Decriminalisation of offences under LLP Act

Decriminalisation of offences under LLP Act

The company law committee recommended decriminalizing 12 offenses under the Limited Liability Partnership (LLP) Act to help in improving the ease of doing business for LLP firms.

About Limited Liability Partnership (LLP)

It is an alternative corporate business form in which some or all partners (depending on the jurisdiction) have limited liabilities. It exists mainly in common law jurisdictions, and is similar to a general partnership, in that the partners are jointly and severally liable for any breach of duty by any one partner.

Under this, partners are 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 liability.

Recommendations of the committee:

The committee has recommended decriminalizing several offences related to timely filings, including annual reports and filings on changes in partnership status of the LLP, not related to fraud.

The Committee recommended that those companies who commit any violations of the Consumer Protection Act, be made to pay penalties instead of fines.

The Registrar of Companies should have the authority to impose penalties for any contravention of provisions of the LLP Act.

The standing committee on finance has recommended that Limited Liability Partnerships (LLPs) which are currently not allowed to issue debt securities should be allowed to issue non-convertible debentures (NCDs) to facilitate the raising of capital and financing operations.

What are Non-convertible debentures (NCDs)

Debentures are long-term financial instruments that acknowledge a debt obligation towards the issuer. Debentures are generally used for raising capital by companies in the form of shares.

Some debentures have a feature of convertibility into shares after a certain point of time at the discretion of the owner while some debentures have this particular feature disabled by default. The debenture which can’t be converted into shares or equities is called non-convertible debentures (or NCDs).

Non-convertible debentures are long-term instruments that are issued in public issues by companies, with the main intention of raising capital from investors. Usually referred to as fixed-rate bonds, these instruments do not have any provision for conversion to equity shares of the issuer company.