Decriminalization of offence under LLP Act

Recently, the Company Law Committee- CLC decriminalized 12 of the offenses under the Limited Liability Partnership Act, 2008, and made the LLPs non- It is recommended to allow the issuance of Non-Convertible Debenture- NCDs so that funds can be raised for the purpose of improving ease of business for LLP firms.

The Company Law Committee (Company Law Committee- CLC) was set up in September 2019 by the Ministry of Corporate Affairs with the objective of providing ease of doing business to law abiding corporates in the country and improving corporate compliance for the stakeholders at large.

Key points

Recommendations of company law committees:

Decriminalization of Crimes:

LLP has been recommended to decriminalize various offenses related to timely filing such as annual reports on changes in participation status and filings etc. which are not related to fraud.

Although there is currently no provision for imprisonment as a possible punishment for any of the crimes recommended for decriminalization, the committee recommends that after the court is found guilty of misconduct by a partner or LLP Companies are required to pay fines for non-compliance rather than fines imposed.

Penalties related to:

The committee has noted that in case of fine imposed by the courts there is a risk of disqualification or disqualification of the convicted person from various posts but there will be no such risk in case of imposition of punishment by a suitable authority.

Penalty authorities:

In case of any violation of the provisions of the LLP Act, the right to impose the penalty should be with the Registrar of Company- ROC.

The primary duty of the ROC appointed under section 609 of the Companies Act covering various states and union territories is to register companies and LLPs implemented in the respective states and union territories.

Permission to issue non-convertible debentures (NCDs):

LLPs that are not currently allowed to issue debt securities should be allowed to issue NCDs to facilitate operations related to raising capital and financing.

Beneficiary:

The move is likely to benefit start-ups and smaller companies in areas that require more capital investment.

Limited Liability Partnership (LLP)

In one LLP, one partner is not responsible for the misconduct or negligence of the other partner.

LLP can continue its existence despite changes in partners. It is capable of accepting contracts and owning property in its own name.

LLP is a separate legal entity. It is responsible for expanding its assets to full capacity but the liability of the partners in the LLP is limited to their accepted contribution.

LLP vs Traditional Partnership Firm:

Under the “Traditional Partnership Firm”, each partner is jointly and individually responsible for all functions of the firm jointly and individually with all other partners. All the registered LLP and partnership companies needs to file LLP annual compliances and private limited company annual compliance.

Under the LLP structure, the accountability of the partner is limited to the contribution accepted by him. Thus, each partner is personally shielded from joint accountability in case of wrongful acts or misconduct of other partners.

Company vs LLP:

The internal administrative structure of a company is regulated by law (Companies Act, 2013) while internal administration in LLP is decided by a contractual agreement between partners.

  • The LLP does not have a management-ownership division like the company.
  • LLP has comparatively more flexibility than a company.
  • LLP has lower compliance requirements than the company.

 Non-convertible debentures (NCDs)

 Letters of credit are long-term financial instruments issued by companies to borrow money.

Some debentures have the characteristic of being converted into shares after a certain time and the holder of the debentures can convert that debentures into shares at his discretion.

Debts that cannot be converted into shares are called non-convertible debentures (NCDs).

NCDs are of two types – Secured or Unsecured.

Secured NCD: 

It is backed by the assets of the company. If the company fails to pay the liability, the investors holding the debentures can claim liquidation of those assets.

Securitized NCD: 

Unlike Secured NCD, in this type of NCD, the holder does not have any kind of protection in case the company fails to pay its liability.

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