Unveiling LLP Ownership: Tracing Significant Beneficial Owners

On 9^th November, 2023, the Ministry of Corporate Affairs (MCA) introduced Significant Beneficial Owner (SBO) rules for Limited Liability Partnerships (LLPs), thereby mandating LLPs to declare their significant beneficial owners in their contributions. Previously, SBO rules were exclusively applicable to Companies under the Companies (Significant Beneficial Owners) Rules, 2018. With this amendment, the government has taken step to unveil the ultimate beneficiaries of LLPs, promoting enhanced corporate governance. Below are the key highlights of this significant regulatory change.

SBO applicability:

In respect to the LLP, SBO means an individual who has the below mentioned rights/entitlement in the LLP, irrespective of whether the individual is acting alone or together with another person, namely:

• Holds, indirectly or together with any direct holdings, a stake of not less than ten percent of the contribution;
• Holds, indirectly or together with any direct holdings, a stake of not less than ten percent of the voting rights in the management or policy decisions of the LLP;
• Has the right to receive or participate in not less than ten percent of the total distributable profits or any other distribution in a financial year through indirect holdings alone or together with any direct holdings;
• Has the right to exercise or actually exercise, significant influence or control in any manner other than the direct holdings alone.

Criteria for identifying an individual as SBO of the LLP:

Sr. No.	Category of Designated Partner (DP)/ Partner of the LLP	Who is to be considered as SBO
1	Body Corporate	An individual who holds majority stake in that DP/ Partner or in the ultimate holding company of that DP/ Partner.
2	Hindu Undivided Family	The Karta of the said Hindu Undivided Family.
3	Partnership Entity	An individual who: a. is a partner; or b. holds majority stake in the body corporate which is partner of the partnership entity; or c. holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
4	Trust	An individual who is: a. trustee in case of a discretionary trust or a charitable trust; b. beneficiary in case of a specific trust; c. author or settlor in case of revocable trust.
5	Pooled Investment Vehicle (hereinafter ‘PIV”) or entity control by PIV based in the country that is a member of the FATF on money laundering and the regulatory of the securities market in such member state is a member of international organisation of securities commissions.	An individual who is: a. a general partner; or b. an investment manager; or c. chief executive officer (where investment manager of such PIV is a body corporate or a partnership entity) NOTE: In the event the PIV does not meet the conditions outlined in the point 5, then in such scenario an individual should be identified as SBO as specified in points 1-4 above.

Key Definitions:

• Majority stake means:-
  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 influence means:-
  the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting LLP but is not control or joint control of those policies.
• Control means:-
  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.

Declaration by SBO:

• Every individual who is a SBO must file a declaration in Form LLP BEN-1 within 90 days from the commencement of this rule for existing LLPs.
• Every individual, who subsequently becomes SBO, or where his significant beneficial ownership undergoes any changes, shall file a declaration in Form LLP BEN-1 within 30 days of acquiring such significant beneficial ownership or any change therein.
• In the event if there are any change in the SBO within 90 days of the commencement of this rule then it shall be deemed that such individual became SBO or changes in the SBO happened on the date of expiry of 90 days from the commencement of this rule and the period of 30 days for the fillings will be reckoned accordingly.

Obligations of the reporting LLP:

• Within 30 days of receiving declaration from SBO, file the same in Form LLP BEN-2 with the Registrar of Companies.
• Maintain the register of SBO in Form LLP BEN-3.

• The LLP is required to take necessary steps to identify an individual who qualifies as a Significant Beneficial Owner (SBO), and cause that individual to make a declaration in Form LLP BEN-1.

  Additionally, the LLP is obligated to send a notice in Form LLP BEN-4, to any partner who holds 10% or more of contribution, voting rights, or the right to receive or participate in distributable profits or any other distributions payable in the financial year, seeking information of significant beneficial owner.

NOTE: The declaration by the SBO is to be filed within 30 days from the date of creation of interest and the LLP is required to file form LLP BEN-2 with the Registrar of Companies within 30 days of receiving declaration from SBO. However, on the 7^th February 2024 the MCA through its circular informed that for the initial filing, the Form LLP BEN-2 will be made available by 15^th April, 2024 and the reporting LLP shall file form LLP BEN-2 till 15^th May, 2024 without any additional late fee. The relaxation provided by MCA is only applicable for the reporting LLP and not for declaration to be given by the SBO.

Exemption:

The rules are not applicable to:

• Central/ State government or any local authority
• Reporting LLP, or a body corporate, or an entity which is controlled by central/state government or one or more state government
• An investment vehicle registered with and regulated by the Securities and Exchange Board of India (SEBI), such as Mutual Funds, Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (InVITs).
• An investment vehicle regulated by the Reserve Bank of India, or the Insurance Regulatory and Development Authority of India, or the Pension Fund Regulatory and Development Authority.

Application to the tribunal:

The reporting LLP can apply to the tribunal (NCLT) for remedy in the below scenarios:

• Where any person fails to give information required by the notice in form LLP BEN-4 within the time stipulated in the rules.
• The information provided by the person is not satisfactory

The Tribunal on receiving application from the LLP, may pass such orders as it may deem fit, including:

1. restrictions on transfer of interest attached to the contribution in question;
2. suspension of the right to receive profits or any other distribution in relation to the contribution in question;
3. suspension of voting rights in relation to the contribution in question;
4. any other restriction on all or any of the rights attached with the contribution in question.

Click to access the SBO Rules

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