An LLC is a popular business model because it allows its partners to organize their internal framework as a partnership while benefiting from limited liability. The LLP Act 2008 bridges the gap between an organization governed by the Companies Act 1956 and one controlled by the Partnership Act 1932. In this article, we will discuss MCA may decriminalize minor, technical LLP violations.e
The Punishment for Non-Compliance under the LLC Act 2008
The Act mandates an LLP and its partners to comply with the provisions stated there under. The non-compliance with certain provisions subjects the LLP and its designated partners to criminal liability because it is considered an offence under the Act. Such offences are punishable with a compoundable fine, or in some cases, even with imprisonment and a non-compoundable fine.
The Rationale for Change
However, the criminalisation of minor technical violations, or offences not causing any harm to the public interest, acted more as a deterrent. Moreover, it was seen as an impingement upon the otherwise law-abiding LLPs’ business sentiments. Therefore, to provide ease of doing business, incentivize compliance, and de-clog the criminal justice system,
The government intends to implement all the planned changes ASAP because it will add momentum to India’s economic recovery.
What Changes will the Bill Bring?
Through the Bill, the government plans to decriminalize 12 offences that will be adjudicated by an in-house mechanism instead of the NCLT or the National Company Law Tribunal. The Bill’s provisions will allow the dismissal of one violation relating to the non-compliance of tribunal orders to avoid duplicity.
Also, the Bill aims to provide relief on account of specific fees and penalties levied on LLPs for defaults committed. The proposed relief will consider factors such as the total contribution and sales of LLPs.
Moreover, apart from making it easier for LLPs to conduct business, the government is also consolidating the compliance obligations around various aspects relating to LLP registration. The move aims to ensure that companies do not shift to the LLP model to escape transparency and disclosure requirements.
Also, plans are being devised on a war-footing to encourage LLPs to come forward and disclose details regarding their ultimate owners, who remain hidden behind several layers. However, the provisions under the Company’s Act restrict a person from acting as a director in more than 20 companies.
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