Limited Liability Companies (Amendment) Act 2021: Key Points to Remember – Company Law/Commercial Law

India: Limited Liability Companies (Amendment) Act 2021: key points to remember

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HSA point of view

The Amendment Act will encourage small partnerships to grow into an organized LLP structure. The Amendment Act has essentially brought the main Act to almost the same level as the framework of the existing Companies Act 2013 and aims to modernize the LLP regime as a whole by introducing a compliance facility for ethical entrepreneurs and opening up bridges to promote national entrepreneurship. In our opinion, the introduction of Small LLPs and Start-up LLPs will make it more lucrative for investors, especially incentivize the start-up community and promote a healthy business environment.

In addition, the decriminalization campaign and a relatively relaxed penalty regime sought to be introduced by the Amendment Act will provide flexibility to aggravate minor offences, thus encouraging compliance by contractors and the effective regularization of LLPs, catalyzing the speedy resolution of disputes and promoting ease of doing business for law-abiding LLPs.

In an effort to encourage the start-up ecosystem and facilitate greater ease of doing business, the Limited Liability Partnership (Amendment(Amending law).

The Amendment Act first amended the Limited Liability Companies Act 2008 (main act) which regulates limited liability companies (LLPs), after reviewing the multiple reforms recommended in The Report of the Company Law Committee on Decriminalization of the Limited Liability Companies Act, 20081 of 04 January 2021 (Report). By amending law, 7 new articles were inserted, 5 articles were replaced and 3 articles were omitted.

In this note, we attempt to summarize and analyze the main changes introduced in the Act.

1. Decriminalization of Offenses

  • The Amendment Act offsets criminal liability and decriminalizes the following offenses listed below by only prescribing civil liability in the form of monetary penalties:

    Main act section The description
    Article 10: Penalty for violation of Articles 7, 8 and 9 While omitting contravention entirely under Section 8, the Amendment Act decriminalizes penalties under Sections 7 and 9 which deal with the general obligations of designated partners
    Article 13: Registered office of LLP and modification thereof Offense relating to the registered office of SENCRL and modification thereof
    Article 17: Change of name of LLP Non-compliance with instructions from the central government regarding the change of name of LLP
    Article 21: Publication of name and limited liability Failure to display basic information regarding LLP on invoices, official correspondence and publications
    Article 25 – Registration of changes of partners Failure to Notify Registrar of Changes in LLP Partners within Time Limits
    Section 34 – Maintenance of books of account, other records and audit, etc. Lack of compliance with regard to the keeping of books of accounts as prescribed and the filing of a statement of account and solvency within 6 months of the end of each financial year
    Article 35 – Annual declaration Failure to file annual report with Registrar within 60 days of end of fiscal year
    Article 60 – Compromise or arrangement of LLP Non-filing of the Order made by the NCLT with the Registrar within the prescribed time limits
    Article 62 – Provisions to facilitate the reconstruction or merger of SRL Non-filing of the Order made by the NCLT with the Registrar within the prescribed time limits
    Article 74 – General sanctions General penal provision for cases where no penalty or sanction is provided for a violation of the main law

  • The aforementioned offenses will fall under an internal adjudication mechanism instead of being considered a criminal offense with the aim of eliminating the fear of criminal prosecution for insubstantial, minor and procedural omissions.

  • In addition, the Amendment Law omitted the following sections from the main law in its entirety:
    • Article 18: Relating to a request for a name change instruction in certain circumstances

    • Article 73: Relating to the sanction in the event of non-compliance with any order passed by the NCLT

    • Article 81: Relating to transitional provisions

  • In addition, the Amendment Act reduced the maximum penalty from INR 5,000,000 to INR 1,00,000 for LLCs and INR 50,000 for appointed partners under Section 76A. It also extended the prison term from 2 to 5 years for fraud by an LLP under Section 30 of the Principal Act. However, the government has maintained the status quo for serious breaches which involve an element of fraud, deceit, harm to the public interest and wrongful acts in accordance with the existing provisions of the principal law.

2. Penalties and Fees for Small LLPs and Start-up LLPs

  • The Amending Act introduced Section 76A which states that the penalty payable for non-compliance with the LLP Act by a Small LLP or a Start-Up LLP or its partner or designate partner will be half of the specified penalty , subject to a maximum of INR 1,00,000 for LLP and INR 50,000 for each partner or nominated partner or other person as the case may be.

  • The Amending Act replaces Section 69 of the Act stating that different fees or additional fees may be prescribed for different categories of LLPs or for different documents or returns required to be filed under the Act or rules thereunder.

  • Under the amending law, small LLPs and Start-up LLPs will be subject to reduced fees and criminal consequences for default, which will reduce the cost of compliance and encourage non-compliant small businesses. organized to convert to an LLP.

3. Complication of Offenses

  • The Amendment Act replaced the entirety of Section 39 of the Principal Law by empowering the Regional Director or any other officer not below the rank of Regional Director recognized by the central government to aggravate any violation of the Principal Law which does not is only liable to a fine. This amendment will allow greater flexibility in the imposition of penalties under the principal law, thus allowing the effective implementation of the newly inserted decriminalized provisions.

  • Compounding will not be permitted for any offense committed by an LLP or its Partner or Designated Partner within 3 years from the date a similar offense by him or them was compounded.

  • The amending law specifies that any second or subsequent offense committed after the expiration of the 3-year period from the date on which the offense was previously aggravated will be considered the first offence.

4. Creation of special courts

  • The amended law inserted Articles 67A, 67B and 67C into the main law so that special tribunals would be created to try and adjudicate exclusively on offenses committed under the main law. This will not only reduce the burden on ordinary criminal courts, but also ensure faster settlement of cases under the primary law.

  • The Special Court is composed of:
    • A single judge exercising the functions of judge of the sessions or judge of the additional sessions, in the case of offenses punishable under the principal law by a term of imprisonment of 3 years or more

    • A Metropolitan Magistrate or First Class Judicial Magistrate, in the case of other offences, to be appointed by the Central Government with the concurrence of the Chief Justice of the High Court

  • The procedure and powers of special tribunals as well as appeals and reviews are further postulated in Sections 67B and 67C.

5. Other Key Changes

  • The Amendment Act recognized the concept of “Start-up LLPs” and granted the central government the power to recognize certain LLPs as Start-up LLPs by issuing notices from time to time.

  • The amended law reduced the residency requirement from 180 to 120 days in a financial year under section 7 of the principal law, which mandates that each LLP must have at least one resident named partner.

  • The Amendment Act inserted Section 34A into the Principal Act giving the central government the power to prescribe accounting and auditing standards for different categories of LLPs in consultation with the National Financial Reporting Authority and the Institute of Chartered Accountants of India.

  • The Amendment Act introduced Section 68A of the Principal Act giving the Central Government the power to establish the number of Registrars in such places as it deems appropriate and to specify the jurisdiction thereof.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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