Accounting standards and special courts to be created for LLPs: MCA
Amendments to the LLP Act have introduced ‘small LLPs’ and ‘startup LLPs’ which would enjoy lesser compliance needs
The regulatory framework for limited liability partnerships (LLPs) is set to get more refined with a new set of accounting standards, a special regime for startups using the LLP form, and special courts for trial of offences.
The ministry of corporate affairs (MCA) has said amendments to the LLP Act passed by Parliament in the just-concluded monsoon session primarily for decriminalizing offences, also provide for a set of changes aimed at making this flexible legal structure of business more popular.
Secretary in the ministry Rajesh Verma said in a review of the corporate sector that the amendments introduced two new concepts of “small LLP” and ”startup LLP” which would enjoy lesser compliance, lesser fee and lesser penalties for minor violations.
Also, special courts for swift trial of offences under the LLP Act and in-house adjudication of cases within the ecosystem of the ministry are envisaged. An in-house, administrative way of dealing with offences is already in place for companies under regional directors and registrars of companies. This system is expected to become fully online later this year.
The amendments also empower the government to bring out a set of accounting and auditing standards for LLPs, the review said.
The effort to streamline the regulatory framework for LLPs and to add more features comes at a time this legal form of incorporating business has gained currency among small businesses, especially in the service sector including startups.
LLPs offer a flexible legal structure as the personal wealth of partners in an LLP is not at risk if the firm fails. The latest amendments to the law decriminalized 12 offences and omitted one.
LLPs are increasingly becoming relevant as they help in boosting India’s global competitiveness and contribute towards inclusive growth, the review said. There are about 215,000 LLPs in the country currently.
LLPs are preferred by entrepreneurs due to the simpler compliance regime. These require audit only if their partner contribution is more than ₹25 lakh or when annual sales exceed ₹40 lakh. There is no dividend distribution tax on LLP. In certain sectors such as automobiles and construction, full foreign ownership via the automatic route is allowed.
LLPs are easier to be set up than companies and have perpetual succession—even if the partner is no more or is insolvent, the legal entity is not affected.
More than 76,000 LLPs, or, 35% of all the LLPs in the country, are business services. Entrepreneurs in trading and manufacturing sectors also prefer LLPs.
In FY21, the number of LLPs incorporated saw a 17% growth, as per official data.
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First Published:18 Aug 2021, 07:38 PM IST
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