New Delhi: In order to improve the ease of doing business for small businesses, the law committee of the ministry of corporate affairs has recommended creation of a new class of LLPs (limited liability partnership) to be known as small LLPs, which will be subject to easier compliance and reduced payment of fees and penalties. The panel also suggested decriminalisation of 12 offences in the LLP Act in addition to permitting the LLPs to issue non-convertible debentures (NCDs) for easily raising capital from the debt market among other things, ETV Bharat has learnt.
The panel recommended insertion of a new clause (ta) in section 2(1) in the LLP Act to define a small LLP.
According to the recommendation, a small LLP will have less than Rs 25 lakh or a higher amount as contribution from partners and a turnover of Rs 40 lakh or such higher amount in the immediately preceding financial year as may be prescribed in the amended to law to qualify as a ‘Small LLP’.
These small LLPs will be subject to reduced compliance, less fee payment and subject to reduced penalties on the basis of their turnover or contribution.
In order to further increase the ease of doing business, the panel also recommended relaxation of payment of fee under section 69 of the Act for other LLPs as well.
“The recommendations of the panel will result in incentivizing micro and small businesses to convert into body corporate such as LLPs and will create a congenial business climate based on trust and compliances," said Rajesh Verma, Secretary in the Ministry of Corporate Affairs.
Allow LLPs to issue debt
In order to allow LLPs to easily raise loans from the debt market, the panel recommended that LLPs should be allowed to issue non-convertible debentures (NCDs).
At present, the LLP Act of 2008 does not permit LLPs to issue debt securities. As a result alternative investment funds (AIF) can invest in a LLP only by way of capital contribution which is in the nature of equity interest.
The panel said such restrictions act as major impediments in expansion of the business of a LLP as unlike companies they cannot issue NCDs.
“In order to make LLPs more lucrative for the debt market, it is important to permit LLPs to issue NCDs to facilitate raising of capital,” said the panel.
Decriminalisation of offences
In order to improve the ease of doing businesses, particularly for the small entrepreneurs that operate through LLPs, the panel recommended decriminalisation of 12 less grave offences and omission of one offence from the LLP Act.
The committee suggested that a dozen non serious offences should be shifted to in-house adjudication.
The committee, however, did not recommend decriminalisation of serious non-compoundable offences listed under the LLP Act of 2008.
In its report, the committee said in case of grave offences such as offences involving frauds, deceit, injury to public interest and wrongful dealings, the status quo in terms of penal provisions has been retained.
In September 2019, the government has formed a committee to further decriminalise certain compoundable offences.
(Article by Krishnanand Tripathi)
