A Step Limpid Towards The LLPs

Posted On - 24 December, 2023 • By - King Stubb & Kasiva

The MCA has notified the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 on 9th November 2023[1] in its power to make delegated legislation under Section 79 of the LLP Act, 2008[2]. The main highlight of these rules is the mandate requiring LLPs to identify and report details of the Significant Beneficial Owner (“SBO”) to the MCA. By this time, only the companies were subject to notify their Significant Beneficial Owners under Section 89(1) and 90 of the Companies Act.

The rules define SBO which are required to be reported. Rule 3(k) provides that anyone

  1. Directly or indirectly, individually or together holds not less than 10% of the contribution
  2. Directly or indirectly, individually or together holds not less than 10% voting rights in respect of the management or policy decisions in such LLP.
  3. Has the right to participate in at least 10% of total distributable profits or any other distribution.
  4. Has right to exercise or exercises significant influence or control.

A major drawback in the definition of SBO is the interpretative lacuna in the 4th criteria. The 4th criteria differs from the other criteria as it has no quantifiable value. This will lead to interpretative litigations.

The LLPs identify the SBO and make them declare their ownership in Form No. LLP BEN-1. After receiving the information, the LLP have to file them in Form No. LLP BEN – 2. The LLPs are also required to maintain a register of SBOs in Form No. LLP BEN-3. This declaration is received by the LLP after a notice for declaration send in Form No. LLP BEN-4.

Another important aspect of the rules is the criteria for exemption from the applicability of these rules. The criteria is as follows:

  1. Contribution held by central or state government or local authority
  2. Or by investment vehicles registered and regulated by SEBI, RBI, IRDA and PFRDA.

Overall, the rules for notification of SBOs for LLP are quite similar to the rules for Companies, with few modifications.

This step by the MCA has been acclaimed as the rules include direct as well as indirect holding (Rule 22B(2)). This step is in line with the SBO rules for Companies Act which aims to lift the corporate veil in order to identify any person holding rights or entitlement. This step by the MCA will increase accountability and aid the MCA to govern LLPs.

[1]https://www.mca.gov.in/bin/dms/getdocument?mds=pJZaasqhxL5W9F46Ukp5lw%253D%253D&type=open

[2] Limited Liability Partnership Act, 2008 https://www.mca.gov.in/Ministry/actsbills/pdf/LLP_27oct2008.pdf