LLPs to report about Significant Beneficial Owner to Registrar of Companies

A Limited Liability Partnership Firm (LLP) will now have to report about Significant Beneficial Owners to the Registrar of Companies within 30 days of the date of declaration made by an individual about holding or acquiring that status.

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The Corporate Affairs Ministry notified the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 with effect from November 10. These include definition and timeline for reporting. The latest move signifies the intent to ascertain the true or “beneficial” owner’s interest in and control over the contributions made by the partners and individuals to the LLP.

An LLP is quintessentially a hybrid between a Limited Liability Company and a Partnership. It has the advantage of being a body corporate, but at the same time, internal governance and inter se relations among partners and LLP are regulated by the LLP Agreement and not by any statutory provisions. It has a partner designated to file compliance with the authorities.

According to the new set of rules, a “Significant Beneficial Owner” in an LLP means an individual who is acting alone or together or through one or more persons or trust, possesses one or more of four rights or entitlements namely (i) holds indirectly or together with any direct holdings, not less than 10 per cent of the contribution; (ii) holds indirectly or together with any direct holdings, not less than 10 percent of voting rights in respect of the management or policy decisions; (iii) has right to receive or participate in not less than 10 per cent of the total distributable profits, or any other distribution, in a financial year through indirect holdings alone or together with any direct holdings and (iv) has right to exercise or actually exercises, significant influence or control, in any manner other than through direct-holdings alone.

Every reporting LLP will be required to take necessary steps to find out if there is any individual who is a significant beneficial owner in its structure. Such an individual is required to give a declaration in Form No. LLP BEN-1 to the reporting LLP within 90 days from the commencement of new rules i.e., November 10. Once received, the firm will be required to submit the information to the Registrar of Companies within 30 days from the receipt of the declaration.

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The individual will also be required to inform the firm about any change in her/his status as a Significant Beneficial Owner to the LLP firm within 30 days of the change. At the same time, partners, other than individuals with holding of 10 per cent or more in total contribution and voting rights and a right to receive 10 per cent or more of dividends, will also be required to file a form (LLP BEN-4).

In case an individual not giving information about significant beneficial owners, then the LLP can approach a Tribunal. The LLP can pray for restrictions on the transfer of interest, suspension of the right to receive profits or voting rights in relation to the contribution in question, and any other restriction on all or any of the rights attached to the contribution in question.

The notification said that new rules would not be applicable to the extent of the contribution of the reporting limited liability partnership held by the government or government-controlled entity. These will also not be applicable on mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) or an investment vehicle regulated by the Reserve Bank of India, or the Insurance Regulatory and Development Authority of India, or the Pension Fund Regulatory and Development Authority.