Black money drive: Govt to weed out dormant LLPs

Black money drive: Govt to weed out dormant LLPs

After cracking its whip on suspected shell companies, the government has turned its focus on the growing number of Limited Liability Partnership (LLPs) firms.

In suchapartnership, partners can´t be held liable for another´s misconduct or negligence.

As a first step, the government is in the process of identifying and deregistering inactive LLP firms.

“The Registrar of Companies (RoC) is onaspree to strike off inactive LLPs from its register,” says Vikas Gupta, partner, Nangia &Co.

The government has been onadrive against generation of black money and money laundering through use of shell companies.

In his Independence Day speech, Prime Minister Narendra Modi said that the government had identified over 300,000 shell companies and registrations of 175,000 such firms had been cancelled.

Experts point out, just like shell companies, inactive LLPs could be used for tax evasion and money laundering.

The trend of converting existing companies into LLPs and creation of new LLPs spiked after the Companies Act, 2013, came into effect in April 2014, seemingly to tide over the higher compliance requirements.

Around 6,000odd companies converted themselves into the LLP structure as of June 2017 over the last twothree years.

Corporate lawyers say that on an average, 2,5003,000 LLPs get registered every month.

According to the data from the ministry of corporate affairs (MCA), there were 94,304 active LLPs as of June 2017.

What has caught the attention of the government is the steady rise in the number of LLPs in the last one year, peaking at 3,518 in March 2017. In the three months from April to June 2017, 8,019 new LLPs got registered, according to the MCA data.

Many legal experts feel that the demonetisation of highvalue currency notes in November last year gaveafillip to LLPs.

The rise in the number of LLPs could also have been fuelled by the fact that obtaining government approval is notarequirement to convert certain companies into LLPs.

The minimal compliance and regulatory requirements under the LLP structure may have caught the fancy of business owners.

On  a yearly basis, an LLP is only required to file an annual return, andastatement of account and solvency.

All other filings are eventbased, triggered by any change in LLP partners, retirement, resignation and change of address, among others.

Over the past two years, the government and the Reserve Bank of India have also liberalised norms for allowing foreign direct investment in LLPs, while allowing the appointment of foreign partners.

A recent RBI amendment allowed LLPs to avail of external commercial borrowing (ECB), including masala bonds.

Going forward, legal experts expect LLPs to attractagreater slice of foreign direct investment.

The Business Standard, New Delhi, 18th August 2017