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LLP (Amendment) Bill, 2021: All you need to know about it

LLP (Amendment) Bill, 2021_ All you need to know about it

LLP (Amendment) Bill, 2021: All you need to know about it

On July 30, 2021, the LLP (Amendment) Bill 2021 was first tabled in the upper chamber of parliament. The Limited Liability Partnership (Amendment) Bill, 2021, was passed by the Lok Sabha on August 9th, to encourage the startup ecosystem and make it easier for law-abiding corporations to conduct business in the nation by modifying the Limited Liability Partnership Act, 2008.

After being introduced by Minister of State for Corporate Affairs Rao Inderjit Singh amid opposition parties’ objections over the Pegasus spying scandal and agricultural legislation, the Bill was approved on August 4 in the upper chamber of the Parliament (Rajya Sabha).

This is the first time modifications to the legislation, which was passed in the year 2000, have been presented. The purpose of the bill is to modify the LLP Act of 2008. The Act makes it easier to regulate LLPs. Limited liability partnerships (LLPs) are a type of business structure that differs from traditional partnership organizations. The partners’ responsibilities in an LLP are restricted to the amount of money they put into the firm. The bill converts certain crimes into civil offenses and changes the nature of the penalties for certain crimes.

What is a Limited Liability Partnership?

The Limited Liability Partnership Act 2008 (Act) was passed and announced in 2009, and since then, the Limited Liability Partnership (LLP) has been the finest type of business entity since it combines the best of both worlds: partnerships and corporations. It combines the flexibility of a partnership, which allows the LLP to choose its own operating rules, with the lower cost of compliance and the benefits of a corporation, which distinguishes the partners from the LLP and makes it an independent legal entity.

Limited liability partnerships are fairly prevalent, whether you notice them or not. After a list of names, a lawyer or accountant will commonly use the acronym LLP, as in “Howser, Hunter & Smith, LLP.”

LLPs are a legal and tax structure that allows partners to profit from economies of scale by working together while also limiting their liability for the acts of other partners. Before getting too enthusiastic, verify the laws of your country (and your state) as you would with any legal company. In a nutshell, consult a lawyer first. They almost certainly have direct knowledge of an LLP.

Who faces liability?

Limited liability, according to the new feature, prevents creditors from seizing a partner’s assets or income if the partnership fails.

These LLPs are commonly found in professional businesses such as legal companies, accountancy firms, and wealth management organizations.

Formation of LLP

An LLP must have a minimum of two partners in order to be formed. The maximum number of partners will be unlimited, but the maximum number of partners in a partnership is 20.

An LLP can have a body corporate as a partner.

An LLP can have any number of partners, including individuals and corporations. However, an individual will not be eligible to join an LLP as a partner if—


(a) He has been determined to be insane by a court of competent jurisdiction, and the finding is still in effect;

(b) he is an insolvent who has not been discharged; or

(c) He has filed an application to be adjudged insolvent, which is now pending.

For all LLPs, the appointment of at least two “Designated Partners” is required. In addition to their obligation as “partners, per se,” “Designated Partners” will be responsible for regulatory and legal compliance.

Every LLP must have at least two Designated Partners, both of whom must be persons, and at least one of whom must be a resident of India. At least two persons who are partners of such LLP or nominees of such bodies corporate should function as designated partners in the case of an LLP in which all of the partners are bodies corporate or one or more partners are individuals and bodies corporate.

A “Designated Partner’s Identification Number” would be needed of each Designated Partner (DPIN)

The agreement between partners or between the LLP and the partners governs the mutual rights and obligations of partners as well as those of the LLP and its partners. This agreement will be referred to as the “LLP Agreement.”

The reciprocal rights and obligations under the LLP Act, in the absence of agreement on any subject, shall be as provided for in Schedule I to the Act.

As a result, any LLP that wishes to exclude itself from the provisions/requirements of Schedule I to the Act must enter into an LLP Agreement expressly omitting the application of any or all paragraphs of Schedule I.

After complying with the LLP Act’s regulations, LLPs must be registered with the Registrar of Companies (ROC) (designated under the Companies Act, 1956). A registered office is required for any LLP. At least two partners must sign an Incorporation Document, which must be submitted with the Registrar in the appropriate format. The contents of the LLP Agreement, as prescribed, must also be filed with the Registrar electronically.

What are the key amendments proposed?

Decriminalization of offenses The measure aims to decriminalize 12 LLP-related offenses. The LLP Act now has 24 criminal provisions, 21 compoundable offenses, and three non-compoundable offenses. The punitive provisions will be decreased to 22 after the revisions, with compoundable offenses lowered to 7 and non-compoundable offenses remaining the same. The cases that have been decriminalized will be referred to as an “In-house Adjudication Mechanism” (IAM), which will relieve the strain on criminal courts.

Introduction of small LLPs The bill aims to align the idea of “small limited liability partnership” with that of “small business” as defined under the Companies Act of 2013. There are now relaxations for thresholds of up to Rs. 40 lakh in sales and Rs. 25 lakh in partner participation.

Now, a donation of Rs. 25 lakh will be worth Rs. 5 crores, and a turnover of Rs. 40 lakh will be worth Rs. 50 crores. As a result, a corporate business with a contribution of Rs. 5 crores and a turnover of Rs. 50 crores will be considered as a small LLP, broadening the definition of what constitutes a small LLP. LLPs may also be designated as start-up LLPs by the central government.

Small LLPs will pay a lower cost, have less compliance, and faceless penalties if they default.

Compounding of offenses Regional Directors designated by the Central Government may compound any crime under this Act punishable merely by a fine by collecting it from a person reasonably suspected of committing the offense, according to the Bill.

The Registrar shall transmit the application for the compounding of an offense, along with his comments on it, to the Regional Director or any other officer not below the rank of Regional Director allowed by the Central Government.

Special courts The amended bill calls for the creation of special courts to expedite the prosecution of offenses under the Act. For offenses punishable by three years or more in prison, the special courts will consist of a sessions judge or an extra sessions judge, and for other offenses, a metropolitan magistrate or a judicial magistrate.

These special courts’ decisions can be appealed to higher courts.

Standards of Accounting In collaboration with the National Financial Reporting Authority, the central government may impose accounting and auditing requirements for types of LLPs under the Bill.

Appellate Tribunal The National Company Law Appellate Tribunal hears appeals from NCLT rulings under the LLP Act of 2008. (NCLAT). The Bill’s modifications provide that appeals cannot be lodged against orders issued with the parties’ permission and that appeals must be submitted within 60 days following the order.

Punishment for fraud The bill seeks to extend the maximum period of imprisonment for any fraudulent conduct from two to five years, as well as a fine ranging from Rs. 50,000 to Rs. 5 lakh.


After the Union Cabinet granted its approval on July 28, 2021, the Limited Liability Partnership (Amendment) Bill 2021 was tabled in Rajya Sabha on July 29, 2021. The Amendment Bill aims to make life easier for law-abiding businesses by decriminalizing key parts of the Act.

The bill proposes several key changes, including the introduction of the concept of “small companies,” decriminalization of certain offenses, empowering the government to establish special courts, authorizing regional directors to compound offenses, and empowering the government to prescribe “AS” and “Auditing Standards” for a specific class of LLPs, among other things.

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