Which Offences Under The LLP Act Are Being Decriminalized?

Following the framework of Amendment 2020 in the Companies Act, certain changes to LLPs are about to be brought about by the Ministry of Corporate Affairs (MCA) as declared in the Union Budget 2021, to decriminalize 12 offences.

The Union Budget 2021 has proposed some changes to the Limited Liability Partnerships (LLPs) and with the object of encouraging the spirit of entrepreneurship, certain minor and non-substantive incidents were decriminalized.

The Ministry of Corporate Affairs is initiating a process of decriminalization of the compoundable offences under the Limited Liability Partnership Act 2008.

What are the changes adopted to LLP?

To be specific, the Company Law Committee, under the leadership of Rajesh Verma, Secretary of Corporate Affairs, recommended 12 offences under the LLP Act to be decriminalised.

The offences related to timely filing of annual reports, notification of changes in partner etc. are recommended to be decriminalised. In other words, the activities that are not relevant to any fraud or fraudulent activities, are being considered, followed by the guideline of the Amendment 2020 of the Companies Act.

The principles adopted for the Decriminalisation of the Compoundable offences are:

● Principle One: The offences that relate to minor compliance, that involved predominantly determinations object, are proposed to be regulated by the In-house Adjudicating Mechanism framework instead of being treated as a criminal offence.

● Principle Two: If any offence can be treated under any other law other than the LLP Act 2008, then it can be omitted from the penal provisions under LLP Act.

● Principle Three: Serious offences which are non-compoundable such as - elements of fraud, intent to deceive and causing injury to the public interest etc. must be following the rules as it is, no changes shall be made.

What are the benefits of the amendment?

The Company Law Committee also recommended that the LLPs which are not allowed to issue debt securities at present shall be allowed to issue non-convertible debentures to facilitate the finance operation and capital raising. This step is presumed to be beneficial for startup and small firms which involves heavy capital investment.

It is a noteworthy fact that it would make the alternate investment funds (AIFs) more flexible seeking more investment to the firms. The Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) are likely to make changes to current regulation to allow LLPs to issue NCDs for the implementation of the recommendation by the committee.

It is also proposed to reduce the additional fee of Rs. 100 per day under the provision of Sec. 69 of the Act for any delay in filing the forms or required documents. The reduced fee is assumed to encourage the smooth filing of records and return of LLPs.

Another proposal is to exclude LLPs from the ambit of presumptive taxation. The Financial Bill included under clause 12, seeking to amend the provision under Sec. 44ADA of the Income Tax Act for the computation to profits from the profession on a presumptive basis. This was introduced as a special provision to calculate the profits and gains of small professionals in certain situations in the extension of the scheme of simplified presumptive taxation to specified professionals.

Before this, the presumptive scheme of tax could be applied only to the small businesses and the presumptive scheme of taxation results in a reduction of the compliance burden on small professions and facilitate to make carrying on a business easy.