How decriminalisation of offences under limited liability partnership ...
Jan 26, 2021
How decriminalisation of offences under limited liability partnership (LLP) Act could help unclog judicial system.
Q. What is the news?
The Company Law Committee (CLC), headed by the Corporate Affairs Secretary , has recommended that 12 offences under the LLP Act be decriminalised and that LLPs be allowed to issue NCDs to raise funds with the aim of improving ease of doing business for limited liability partnership (LLP) firms.
Q. Which offences under the LLP Act has the committee recommended for decriminalisation?
Several offences related to timely filings, including annual reports and filings on changes in partnership status of the LLP, not related to fraud have been recommended for decriminalisation.
While none of these provisions recommended for decriminalisation in the CLC report currently have prison terms as a possible punishment, the panel has recommended that companies be required to pay penalties for non-compliance, instead of fines which are imposed after a partner or the LLP is found guilty of misconduct by a court.
The report notes that there is a risk of a convicted person being disqualified or becoming ineligible for various posts in the case of fines imposed by courts, which would not be the case for penalties imposed by an appropriate authority. The Registrar of Companies would have the authority to levy penalties for any contravention of provisions of the LLP Act.
Q. What is an LLP?
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities.
In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence.
This is an important difference from the traditional unlimited partnership in which each partner has joint and several liability.
Q. Who benefits from the permission for LLPs to issue NCDs?
The CLC has also recommended that LLPs which are currently not allowed to issue debt securities be permitted to issue non-convertible debentures (NCDs) to facilitate raising of capital and financing operations. The move is likely to benefit start-ups and small firms in sectors which require heavy capital investment.