Company Law Committee Recommendation on Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP):

The Company Law Committee (CLC) has recommended that 12 offences under the Limited Liability Partnership (LLP) Act 2008 be decriminalised and that LLPs be allowed to issue Non-Convertible Debentures (NCDs) to raise funds with the aim of improving ease of doing business for LLP firms.

  • The Company Law Committee (CLC) was set up by the Ministry of Corporate Affairs in September 2019 to promote Ease of Living in the country by providing Ease of Doing Business to law-abiding corporates and fostering improved corporate compliance for stakeholders at large.

Company Law Committees (CLC’s) Recommendations:

  • Decriminalisation of Offences:
    • Several offences related to timely filings, including annual reports and filings on changes in partnership status of the LLP, not related to fraud have been recommended for decriminalisation.
    • While none of these provisions recommended for decriminalisation currently have prison terms as a possible punishment, the committee has recommended that companies be required to pay penalties for non-compliance, instead of fines which are imposed after a partner or the LLP is found guilty of misconduct by a court.
  • Risk Involved in Imposing Fines:
    • The Committee has noted that there is a risk of a convicted person being disqualified or becoming ineligible for various posts in the case of fines imposed by courts, which would not be the case for penalties imposed by an appropriate authority.
  • Authority to Levy Penalties:
    • The Registrar of Companies (ROC) would have the authority to levy penalties for any contravention of provisions of the LLP Act.
    • ROC appointed under Section 609 of the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies and LLPs floated in the respective states and the Union Territories.
  • Permission to Issue NCDs:
    • LLPs which are currently not allowed to issue debt securities should be permitted to issue NCDs to facilitate raising of capital and financing operations.
  • Beneficiaries:
    • The move is likely to benefit startups and small firms in sectors which require heavy capital investment.

Limited Liability Partnership

  • It is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities.
  • In an LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.
  • The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
  • The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

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