Introduction: The Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023, mark a significant update in the regulatory landscape for Limited Liability Partnerships (LLPs) in India. Effective from November 9, 2023, these rules introduce the concept of Significant Beneficial Owners (SBOs) to LLPs, a concept that closely mirrors Section 90 of the Companies Act, 2013. This legislation aims to enhance transparency and accountability in the ownership and control structures of LLPs. In this article, we delve into the intricacies of these rules, their implications for LLPs, and practical considerations for compliance.
The titled topic is covered under the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023, which came into effect from 09th November 2023 and applicable to any Limited Liability Partnership (“LLP”). This concept is to large extent similar to that of Section 90 of Companies Act, 2013.
Significant Beneficial Owner (“SBO”) with respect to a reporting LLP means an individual who either by himself or together or through one or more persons or trust, satisfies either one or more of the following rights or entitlements in such reporting LLP:-
(i) holds indirectly* or together with any direct holdings** contribution of not less than 10%;
(ii) holds indirectly or together with any direct holdings voting rights in respect of the management or policy decisions in such LLP not less than 10%;
(iii) has right to receive or participate in total distributable profits or any other distribution, in a financial year through indirect holdings alone or together with any direct holdings not less than 10%;
(iv) has right to exercise or actually exercises, significant influence or control, in any manner other than through direct holdings alone:
*Indirect holding: An individual is considered to be holding SBO indirectly if he/she satisfies any one of the following criteria.
| If partner of the reporting LLP is- | Individual SBO will be one who |
| 1. Body Corporate other than LLP | – Holds majority stake1 or
– Holds majority stake in Ultimate Holding Company |
| 2. Hindu Undivided Family (HUF) | – Karta |
| 3. Partnership Entity (Through itself or partner) | – Is a Partner; or
– Holds majority stake in body corporate which is partner of that partnership entity; or – Holds majority stake in ultimate holding company of the body corporate which is partner of that partnership entity |
| 4. Trust (Through trustee) | – A trustee in case of discretionary trust or charitable trust; or
– Beneficiary in case of specific trust; or – Author or settler in case of revocable trust; |
| 5. Pooled Investment Vehicle (PIV) or Entity controlled by PIV | – General Partner; or
– Investment Manager; or – Chief Executive Officer (CEO) where PIV is body corporate/partnership entity |
** Direct Holding: Means when contribution in the LLP is directly held by individual or beneficial interest is held by individual as per Rule 22B (2) of Limited Liability Partnership Rules, 2009 (i.e “Beneficial Partner”) for which proper declaration is made by such beneficiary.
ILLUSTRATIONS FOR SBO:
REPORTING OF SBO: If any individual satisfies the criteria as mentioned above then he/she shall give declaration in Form LLP BEN-1 within 30 days of acquiring such SBO or any change thereof.
On receipt of declaration in Form LLP BEN-1 from SBO, the reporting LLP shall file Form LLP BEN-2 with the Registrar within 30 days of receipt of such declaration.
The Reporting LLP shall maintain register of SBO in Form LLP BEN-3.
Conclusion: The introduction of the Significant Beneficial Owners Rules for LLPs in 2023 is a pivotal development in corporate governance and transparency in India. LLPs and their stakeholders must carefully assess their structures and relationships to identify SBOs accurately and ensure timely compliance with the new regulations. This includes understanding the nuances of direct and indirect holdings and fulfilling the requisite reporting and documentation requirements. Adherence to these rules is not only a legal mandate but also a step towards fostering a more transparent and accountable corporate environment in India.
Note:
1 Majority Stake means holding more than one-half of either, equity share capital in body corporate or contribution in partnership entity or voting rights in body corporate or right to receive/participate in distributable dividend/ profit by body corporate or partnership entity.
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For further queries or detailed guidance, stakeholders are encouraged to consult with legal professionals or corporate secretaries specializing in corporate law and LLP regulations.
Author: CS Deepa, Company Secretary. For any further queries reach me at csdeepa.comsec@outlook.com
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