Are you considering incorporating an LLP in India? If so, it’s a good idea to keep yourself abreast of the various offences and penalties outlined under the LLP Act of 2008. Keep reading to know more!
In India, upwards of 7,200 start-ups came up just in the year 2018. This big number is enough to justify the reason for growing LLP companies and their registrations. In fact, even before 2018, there was an increase of 55% in LLP registration. This is because a major chunk of start-ups choose to go for Limited Liability Partnerships because of the benefits it renders to small-scale businesses. Learn more about the Limited Liability Partnership Act.
What exactly Is an LLP?
Limited Liability Partnership (LLP) is a legal term that was defined by the Limited Liability Partnership Act of 2008. According to the definition, an LLP is a partnership in which the participants have limited liability. Internally, the partners have the freedom and flexibility to arrange themselves and their businesses however they see fit. One of the key advantages is that the Partners are not liable for each other’s actions and misconduct.
Features and Benefits of LLP
- There is no concept of minimum capital contribution.
- Partners and LLP are two separate elements and are even treated as separate entities legally.
- The benefits and features of LLP can be used by any start-up or organization without being restricted to a particular class of professionals.
- The LLP can easily be formed and has low costs.
- The partners of the company are not responsible for each other’s actions.
- As compared to other types of companies and businesses, LLPs have limited and fewer restrictions.
Disadvantages of LLP
- The only disadvantage is that equity cannot be raised through LLPs, Limited Liability Partnership Act.
- In addition, investors and larger ventures partner with huge corporations and Pvt. Ltd. companies, but this does not happen with LLPs.
Difference Between Limited Liability Partnerships, Traditional Partnership Firms, and Companies
There are no limitations on the number of partners in a Limited Liability Partnership, and they are also not responsible for each other’s misdeeds. Additionally, unlike companies, it can also be said that there are fewer regulations, compliance requirements and restrictions in an Limited Liability Partnership Act.
In a Traditional Partnership, however, the partners are fully responsible for each other’s actions. And, in the case of managing a corporation, some several laws and regulations must be adhered to by all members. As a result, for those who are new to the area and business, the LLP model is becoming a better route.
Penalties Under the LLP Act
As flexible as the LLP act seems, there are still some cases where the individuals and the organizations, if found guilty of misusing or disregarding the rules of the LLP Act, will be held liable for punishments and fines.
Some of the offences under the LLP Act can be
- Not keeping up to the rules and agreements made under this act.
- Using the words ‘LLP’ or ‘Limited Liability Partnership’ in improper ways.
- Punishable in the case of the Contravention of designated partners, Liabilities of Designated Partners and changing the names of the designated partners.
Any person found guilty of the above-mentioned offences or others will be punishable under Section 74 of general penalties made under the LLP Act, 2008.
General penalties have been defined and described in the LLP Act under Section 74, for those offences which are general in nature, and not particularly mentioned under the act. The LLP Act, Section 74, is purely monetary in nature. Individuals found guilty under this Act are subject to a fine ranging from ₹ 10,000 to ₹ 5,000, depending on the nature of the offence and sentence. If the defaults continue, a fee of ₹ 50 will be levied each day. As a result, the penalties imposed under Section 74 of the LLP Act are strictly monetary.
If any false documents in the name of the company or individuals are knowingly submitted, including return statement, or incorporation of the LLP, the individual may be liable and guilty for the following punishments:
- Imprisonment of up to two years.
- A fine that may extend up to ₹ five lacs and a minimum of ₹ one lakh.
All of the offences will be compounded by the Registrar. More precisely, all the applications of the offence will be compounded and submitted in Form-31.
As such, there are no major offences or punishments prescribed under the Limited Liability Partnership. In fact, they can easily be incorporated by following certain conditions, following which you are good to go.
Conclusion
India ranks third in the world in terms of start-up growth. With over 50% growth in the sector, it is the Golden Time for all new firms and companies. This is to develop and sink their feet into the competition. Also, with the introduction of the Limited Liability Partnership Act, 2008, it has become even easier for all the young minds to get started on what they’ve dreamed of. That too, without having to worry about submitting taxes, audits or meeting minimum capital requirements in order to get their firm up and operating.
All that is required from your end is the will! The experts at Vakilsearch will take care of the rest.
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