With the approval of the LLP (AMENDMENT) Bill, 2021, the concept of small LLP has started to gain some hype. The very idea behind introducing the same in the Bill was to give some relief rather than weighing down the LLPs by the burden of penalties in cases of default. After all, no matter what, penalties do act as a deterrent in performance.
The concept has been defined in clause (ta) under section 2. The same reads as “Small LLP means a limited liability partnership-
(i) the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, as may be prescribed; and
(ii) the turnover of which as per the Statement of Accounts and Solvency for the immediately preceeding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed; or
(iii) which meets such other requirements as may be prescribed,
and fulfils such terms and conditions as may be prescribed”.
No wonder it is a welcome move and setting up such thresholds would encourage more and more people to form LLPs.
However, what truly encourages one into buying the idea of small LLPs is the benefits that one might reap on account of the “Small LLP” status. Had the Act been indifferent towards the same then it would have defeated the very purpose of introducing such a concept. The purpose that such status serves can be understood by referring to the second proviso of clause (a) of subsection (3) under newly inserted section 76A. The proviso reads as “notwithstanding anything contained in this Act, if the penalty is payable for non-compliance of any of the provisions of this Act by a small limited liability partnership or a start-up limited liability partnership or by its partner or designated partner or any other person in respect of such limited liability partnership, then such limited liability partnership or it’s partner or designated partner or any other person, shall be liable to a penalty which shall be one-half of the penalty specified in such provisions subject to a maximum of one lakh rupees for limited liability partnership and fifty thousand rupees for every partner or designated partner or any other person, as the case may be.“
| Person | Min Penalty | Max Penalty |
| Small LLP/ Start-up LLP | ½ of the penalty stated in respective provisions | Rs.1,00,000 |
| Partner/ Designated Partner | ½ of the penalty stated in respective provisions | Rs.50,000 each |
| Any other person in relation to Small LLP/ Start-up LLP | ½ of the penalty stated in respective provisions | Rs.50,000 each |
In accordance with the Explanation to the above proviso, start-up LLP means an LLP incorporated under the Act and recognized as such in accordance with the notifications issued by the CG from time to time. Apparently, if you are a Small LLP, you get to benefit in the event of non-compliance since you will be made subject to a lower penalty (half of what is charged from other LLPs, partners, or any other person in respect thereof). The emphasis is on reducing the harshness in order to encourage the incorporation of more and more LLPs and to ensure that this form gains momentum amongst the startups.
Thus, Small LLP is a status that ensures preferential treatment in terms of penalty.
