Why in News?
The Company Law Committee has recommended decriminalizing 12 offences under the Limited Liability Partnership(LLP) Act. It has also said that LLPs should be allowed to issue non-convertible debentures(NCDs) to raise funds. It will help them in improving the ease of doing business for LLP firms.
- Limited Liability Partnership(LLP): It is an alternative corporate business form in which some or all partners (depending on the jurisdiction) have limited liabilities.
- Under this, partners are not responsible or liable for another partner’s misconduct or negligence. This is an important difference from the traditional unlimited partnership in which each partner has joint liability.
- Act: All limited liability partnership in India is governed under the limited liability partnership act of 2008. The Ministry of Corporate Affairs implements the Act.
Recommendations of the committee:
- Decriminalising offences: The committee has recommended decriminalizing several offences related to timely filings, including annual reports and filings on changes in partnership status of the LLP, not related to fraud.
- It is to be noted that none of these offences attracts imprisonment. Instead, these offences attract fines.
- Penalties instead of Fines: Committee recommended the companies should be made to pay penalties instead of fines.
- This is because fines are counted in the criminal charges. It results in a convicted person being disqualified or becoming ineligible for various posts.
- Authority to impose Penalty: The Registrar of Companies should have the authority to levy penalties for any contravention of provisions of the LLP Act.
- LLPs to issue NCDs: LLPs which are currently not allowed to issue debt securities should be allowed to issue non-convertible debentures (NCDs) to facilitate the raising of capital and financing operations. The move is likely to benefit startups and small firms in sectors which require heavy capital investment.
What are Non-convertible debentures(NCDs)?
- Debentures are long-term financial instruments which acknowledge a debt obligation towards the issuer. Some debentures have a feature of convertibility into shares after a certain point of time at the discretion of the owner. The debentures which can’t be converted into shares or equities are called non-convertible debentures (or NCDs).
- NCDs are used as tools to raise long-term funds by companies through a public issue.To compensate for this drawback of non-convertibility, lenders are usually given a higher rate of return compared to convertible debentures.
- Besides, NCDs offer various other benefits to the owner such as high liquidity through stock market listing, tax exemptions at source and safety since they can be issued by companies which have a good credit rating.
Source: Indian Express