An LLP is a Limited Liability Partnership, wherein a partner’s liability to the extent to which it is defined in the partnership deed. Here a partner cannot be held liable for another’s misconduct or negligence.
Now the Government is in the process of identifying and deregistering inactive LLP firms. The Registrar of Companies is engaged in cancelling the inactive LLPs from its registers. With a view to curb black money generation through shell companies over 3 lac shell companies were identified out of which registration of 1,75,000 firms stands cancelled. In a similar fashion, it is doubted that inactive LLPs could be used for tax evasion and money laundering. Further:
- The proposal for converting existing companies into LLPs and creating new LLPs came into force after Companies Act 2013, which came into effect in April 2014, to get over the higher compliance requirements.
- This led to conversion of around 6000 odd companies in to LLPs as on June 2017.
- On an average 2500 to 3000 LLPs get registered every month as per the latest report.
- The active LLPs as on June 2017 is said to be 94,000.
- During the last one year the Government has seen a steep rise in the LLPs growth which was 3,500 and odd in March 2017 alone.
- The April-June 2017 quarter has accounted for around 8,000 new LLPs being registered.
REASONS FOR ALARMING GROWTH OF LLPs
- Demonetization of high value currency in November last year, has given a push to the growth of LLPs.
- The increase is attributed to the fact that Government approval is not required for conversion of certain companies into LLPs.
- The regulatory compliance under LLP structure is said to be minimal.
- An LLP in an year should file only one annual return and a statement of account and solvency and all other filings like retirement, resignation of partners etc., are all event based (meaning should be intimated only when it actually happens).
- Foreign Direct investment norms for an LLP has been liberalized by Government and RBI during the last two years.
- An RBI amendment made recently has allowed LLPs to avail of External Commercial Borrowing (ECB) including masala bonds and more part of Foreign Direct Investment is foreseen in the days to come.