Over 1.4 lakh firms registered as Limited Liability Partnerships (LLPs) will now be open for inspection by the Ministry of Corporate Affairs (MCA), officials close to the development said.
A notification in this regard is likely to be issued as early as next week, as it gets the nod from Parliament, they said.
A blend between a company and a partnership, LLPs have become a very popular form of corporate structure having limited liability for its partners like a company and tax benefits of a partnership firm. The government is extending the provisions of Section 206 of the Companies Act, 2013 to the LLP Act, 2008. It provides for powers to call for information, inspect books and conduct inquiries.
Under the section, the central government may, if it is satisfied that the circumstances so warrant, direct inspection of books and papers of a company by an inspector appointed by it for the purpose. The MCA had identified this gap in enforcement more than a year ago when it faced governance issues with respect to LLPs.
“If the ministry were to inspect, the inspector couldn’t go there and call for documents. The gap which existed is being corrected now,” an official said. Even as the change is in the nature of an amendment, it doesn’t require the government to bring in an amendment Bill. The LLP Act provides for extending any of the provisions of the Companies Act to the LLP Act through a notification.
The notification has to be laid in the Parliament for a certain period for the consideration of Members of Parliament (MPs) and in case they don’t recommend any change it is deemed to have been passed. The notification was laid before Lok Sabha and Rajya Sabha during the Budget session. Recently, it was sent back to the ministry, which will now implement it.
The ministry has received several complaints against the LLPs. “If the Registrar of Companies feels there is a case to inspect any of these LLPs, then the ministry will permit inspection of the records of these firms,” the official said. Recently, a fraud involving Bengaluru-based jewellery firm IMA Jewels came to light in which the promoter fled after duping thousands of investors.
The ministry could not act against the LLP as it did not have any powers to probe the case. As per the latest data available with the MCA, a total number of 1.4 lakh LLPs are active in the country. Of this, the services sector accounts for 1.07 lakh LLPs, followed by industry and agriculture sectors accounting for 29,959 and 2,599, respectively.
According to economic activity-wise classification, a large number of LLPs are in business services (56,274) followed by trading (19,049), manufacturing (16,208) and real estate and renting (13,967). The LLP Act was introduced in 2008, allowing for setting up of LLP firms. Since then, the LLPs have become a preferred form of organisation among entrepreneurs as it incorporates the benefits of both partnership firm and company into a single form of organisation.