LLPs may be regulated on lines of Companies Act

Source: DNA dated 02.08.2019

Brajesh Kumar
Act to be amended to cap number of partners, authorise RoC to inspect partnerships

Mumbai: After a crackdown on shell companies, the government’s new focus will be Limited Liability Partnerships, or LLPs.

Sources aware of the development, said, “The government is amending Section 67 of LLPs Act 2008.”

Under the amendment, the government can impose sections of Companies Act 2013 on LLPs in the public interest. Many provisions like capping the number of partners, authorising Registrar of Companies for inspection and implementation of Accounting Standards will be applied to LLPs also.

The major amendment will be capping the number of partnerships in an LLP, where there is no cap currently. Under Section 165 of Companies Act, the maximum number of directorships a person can hold at a time is 20.

The other Companies Act provision that will be mandatory for compliance is giving more power to RoCs to inquire and inspect LLPs. Currently, RoCs have the power to inspect companies, but not LLPs. By increasing the rights of RoCs, the government will be able to take action against entities which are taking the shield of LLPs Act and hiding their business activities.

One more significant provision will be opening the way for the revival of LLPs.

Unlike companies, LLPs cannot be revived currently, so if someone does nefarious activities and closes the LLP, the government had no right to revive it and go behind it. After the amendment is notified, such LLPs can be revived.

The fourth major amendment is the application of Accounting Standards on LLPs. Currently, it is applicable mainly to companies. With the application of Accounting Standards, the books of LLPs will become more transparent and will be standardised. The government will be able to go through the books and track inflow and outflow of funds.

Compared to companies, LLPs have easier compliance rules. It is suspected that thousands of doubtful companies converted themselves into LLPs for the same reason and can also mask themselves. The original idea of LLP format was to help proprietorship firms become part of the organised sector.A senior corporate lawyer said, “Given the tax terrorism, which has threatened the business community, anything that gives more power of investigation may not go well with India Inc. The government’s intention may be right, but the timing is certainly wrong.”