Introduction

Limited liability partnerships (LLPs) are partnerships in which the partners have limited liability. Therefore, LLPs exhibit elements of both partnerships and companies.

The Ministry of Corporate Affairs (MCA) introduced the concept of the LLP to help small and medium-sized enterprises in general and enterprises in the service sector in particular. Internationally, LLPs are the preferred vehicle for doing business in the service industry and for activities involving professionals. LLPs in India are governed by the Limited Liability Partnership Act 2008. In recent years, there has been a sharp increase in the registration of LLPs.

Proposed changes

In order to improve LLP compliance and regulate the designated partners of LLPs, the MCA has stated that it will extend certain sections of the Companies Act 2013 to the Limited Liability Partnership Act and therefore LLPs. As such, the following provisions of the Companies Act will soon apply to LLPs:

  • The disclosure of an individual's significant beneficial interest in an LLP. The proposed requirement of disclosure intends to identify the natural person controlling or exercising beneficial interest in an LLP.
  • The disqualification of individuals for appointment as designated partners who are associated with an LLP which has defaulted on making annual filings to the registrar. The disqualification would be on the ground of non-filing by the LLP wherein an individual is a designated partner or would also include the defaulting companies where the individual is a director (which should be clear once the provisions are notified).
  • The restriction of the number of appointments that individuals may have as designated partners in LLPs. However, it is yet to be seen whether the threshold will also include company directors.
  • The designated partner's vacation of office due to disqualification incurred under the Limited Liability Partnership Act.
  • The central government's power to call for information, inspect books and conduct enquiries and inspections into LLPs' affairs.
  • The power for the restoration of the LLPs whose names are struck off under the Section 75 of the Limited Liability Partnership Act. However, it is yet to be clarified whether such powers of restoration will be given to the registrar or the tribunal set up under Chapter XXVII of the Companies Act.
  • The government may notify some offences as non-cognisable in certain cases. This move supports the Company Law Committee's report on the decriminalisation of the Limited Liability Partnership Act.

Comment

The MCA will implement the proposed changes under Section 67 of the Limited Liability Partnership Act. The provisions relating to the condonation of delay provided under Section 460 of the Companies Act have applied to LLPs since 30 January 2020 in a similar manner.

While the regulatory authorities' attention is shifting towards LLPs, it is surprising that the LLP structure, which was introduced by the government to relax and ease the process of setting up small businesses, is now pushing the same small enterprises towards a stricter compliance regime. The introduction of various provisions of the Companies Act to LLPs will not only increase the compliance burden but also result in LLPs becoming similar to companies.

Once the MCA provides an effective date for the proposed amendment, the actual manner of extending and implementing the provisions will be clear. The update published on the MCA's website is merely an advance notice of what is proposed to be implemented soon regarding LLPs. The actual implementation may require certain exceptions and modifications.