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NEW DELHI : The government is set to announce a 50% cut in penalties for nearly a dozen offences by startups incorporated as limited liability partnerships (LLPs), an official aware of the development said.

The offences include non-compliance relating to requirements of filing statutory documents and returns, appointing a designated partner responsible for all compliances and having at least one resident partner for the LLP, the official cited above said on condition of anonymity.

The ministry of corporate affairs will notify the requirements for startup LLPs to avail of this relief. One of them is that the startup needs to be recognized as one by the department for promotion and internal trade (DPIIT), the person mentioned above said.

“This relief is expected to encourage small unincorporated businesses to adopt LLP form and become part of the formal economy," the official said.

An email sent to the secretary in the ministry and to the spokesperson remained unanswered till the time of going to press.

Most of India’s 60-million-plus micro, small and medium enterprises are unincorporated. The reduced penalty is available to the entity and the partners, including the designated partner and other persons liable to pay the penalty.

The other offences for which the reduced penalty would apply include lapses in reporting changes in partners of an LLP, filling the vacancy of a designated partner in time, maintaining a registered office, informing the authorities about address changes, and disclosing details about the firm in its official communications.

Since these are procedural and technical lapses and do not show any intent to defraud the public, an in-house administrative system will be available to settle them. DPIIT defines a startup as a business with less than 100 crore sales, which should be working towards innovation and improvement of products and services and should have the potential to generate jobs.

The startup tag is available only for the first 10 years of an enterprise’s existence.

The amendment to the LLP Act passed by Parliament in the recently concluded monsoon session decriminalized offences that are procedural in nature as part of efforts to improve the ease of doing business.

Experts said more flexibility could be given to LLPs in raising capital.

Besides the decriminalization of offences, LLPs are now allowed to issue non-convertible debentures, which is a welcome step towards raising funds and augmenting capital, said Divakar Vijayasarathy, founder and managing partner at DVS Advisors LLP., a consultant.

“The government should now additionally consider permitting external commercial borrowings for LLPs in consultation with the Reserve Bank of India. This would be a great move, considering the fact that the non-resident investors prefer both equity and debt mix for the purpose of investment," Vijayasarathy said.

LPs are increasingly gaining currency as a preferred form of starting a business due to the flexibility this form offers and the simplicity in its compliance regime.

These require audit only if their partner contribution is more than 25 lakh or when the annual sales exceed 40 lakh.

According to official data from the ministry of corporate affairs, over 4,000 LLPs are incorporated every month. There are about 215,000 LLPs in the country at present.

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