The corporation law committee (CLC) set up by the ministry of corporate affairs has recommended enabling LLPs to challenge debt securities, a step that would open doors for such entities to raise loans from Alternate Investment Funds (AIFs) and would strengthen investment possibilities for “capital deficient” sectors like true estate and infrastructure.
The CLC, which was set up in September 2019, also advisable creation of a new class of restricted liability partnerships (LLPs) — little LLP — to market the ease of performing organization, in particular in the MSME sector.
On enabling LLPs to challenge non-convertible debentures (NCDs), the panel stated AIFs can invest in LLPs only by way of capital contribution, which is in nature of a pure equity interest. The inability of LLPs to challenge NCDs, at par with providers, poses as a main impediment in their organization operations, in particular in sectors like true estate and infrastructure, which are capital deficient. It thus emphasised enabling LLPs to challenge NCDs to make them “more lucrative” for the debt industry.
Currently, LLPs can only contract loans or raise dollars by way of capital contribution.
AMRG & Associates CEO Gaurav Mohan stated, “This new insertion will allow AIFs to invest in real estate and infrastructure special purpose vehicles (SPVs), which are invariably structured into LLPs due to the ease of administration. These NCDs can only be issued by LLPs to entities regulated by the RBI or Sebi to safeguard against the misuse of these instruments.”
On the rationale behind producing little LLPs, the CLC stated this is to develop a class of LLP which is topic to lesser compliance needs, lesser charge or further charge, so as to lessen the expense of compliance and additional to topic such class of LLPs to lesser penalties in the occasion of a default as has been completed in the case of firms below the Companies Act, 2013.
Nangia & Co companion Nischal Arora stated the panel has defined a little LLP as a restricted liability partnership in which contribution of partners does not exceed `25 lakh and turnover does not exceed Rs 40 lakh.
“This encourages small entrepreneurs to conduct their businesses through a legally set up entity instead of running them as proprietorship/ unregistered partnership. The government would also hope that this move will encourage the large unorganised sector into its fold,” he added.
Overall, the higher-level panel advisable decriminalisation of 12 compoundable offences and omission of a single penal provision in the LLP Act. It did not recommend any modify in the significant non-compoundable offences. The committee submitted its report final week.
The 11-member committee, chaired by MCA secretary Rajesh Verma, involves Uday Kotak, Shardul Shroff and Ajay Bahl, amongst other folks. It was set up to present ideas to decriminalise specific compoundable offences in the LLP Act, 2008, and market ease of performing organization.