New Compliance for LLPs Significant Beneficial Owner

The Ministry of Corporate Affairs, through Notification No. G.S.R...(E), dated 09.11.2023, has introduced the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023. These rules come into effect from the date of their publication in the Official Gazette and apply to Limited Liability Partnerships (LLPs). Under these regulations, LLPs are now mandated to report details about Significant Beneficial Owners to the Registrar of Companies within 30 days of an individual declaring their status as a Significant Beneficial Owner. Let's explore the major highlights of these newly enacted rules. IndiaFilings simplifies LLP compliance in India. [shortcode_72]

Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023

The Corporate Affairs Ministry officially introduced the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023, effective November 10. These rules establish clear definitions and timelines for reporting, reflecting the commitment to uncover the genuine "beneficial" ownership and control of contributions within LLPs by partners and individuals. Introduce key changes in LLP regulations. These rules mandate identifying significant beneficial owners, timely declaration submissions, and maintenance of registers. Additionally, they empower the Tribunal to enforce compliance. Reporting LLPs must now actively engage with significant beneficial owners, adhere to submission deadlines, and promote transparency and accountability within the LLP framework. Know more about Compliance for LLP

Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) represents a distinctive fusion of a Limited Liability Company and a traditional Partnership. This hybrid entity combines the benefits of corporate status while maintaining flexibility in its internal governance and partner relations. Unlike companies regulated by statutory provisions, an LLP's internal affairs are chiefly governed by its LLP Agreement. Additionally, an LLP designates a partner responsible for ensuring compliance with relevant authorities, highlighting its versatility.

What is a "Significant Beneficial Owner" in an LLP?

The new rules comprehensively define a "Significant Beneficial Owner" within an LLP. Individuals may act independently, jointly, or through various entities or trusts. To qualify as a Significant Beneficial Owner, one must meet specific criteria, which include:

Indirect Contribution: Holding a minimum of 10 percent of the total contribution to the LLP, either directly or indirectly.
Voting Rights: Holding a minimum of 10 percent of the voting rights concerning management or policy decisions, either directly or indirectly.
Profit Participation: Having the right to receive or partake in not less than 10 percent of the total distributable profits or any other distributions in a financial year through indirect holdings, whether alone or conjunction with direct holdings.
Influence or Control: Exercising significant influence or control over the LLP's affairs other than through direct holdings alone.

These criteria provide a comprehensive framework for identifying Significant Beneficial Owners within an LLP, ensuring transparency and accountability in ownership structures.

LLPs Mandated with Identification of Significant Beneficial Owners

To enhance transparency and regulatory compliance, every LLP must proactively identify any individual qualifying as a Significant Beneficial Owner within its structure. The process involves the following key steps:

Declaration by the Individual - Form No. LLP BEN-1

Individuals meeting the criteria for Significant Beneficial Ownership must submit a declaration in Form No. LLP BEN-1 to the reporting LLP. This declaration must be made within 90 days from the commencement of the new rules, which came into effect on November 10.

Submission of Form LLP BEN-1 to Registrar of Companies

Upon receiving the declaration from the individual, the reporting LLP is responsible for submitting this information to the Registrar of Companies. This submission should occur within 30 days from the receipt of the declaration. By adhering to these steps, LLPs ensure compliance with the new rules and contribute to a more transparent and accountable business environment.

LLPs Must File Form LLP BEN-2 for Declarations Received

LLPs are mandated to file Form LLP BEN-2 for the declarations they have received. The LLPs responsible for reporting should submit this return using Form No. LLP BEN-2 to the Registrar within 30 days of receiving the declaration.

Register of Significant Beneficial Owners in LLP (Form No. LLP BEN-3) and Inspection Guidelines

LLPs must maintain a register of significant beneficial owners, utilizing Form No. LLP BEN-3. This register should be accessible for inspection during standard business hours, as mutually agreed upon in the limited liability partnership agreement or as the LLP partners decide. Additionally, access to this register can be granted upon payment of a fee determined by the LLP, provided that the fee does not exceed fifty rupees for each inspection.

Reporting Changes and Compliance Obligations for LLPs and Partners

In line with the new rules governing Significant Beneficial Owners (SBOs) in LLPs, individuals qualifying as SBOs must promptly notify the LLP firm of any changes in their status. Here are the key aspects of this compliance process:

Notification of Status Change: Any individual who qualifies as a Significant Beneficial Owner (SBO) must inform the LLP firm of any change in their SBO status. This notification should be made within 30 days from the change date.
Form Submission by Partners: Partners who do not meet the criteria of holding 10 per cent or more in total contribution, voting rights, and the right to receive 10 per cent or more of dividends are also subject to compliance. They are required to file Form LLP BEN-4.

Recourse for Non-Compliance

When an individual fails to provide information about Significant Beneficial Owners (SBOs), LLPs have recourse to address the issue. In such situations, the LLP can approach a Tribunal to seek remedies. Here are the potential actions the LLP can request from the Tribunal:

Restrictions on Transfer of Interest: The LLP may request the Tribunal to restrict the transfer of the interest associated with the undisclosed SBO.
Suspension of Rights: The LLP can seek suspension of the right to receive profits or voting rights related to the contribution associated with the undisclosed SBO.
Other Restrictions: The Tribunal may also consider imposing restrictions on some or all of the rights associated with the contribution.

By resorting to these measures, LLPs can compel compliance with the reporting requirements related to Significant Beneficial Owners and maintain transparency within the organization.

Exemptions from New Rules

The notification clarified that the newly introduced rules would not apply when government or government-controlled entities held limited liability partnership contributions. These rules also exempted mutual funds, alternative investment funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (lnVITs), or any investment vehicle subject to regulation by the Reserve Bank of India, the Insurance Regulatory and Development Authority of India, or the Pension Fund Regulatory and Development Authority.

Conclusion

The Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023, introduce key changes in LLP regulations. These rules mandate identifying significant beneficial owners, timely declaration submissions, and maintenance of registers. Additionally, they empower the Tribunal to enforce compliance. Reporting LLPs must now actively engage with significant beneficial owners, adhere to submission deadlines, and promote transparency and accountability within the LLP framework.

Streamline LLP Compliance with IndiaFilings

IndiaFilings plays a crucial role in ensuring LLP compliance for businesses in India. With its expertise and comprehensive services, IndiaFilings assists LLPs in meeting all regulatory requirements, including the recent Significant Beneficial Owners Rules, 2023. Streamline LLP Compliance with IndiaFilings – Contact Our Experts Today! [shortcode_72]