Center for reducing penalties for startups created as LLP

NEW DELHI : The government is preparing to announce a 50% reduction in sentences for nearly a dozen offenses committed by startups incorporated as limited liability companies (LLP), said an official familiar with the evolution of the law. situation.

Violations include failure to comply with filing requirements for statutory documents and declarations, appointing a designated partner responsible for all compliance and having at least one resident partner for the LLP, said the official cited above. above on condition of anonymity.

The Department of Corporate Affairs will notify the requirements of LLP startups to benefit from this relief. One of them is that the startup must be recognized as such by the Directorate of Promotion and Internal Trade (DPIIT), said the person mentioned above.

“This relief should encourage small unincorporated businesses to adopt the LLP form and become part of the formal economy,” the official said.

An email to the ministry secretary and spokesperson went unanswered until going to press.

Most of India’s over 60 million micro, small and medium enterprises are unincorporated. The reduced penalty is available to the entity and partners, including the named partner and others who are required to pay the penalty.

Other offenses for which the reduced sentence would apply include failure to report changes of partners in an LLP, timely filling the vacant position of a designated partner, maintaining a registered office, informing authorities about changes of address and disclosing company details in official communications.

Since these are procedural and technical shortcomings and do not show any intention to defraud the public, an internal administrative system will be available to deal with them. DPIIT defines a startup as a company with less than ??100 crore in sales, which should be aimed at innovation and improvement of products and services and should have the potential to generate jobs.

The startup tag is only available for the first 10 years of a business’s existence.

The amendment to the LLP Act passed by Parliament in the last monsoon session decriminalized procedural offenses as part of efforts to improve the ease of doing business.

Experts said that more flexibility could be given to LLPs to raise capital.

In addition to decriminalizing infringements, LLPs are now allowed to issue non-convertible bonds, which is a welcome step towards fundraising and raising capital, said Divakar Vijayasarathy, Founder and Managing Partner of DVS Advisors LLP. , a consultant.

“The government should now further consider authorizing external commercial borrowing for LLPs in consultation with the Reserve Bank of India. It would be a great move, considering that non-resident investors prefer both stocks and debt for investment purposes, ”said Vijayasarathy.

LPs are gaining more and more popularity as the preferred form of business start-up due to the flexibility offered by this form and the simplicity of its compliance regime.

These only require an audit if their partner’s contribution is greater than ??25 lakh or when annual sales exceed ??40 lakh.

According to official data from the Ministry of Corporate Affairs, more than 4,000 LLPs are formed each month. There are currently approximately 215,000 LLPs in the country.

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