LLP Settlement Scheme 2020 Introduced for Defaulting LLP’s

The Ministry of Corporate Affairs on March 4, 2020, announced a remission scheme called LLP Settlement Scheme, 2020 for Limited Liability Partnerships (LLPs). This scheme will offer a one-time settlement scheme for non-compliant LLPs by giving them a chance to submit their pending documents and to get immunity from prosecution for defaults.
In basic terms, it means that the scheme is providing a three-month window from March 16, 2020, to June 13, 2020, to Limited Liability Partnerships (LLP) for completing overdue or delayed filings of the four forms which were due for filing till October 31, 2019. Also, the additional fee on these forms is reduced to Rs. 10 from Rs. 100 per day of delay with an upper cap of Rs. 5,000 per form.

Reasons for Introduction of LLP Settlement Scheme, 2020
The reasons for the introduction of LLP Settlement Scheme, 2020 are as follows:

  • Many of the LLP’s make default in filing the documents. Such LLP’s were charged with an additional amount of Rs. 100 per day as fine till the default continues with no maximum limit. The additional fee is so high that most of the defaulting LLP did not file the required returns and results into non-complaint.
  • ROC records of the LLP is open for inspection by the stakeholders on payment of the prescribed fees, however as the LLP did not file the requisite forms, the records of the LLP are not updated and hence are not available for inspection by the stakeholders.
  • The designated partners in the LLP become liable for criminal prosecution in case the LLP fails to file the document.
  • As several LLP did not file requisite forms viz. Form 3, Form 8, Form 11, Income-tax return with concerned authorities, such defaulting LLP cannot be closed as it is a prerequisite before the LLP goes for liquidation or winding up. For such defaults, the LLP cannot close until the completion of all its compliance.
  • A large number of representations were made from various quarters for waiver of fee or condonation of delay and relaxations in additional fee on the ground of excessive financial burden

About the LLP Settlement Scheme, 2020
The Ministry of Corporate Affairs (MCA), taking into consideration the non- compliance by the LLP’s and for regularization and promotion of good governance policy and ease of doing business has come up with the following initiatives:

  • Applicability of Section 460 of the Companies Act, 2013 on the LLPs vide Section 67 of LLP Act, 2008.
  • Permitting a one-time condonation of delay in filing the statutory documents with the Registrar of Companies (ROC).
  • This scheme shall apply from 16th March, 2020 to 13th June, 2020 including both the dates, which means it shall remain in operation for 90 days’ period. During the given time period, the LLP’s can ensure completion of pending compliance.

Late fee structure as per the LLP Settlement Scheme, 2020

  • Under the proposed LLP Settlement Scheme, 2020, the additional fee has been reduced from Rs. 100 per day to Rs 10 per day for the delay in filing the forms subject to a maximum of Rs. 5000 per form charged separately.
  • Hence the maximum penalty charged for late filing of Form 3, 4, 8 and 11 can only be Rs. 5000 per year charged separately for each form.
  • A cap on the additional fee of Rs 5,000 is applicable per document and not in aggregate. Therefore, if there is a delay of 600 days, then an additional fee at the rate of Rs. 10 per day will be Rs. 6,000 which is more than Rs. 5,000 and hence additional fee will be Rs. 5,000 for such form.

For example: Let’s understand ABC LLP has defaulted in complying in various requirement of filing forms with ROC, the scenario with and without this scheme will be as follows:

Sr. No. Form Particular Due date of filing* Date of Fling Days delayed in filing Amount of Additional Penalty
Without benefit of scheme With the benefit of scheme
1 Form-3 Notice Agreement of Partnership and changes therein 30/04/2019 16/03/2020 321 32,100/- 3,210/-
2 Form-4 Notice of appointment/ cessation/ change in name or address of partner 31/07/2019 16/03/2020 229 22,900/- 2,290/-
3 Form-8 Statement of Accounts and solvency 30/10/2019 16/03/2020 138 13,800/- 1,380/-
4 Form-11 Annual Return 30/05/2019 16/03/2020 291 29,100/- 2,910/-

* All the dates are illusionary for just the sake of understanding.

How can the LLP’S Avail LLP Settlement Scheme, 2020?

  • The defaulting LLP as per this scheme means an LLP as prescribed under the Limited Liability Partnership Act, 2008 which has defaulted in the filing of the documents on the due date as mentioned under the LLP Act, 2008 and rules made thereunder.
  • The defaulting LLP is allowed to file the belated documents, which were due for filing till 31st, October 2019.
  • The defaulting LLP is not required to apply to Registrar of Companies (ROC) to avail this scheme.
  • The defaulting LLP’s as per this scheme can file the documents themselves, which have not been submitted or registered in time on payment of additional fee and statutory fee.

Applicability of the LLP Settlement Scheme, 2020
The LLP scheme, 2020 is applicable only for filing the following delayed documents specified under the Limited Liability Partnership Act, 2020:

  • Form 3- This form relates to information regarding the LLP Agreement. It is applicable in case of a change in details in the LLP Agreement.
  • Form 4- This form discloses the Notice of appointment, cessation, change in name or address of the designated partner.
  • Form 8- This form discloses all the details relating to Accounts and Solvency with the registrar it can be interim as well as annual.
  • Form 11- Every Limited Liability Partnership firm must file an annual return every year.

Non-Applicability of LLP Settlement Scheme, 2020
The LLP Settlement Scheme, 2020 shall not apply to LLP’s that had already made an application in Form 24 of the Limited Liability Partnership Act, 2020 for striking off its name from the register as prescribed in Rule 37(1) of the LLP Rules, 20

Advantage of LLP Settlement Scheme, 2020
The following are the advantages of LLP Settlement Scheme, 2020:

  • Defaulting LLP’s will get the monetary benefit as a large amount of additional fees that used to be charged before is waived through this scheme.
  • The LLP’s in default which has filed their pending forms till June 13, 2020, shall not be subjected to prosecution by the ROC for such defaults.

Immunity from Prosecution under LLP Settlement Scheme, 2020
There is immunity from prosecution with respect to documents filed under the LLP Settlement scheme, 2020. If the defaulting LLPs files all their pending documents till 13th June, 2020, they shall be entitled to immunity from prosecution in respect of the documents or forms they file under this scheme.

Consequences of Not Availing LLP Settlement Scheme, 2020
In case the defaulting LLP does not take the benefit of LLP Settlement Scheme, 2020 then they will have to face the following impacts:

  • The defaulting LLPs will have to file forms with an additional fee as specified in Section 69 of Limited Liability Partnership Act, 2008 that is an amount of Rs. 100 per day of such delay in addition to the fee that is payable.
  • The registrar may initiate prosecution against the defaulting LLPs and its designated partners.

This move of the Government comes in the wake of several LLPs making default in filing of statutory documents and their inability to correct the situation owing to the financial burden arising from the inordinate delays in statutory compliance. Due to the inability to pay late fees, a considerable number of LLP’s have remained non- compliant for a cumulative period of delay. The scheme is introduced as a Government’s objective of providing greater ease of living to the citizens of the country. It is expected that this scheme will provide significant relief and scope of opportunity for LLPs to abide by the law and conduct business accordingly.