Limited Liability Partnerships (LLPs)
- July 29, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Limited Liability Partnerships (LLPs)
Subject: Economy
Context: In a booster shot for the start-up ecosystem in the country, the Union Cabinet, on Wednesday, approved amendments to the Limited Liability Partnership Act 2008.
Concept:
Limited liability partnerships (LLPs)
- Limited liability partnerships (LLPs) allow for a partnership structure where each partner’s liabilities are limited to the amount they put into the business.
- Having business partners means spreading the risk, leveraging individual skills and expertise, and establishing a division of labour.
- Limited liability means that if the partnership fails, then creditors cannot go after a partner’s personal assets or income.
The Limited Liability Partnership Act Amendment bill
- This Amendment Limited Liability Partnerships (LLPs) on an equal footing vis-a-vis large corporates, which enjoy the ease of doing business due to the government’s recent efforts to decriminalise several provisions of the Companies Act.
- Existing law As many as 12 offences in the exiting LLP law are proposed to be decriminalised through the latest set of amendments.
- Once the proposed changes to LLP Act 2008 are effected, the number of compoundable offences under the legislation will come down from 21 to seven, the total number of penal provisions will get reduced to 22 from 24, and there will be only three non-compoundable offences
- Most of the sections that had criminality in its approach are getting decriminalised under Companies Act.
- For LLPs, a similar treatment has to be given as LLPs are becoming more popular among start-ups, and many of them have to face situations of criminality because of those sections in the LLP Act
- 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
- The changes are being proposed based on the recommendations of the MCA-appointed Company Law Committee, which went into the functioning of the LLP Act 2008.
- As part of the proposed amendments to the LLP Act 2008, the government is also introducing a new definition of Small LLPs.
- It will facilitate ease of doing business, the Bill has decriminalised various offences and expanded the scope of the definition of ‘small companies’ to encourage various small and medium businesses to set up LLPs. This will help small and medium entrepreneurs get organised and also have the benefit of limited liability.
- The proposed definition for small LLPs included conditions such as that the contribution of partners does not exceed Rs 25 lakh and an annual turnover not exceeding Rs40 lakh.