The government of India is planning to amend Section 67 of Limited Liability Partnership (LLP) Act 2008 along the lines of The Companies Act.
The main push for this amendment comes after a realisation that the laws governing Indian LLPs are less stringent compared to the laws governing companies. At the moment, LLPs are not bound to comply with the same accounting standards as companies and are not required to get their accounts audited. They have easier compliance rules, simpler regulations and low cost of formation. Any offence in the LLP Act is punishable with only monetary fines. Moreover, the Registrar of Companies (RoC) also does not have the power to inspect their operations. The original idea of the LLP format in India was to help proprietorship firms become part of the organised sector. However, due to these lacunae, it is suspected that thousands of doubtful companies have converted themselves into LLPs simply to carry out illicit activities.
The proposed amendments aim to give more power to the RoC, allow it to inspect the operations of LLPs and make them adhere to accounting standards. The government will be able to review the books of LLPs and track their inflow and outflow of funds. These changes are expected to increase transparency and accountability in the LLP ecosystem in India.
Another significant amendment that is proposed will include provisions for a revival of LLPs. Currently, if an LLP is shut down, authorities cannot inspect its operations. Because there is no fear of scrutiny, people are able to carry out illegal activities under the LLP and then shut it down as per their own convenience. If the amendment passes, LLPs can be revived even after shutdown and their operations and books inspected for suspected wrong-doing.
The fourth major amendment concerns capping the number of LLP partnerships a person can sign up for, similar to the cap on the maximum number of company directorships a person can hold at a time (20). Currently there is no such cap.
These proposed amendments under Section 67 of LLP Act have already been tabled in Rajya Sabha. They were tabled in Lok Sabha on 22nd July. After a stipulated discussions in both houses, the notification from the government regarding these amendments is likely to come in August.
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