New MCA Rules on Significant Beneficial Owners for LLPs

Transparency and Accountability for LLPs: New MCA Rules on Significant Beneficial Owners

In the ever-evolving landscape of corporate governance and regulatory compliance in India, the government has consistently aimed to promote transparency and accountability within the Indian corporate sector. A significant stride in this direction has been the identification of Significant Beneficial Owners (SBOs) in Indian corporates, a pivotal measure aimed at enhancing transparency and ensuring that corporate entities are held accountable for their ownership structures.

While the rules for identifying and reporting SBOs have already been in place for company forms of businesses, the government has now set rules on LLPs.

An SBO is an individual who holds indirect ownership or exercises significant control or influence over a company/LLP, even if they do not appear as direct shareholders/partners on the company’s/LLPs records.

SBOs holds their ownership through multiple layers of ownership or entities, which makes it challenging to ascertain the true beneficial owner.

On November 9, 2023, MCA issued a notification introducing the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023.

It is an additional compliance burden for LLPs, who must now adapt swiftly to meet the new requirements.

This write up will provide an overview of the new rules and discuss the steps that LLPs need to take to comply.

Who is a Significant beneficial Owner?

A significant beneficial owner (SBO) in a reporting limited liability partnership (LLP) is basically an Individual who acting alone or together with one or more persons who satisfies the following conditions-

Note : If an individual does not hold any right or entitlement indirectly, they shall not be considered to be a significant beneficial owner.

An individual shall be considered to hold a right or entitlement indirectly in the LLP, if he satisfies any of the following criteria.

(i). In case Partner of LLP is a Body corporate (Other than a limited liability partnership)

(a) An Individual who holds majority stake or

(b) An Individual who holds majority stake in the ultimate holding company

(ii) In case Partner of LLP is a HUF – An Individual who is a Kartha

(iii) In case Partner of LLP is a Partnership Firm

(a) An Individual who is a Partner

(b) If a partner is body corporate in such partnership firm then the Individual who holds majority stake in that body corporate or in the ultimate holding company of such body corporate.

(iv) In case Partner of LLP is a Trust

(a) An Individual who is a trustee in case of a discretionary trust or a charitable trust;

(b) An Individual who is a beneficiary in case of a specific trust;

(c) An Individual who is the author or settlor in case of a revocable trust.

(v) In case Partner of LLP is a pooled investment vehicle OR An entity controlled by the pooled investment vehicle

(a) An Individual who is a General partner; or

(b) An Individual who is a Investment manager; or

(c) An Individual who is a CEO where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

What are the duties of the LLP’s?

• Identify if there is any individual who is a SBO.
• Give notice to SBO in Form No. LLP BEN-4, seeking information
• Request SBO to make a declaration in Form No. LLP BEN-1.
• Within 30 days of receipt of declaration from SBO, shall file a return in Form No. LLP BEN-2 with ROC.
• Maintain a register of significant beneficial owners in Form No. LLP BEN-3.

What are the duties of SBO?

SBO shall file a declaration in Form No. LLP BEN-1 to the LLP

• At the time of Commencement of these rules – Within 90 days from such commencement.
• Subsequently becomes a SBO, or where SBO undergoes any change – Within thirty days of acquiring such significant beneficial ownership or any change therein.

Note : If an Individual becomes a SBO or any change in SBO within 90 days of these rules coming into effect, they will be considered to have become a significant beneficial owner or made the change on the 90th day. They will then have 30 days to file the required declaration.

MCA also prescribed relevant forms and records as follows.

1. Form No. LLP BEN-1 – Declaration by SBO to the LLP’s
2. Form No. LLP BEN-2 – Return to the ROC
3. Form No. LLP BEN-3 – Register of Significant beneficial owners
4. Form No. LLP BEN-4 – Notice by the LLP’s to SBO.

As the corporate governance and compliance landscape in India continues to evolve, the inclusion of LLPs in the Significant Beneficial Owner framework indicates the government’s commitment to transparency and accountability. It is an obligation on LLPs to adhere to these changes, adapt swiftly, and proactively ensure compliance.