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Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023

Limited Liability Partnership

Introduction:

On November 9, 2023, the Ministry of Corporate Affairs (MCA) exercised its authority under section 79 of the Limited Liability Partnership Act, 2008, and issued the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 (LLB SBO Rules). These rules mandate Limited Liability Partnerships (LLPs) in India to identify and disclose their significant beneficial owners (SBOs). The following highlights summarize the key provisions of the LLB SBO Rules.

Date of Notification– 9th November 2023

Date of Enforcement – 9th November 2023

Applicability: Applicable to all Limited Liability Partnership Firms registered under the Limited Liability Partnership Act, 2008.

Important Definitions:

Control: “Control” shall include the right to appoint majority of the designated partners or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their contribution or management rights or limited liability partnership agreements or other agreements or in any other manner.

Majority Stake: 

  1. holding more than one-half of the equity share capital in the body corporate; or
  2. holding more than one-half of the contribution in a partnership entity; or
  3. holding more than one-half of the voting rights in the body corporate; or
  4. having the right to receive or participate in more than one-half of the distributable dividend or distributable profits or any other distribution by the body corporate including a partnership entity as the case may be.

Significant Beneficial Owner: An individual who acting alone or together or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting limited liability partnership, namely:-

  1. holds indirectly or together with any direct holdings, not less than ten per cent of the contribution;
  2. holds indirectly or together with any direct holdings, not less than ten percent of voting rights in respect of the management or policy decisions in such limited liability partnership;
  3. has right to receive or participate in not less than ten 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;
  4. has right to exercise or actually exercises, significant influence or control, in any manner other than through direct-holdings alone.

Significant Influence: It means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting limited liability partnership but is not control or joint control of those policies.

Ultimate Holding Company: A holding company as defined under clause (46) of section 2 of the Companies Act, 2013, which is not a subsidiary of any other body corporate.

Key amendments through this notification:

  • Notice to Partners:
  • It mandates every LLP to proactively investigate and determine whether there exists any individual qualifying as a significant beneficial owner for that specific limited liability partnership. In the event of such identification, the reporting LLP is obligated to recognize and prompt the respective individual to submit a declaration through Form No. LLP BEN-1. This proactive measure ensures compliance with the regulatory framework and transparency in identifying significant beneficial ownership within limited liability partnerships.
  • Every reporting limited liability partnership is mandated to notify its partner (excluding individuals) through Form No. LLP BEN-4 for seeking information with respect to beneficial ownership in situations where said partner holds at least ten percent of the LLP’s:
  • contribution;
  • voting rights; or
  • entitlement to receive or partake in distributable profits or any other distributions in a financial year.
  • Declaration by Partners:
  • Every Individual being significant beneficial owner to file declaration in Form LLP BEN-1 within 90 days of the notification and any change in interest shall be reported within 30 days of change.
  • Return of Beneficial Ownership by LLP:
  • Every LLP to file return in Form No. LLP BEN-2 within 30 days from receipt of declaration.
  • Register of Significant Beneficial Ownership:
  • Register of Significant Beneficial Owners to be maintained by LLP Form No. LLP BEN-3.
  • Registers shall be open for inspection on every working day on a payment not exceeding INR 50/- (Fifty) for each inspection.

Forms for Significant Beneficial Owner (LLP):

FormsPurpose
Form No. LLP BEN-1Declaration by individual to reporting LLP disclosing Significant Beneficial Ownership
Form No. LLP BEN-2Return of Significant Beneficial Ownership to be filed by LLP
Form No. LLP BEN-3Register of Significant Beneficial Ownership to be maintained by LLP
Form No. LLP BEN-4Notice to Partners by LLP for seeking information for Significant Beneficial Interest

Non-applicability:

(a) the Central Government, State Government or any local authority;

(b)

(i) a reporting limited liability partnership, or

(ii) a body corporate, or

(iii) an entity,

controlled by the Central Government or by one or more State Government, or partly by the Central Government and partly by one or more State Government;

(c) an investment vehicles registered with, and regulated by the Securities and Exchange Board of India, such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (InVITS).

(d) an investment vehicles regulated by the Reserve Bank of India, or the Insurance Regulatory and Development Authority of India, or the Pension Fund Regulatory and Development Authority.

Conclusion:

In conclusion, the introduction of the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 by the Ministry of Corporate Affairs marks a significant stride towards transparency and accountability within Limited Liability Partnerships (LLPs) in India. The rules, effective from November 9, 2023, underscore the obligation of reporting LLPs to identify and disclose their significant beneficial owners (SBOs). The key amendments outlined in the notification, including proactive investigations, partner notifications through Form No. LLP BEN-4, and the filing of declarations and returns, aim to enhance regulatory compliance and foster a culture of openness.

Downloads: NOTIFICATION | FORM NO. LLP BEN: 1 | FORM NO LLP BEN: 3 | FORM NO LLP BEN: 4

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