File Your Income Tax Return Before 31st July 2024.
Limited Liability Partnerships (LLPs) have been a popular form of business organization in India due to their flexibility in operation and reduced compliance burden. The government has been taking steps to make the LLP framework more transparent and efficient, and recently introduced the LLP (Amendment) Rules, 2022. These amendments aim to simplify the processes and enhance the accountability of LLPs. In this article, we will discuss the key changes introduced in the LLP (Amendments) Rules 2022.
Quick Look
The LLP Act, 2008, governs the functioning of LLPs in India. However, with changing times, the Act needs to be amended to align with the changing business needs and regulatory requirements.
In this context, the Ministry of Corporate Affairs (MCA) has introduced the LLP (Amendments) Rules, 2022, which came into effect from April 1, 2022. These rules aim to simplify the process of incorporating and managing LLPs, increase transparency, and promote ease of doing business.
We will discuss more about this Amendment, in great detail, however let us discuss first about Limited Liability Partnership, so that we could have better understanding in understanding the Amendment so made.
What is Limited Liability Partnership (LLP)?
LLP is a whole new concept in the world of businesses. Section 3 of the Limited Liability Partnership Act, 2008 defines LLP as a body corporate formed and incorporated under this Act and is a legal entity that is separate from that of its partners. In Simple Language it can be understood as an amalgamation of a company and partnership due to its business model which allows the organisation to reap the benefits of limited liability to the partners. This form of organisation is suitable for the small and medium-size businesses.
Composition of a Limited Liability Partnership
To form a limited liability partnership, it is mandatory to have at least two people with no limitation to the maximum number of people. The following can be involved as partners:
- Individuals
- Limited Liability Partnerships
- Companies
- Foreign Limited Liability Partnerships
- Foreign Companies
One of the partners mandatorily needs to be a resident in India.
Limited Liability Partnership (Amendment) Rules 2022
The Ministry of Corporate Affairs (MCA) issued the Limited Liability Partnership (Amendment) Rules, 2022 in a Notification dated 11th February 2022, by updating the Limited Liability Partnership Rules, 2009. On April 1, 2022, the LLP (Amendment) Regulations, 2022 will take effect.
Section 17 (3) introduces new requirements for the assignment of a new name to an existing LLP, penalty adjudication, and appeal against the judgment of the adjudicating officer, registration of the appeal, and disposal of the appeal by the Regional Director. Also, two new forms, Form 16A and Form 33 CG, as well as revised LLP fee criteria, were released.
The rules are as follows:
- There can be 5 Designated Partners
- FiLLiP form is now web-based like SPICe+
- PAN, TAN get allotted along with the Certificate of Incorporation
- All LLP forms are now web-based
- Form-8 will also include disclosures concerning Contingent Liability.
- Statements of Account and Solvency should be signed on behalf of the LLP by an Interim Resolution Professional (IRP). This applies when Corporate Insolvency Resolution Process (CIRP) has been initiated against LLP under IBC Act, 2016 or LLP Act, 2008.
Key Amendments to the Limited Liability Partnership (Amendment) Rules, 2022
The Key amendments to the rules consist of the following:
- Conversion of LLP into a company: One of the significant amendments introduced is the conversion of LLPs into companies. Under the new rules, LLPs can be converted into companies by following a specific procedure, which involves obtaining approval from the Registrar of Companies (RoC) and complying with various other requirements. This will provide more flexibility to the business owners in choosing the type of business entity that suits their needs.
- Filing of Form 11: The LLP (Amendment) Rules, 2022 have made it mandatory for all LLPs to file Form 11, which is an annual return, with the RoC. The form includes information about the partners, capital contribution, and changes in the management structure of the LLP. The filing of Form 11 will enable the government to maintain a comprehensive database of LLPs and ensure their compliance with various regulatory requirements.
- Resignation of partners: The new rules have also simplified the process for the resignation of partners from an LLP. The partner who intends to resign can now give notice to the LLP and other partners, specifying the effective date of resignation. The LLP is required to file Form 4 with the RoC within 30 days of receiving the notice of resignation. This will provide more clarity and transparency in the process of partner resignation.
- Penalties for non-compliance: The LLP (Amendment) Rules, 2022 have introduced penalties for non-compliance with various regulatory requirements. The penalties range from Rs. 50,000 to Rs. 5 lakhs, depending on the nature and severity of the non-compliance. This will encourage LLPs to comply with the regulations and promote greater transparency and accountability in their operations.
- Reduction in the mandatory Contribution of Partners: Previously, the minimum contribution required to form an LLP was Rs. 1 lakh. The amended rules have reduced the minimum contribution to Rs. 10,000, making it easier for small businesses and startups to register LLPs.
- Filing of Annual Returns: LLPs are required to file annual returns with the Registrar of Companies (RoC) every year. The amended rules have made it mandatory for LLPs to file their annual returns within 60 days from the end of the financial year, instead of the earlier deadline of 90 days.
- Introduction of Small LLP: The amendments have introduced the concept of “Small LLP,” which is defined as an LLP with a turnover of up to Rs. 40 lakh and a capital contribution of up to Rs. 25 lakh. Small LLPs are exempt from several compliances, such as the requirement of mandatory audit, preparation of cash flow statements, and appointment of an auditor.
- Digital Signatures for Filings: The amended rules have made it mandatory for all designated partners to obtain a digital signature certificate (DSC) for filing documents with the RoC. The use of DSCs will ensure authenticity, security, and reliability of documents.
- Introduction of LLP Settlement Scheme: The MCA has introduced the LLP Settlement Scheme, which aims to provide a one-time opportunity for LLPs that have defaulted in filing their statutory documents to regularize their compliance by paying a reduced penalty.
- Removal of requirement of minimum two Designated Partners: Earlier, the Act required LLPs to have at least two designated partners. The amended rules have removed this requirement, allowing LLPs to have only one designated partner.
- Filing of Form 8 for LLP closure: LLPs that wish to wind up their operations are required to file Form 24 with the RoC. The amended rules have made it mandatory for LLPs to file Form 8 along with Form 24 for the closure of LLP.
Adjudication of LLP Penalties under new Limited Liability Partnership (Amendment) Rules, 2022
The following are the adjudication of LLP Penalties:
- Rule 37A: Adjudication of penalties: 37A provides for the adjudication of LLP penalties. Any officer can be appointed by the Central government not below the rank of Registrar as adjudicating officers for adjudicating penalty under the LLP Act. An order could be passed by the adjudicating officer of penalty against an LLP after sending notice and hearing the concerned person of the LLP.
- Rule 37B: Appeal against order of adjudicating officer: An appeal can be filed by LLP within 60 days of passing the order by the adjudicating officer in form 33 LLP.
- Rule 37C: Registration of appeal: This rule states the regional director’s office will register the appeal and give a serial number when it is in order. The regional director will also notify the adjudicating director against whose order an appeal is filed.
- Rule 37D: The Disposal of appeal by the Regional Director: Under this rule the parties will be heard by the adjudicating officer and pass an order in writing. The order passed by the regional director will be communicated to the adjudicating officer, the appellant and the Central Government.
Amendments in the Fees for LLPs under new Limited Liability Partnership (Amendment) Rules, 2022
The LLP (Amendment) Rules, 2022 consist of following amendment regarding Fees applicable:
- Fees Applicable for LLP Registration
Charges for registering a Limited Liability Partnership also for converting a business or a private company, or an unlisted public company into a Limited Liability Partnership is stated in the (Amendment) Rules, 2022
| Serial No | LLP Contribution | Fees Applicable |
| 1 | Limited Liability Partnerships (LLPs) with a contribution of less than Rs. 1 lakh. | Rs 500 |
| 2 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 1 lakh but less than Rs. 5 lakhs | Rs. 2000 |
| 3 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 5 lakhs but less than Rs. 10 lakhs | Rs 4,000 |
| 4 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 10 lakhs but less than Rs. 25 lakhs | Rs 5000 |
| 5 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 25 lakhs but less than Rs. 1 crore | Rs 10000 |
| 6 | Limited Liability Partnerships with a donation of more than one crore rupees | Rs 25000 |
Fees that is Applicable for filing LLP Forms
Fees that is applicable for filing, registering, or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return, and application for conversion of a firm, a private company, or an unlisted public company into an LLP required or authorised to be filed, registered, or recorded by the Act or by these rules.
| Serial No | LLP Contribution | Fees Applicable |
| 1 | Limited Liability Partnerships (LLPs) with a contribution of less than Rs. 1 lakh | Rs 50 |
| 2 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 1 lakh but less than Rs. 5 lakhs | Rs 100 |
| 3 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 5 lakhs but less than Rs. 10 lakhs | Rs 150 |
| 4 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 10 lakhs but less than Rs. 25 lakhs | Rs 200 |
| 5 | Limited Liability Partnership (LLP) with a contribution of more than Rs. 25 lakhs but less than Rs. 1 crore | Rs 400 |
| 6 | Limited Liability Partnerships with a donation of more than one crore rupees | Rs 600 |
Conclusion
The LLP (Amendments) Rules, 2022 have introduced certain important changes in the incorporation, management, and winding up of LLPs. These changes are aimed at promoting ease of doing business and improving corporate governance in LLPs. It is important for existing and prospective LLPs to be aware of these changes and comply with the requirements under the amended rules. The amendments are expected to further boost the popularity of LLPs as a business structure in India.
