non-compoundable offences. 
• No Criminal Action: The removal of criminal action for failing to comply with the provisions of the Act. Law-abiding corporates are to get Ease of Doing Business benefits and part of the criminality related sections would be replaced with penalties.
• New Definition of small LLPs: The amendments also include a new definition for small LLPs. LLPs with contribution less than or equal to Rs. 25 lakh and turnover less than Rs. 40 lakh are treated as small LLPs. Now, Rs. 25 lakhs will go over to Rs. 5 crores and the turnover size will be treated as Rs. 50 crores.

Significance of Amendments

• The amendments would bring an equal playing field for LLPs, compared to large companies which come under the Companies Act, as LLPs are becoming popular among startups. 
• Government is also looking towards expanding the scope of small LLPs.
• The changes will help about 2,30,000 LLP firms currently operational in the country.
• Amendments also foster the ease of doing business in India. 
• This is the first time the government is proposing amendments to the LLP Act since its enactment in 2008 and the legislation becoming effective in 2009.

Limited Liability Partnership

• It is a partnership in which some or all partners have limited liability. It therefore exhibits elements of partnerships and corporations.
• It allows for a partnership structure where each partner’s liabilities are limited to the amount they put into the business. 
• An LLP is a corporate body and legal entity separate from its partners. It has perpetual succession.
• In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.
• Limited liability means that if the partnership fails, then creditors cannot go after a partner’s personal assets or income. 
• LLPs are common in professional business like law firms, accounting firms and wealth managers.
• Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act, 1932 are not applicable to an LLP and it is regulated by the contractual agreement between the partners.

Benefits

• Pooling Resources for Better Growth: Most LLPs are created and managed by a group of professionals who have a lot of experience and clients among them. By pooling resources, the partners lower the costs of doing business while increasing the LLP’s capacity for growth. 
• Increased Profits: Most important, reducing costs allows the partners to realize more profits from their activities than they could individually.
• Attracts Good Workers: The partners in an LLP may also have a number of junior partners in the firm who work for them in the hopes of someday making full partners. These junior partners are paid a salary and often have no stake or liability in the partnership. 
• More Focus on Business: The LLPs help the partners scale their operations. Junior partners and employees take away the detail work and free up the partners to focus on bringing in new business.
• Liability Protection: The personal assets as a partner are protected from legal action. Basically, the liability is limited in the sense that one may lose assets in the partnership, but not those outside of it (i.e. personal assets). LLPs protect individual partners from the negligence of any other partner.
• Flexibility: It has the ability to bring partners in and let partners out. The LLP can always add partners who bring existing business with them. Overall, it is the flexibility of an LLP for a certain type of professional that makes it a superior option to an LLC or other corporate entity. 

Conclusion

• A lot of changes are being made in the Companies Act, decriminalising many sections and improving ease of doing business for companies. A similar treatment had to be given for LLPs.
• Now, LLPs will have the benefit of either simplified regulation or ease of practice under proprietorship.

Source: TH