January 9, 2024

MCA notified Rules on Significant Beneficial Owner for Limited Liability Partnerships

The Section 90 of Companies Act, 2013 contains provision of maintaining a register of Significant Beneficial owners. Every Company is required to maintain a register of Significant Beneficial owners and such information is required to be changed as and when applicable. In line with Provision of Companies Act, MCA has notified Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 vide Notification No. G.S.R.832(E) dated 9th November, 2023.

Now Limited Liability Partnership firms are required to identify the significant Beneficial owners and required to file applicable forms MCA furnishing information about SBOs. This article contains discussion about provisions of Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023.

1. Meaning of Significant Beneficial Owner (SBO)

As per Rule 2(k) of LLP (SBO) Rules, “significant beneficial owner” in relation to a limited liability partnership, means a Individual who possessee one or more of the following rights, whether acting alone or together or through one or more persons or trust:

holds not less than 10% of the contribution, indirectly or together with any direct holdings,
Holds not less than 10% of voting rights in respect of Management or policy decisions;
Has right to receive or participate in not less than 10% of the total distributable profit or any other distribution;
Has the right to exercise significant influence or control in any manner other than through Direct holding alone.

However, if an individual does not hold any right or entitlement indirectly then he shall not be considered as a significant beneficial owner.

“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.

2. How to determine whether the Individual is holding the entitlement directly in the reporting LLP

An individual shall be considered to hold a right or entitlement directly in the reporting LLP if any of the following condition is satisfied:

the contribution in the reporting LLP are held in the name of the individual;
The Individual has held or acquired a beneficial interest in the contribution of the reporting LLP under Rule 22B(2) of LLP Rules, 2009 and has made a declaration in this regard to the reporting LLP

Reporting LLP means LLP required to comply with the requirements of section 90 of the Companies Act, 2013.

3. How to determine indirect holding in the reporting entity

A individual shall be considered as holding entitlement indirectly in the reporting entity if he satisfies any of the following criteria:

Nature of the partner of the LLP	Individual to be considered as SBO
Body Corporate (whether incorporated or registered in India or Abroad) other than LLP	Individual: 1. Holds majority stake in such Body Corporate; or 2. Hold majority stake in ultimate holding company of such body corporate
Hindu Undivided Family (HUF)	Karta of such HUFC
Partnership Firm	Individual: 1. Is a partner in such partnership firm; or 2. Hold major stake in body corporate which is partners in the partnership firm; or 3. Hold Major Stake in the ultimate holding company of the body corporate which is partner in such partnership firm E.g. Reporting LLP: ABC LLP Partner of Reporting LLP: XYZ & Co. (Partnership Firm) Partner of XYZ & Co.: DEF Limited Ultimate Holding company of DEF Limited: GHI LimitedIn such case, Following Individual shall be considered as having indirect stake in ABC LLP: 1. Individual Partner of XYZ & co. 2. Individual having majority stake in DEF Limited 3. Individual having Majority stake in GHI Limited
Trust	Individual: 1. Who is a trustee in case of Discretionary trust or a Charitable trust; 2. Is a beneficiary in case of a specific trust; 3. Is a author or settler in case of a revocable trust.
A pooled Investment vehicle; orAn entity controlled by Pooled Investment Vehicle	Individual: 1. Is a general partner of pooled Investment Vehicle; or 2. Is an investment Manager; or 3. Is a chief executive officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

Majority stake means:

Holding more than one-half of the equity share capital in the body corporate; or
Holding more than one-half of the contribution in a partnership entity; or
Holding more than one-half of the voting rights in the body corporate; or
Has 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.

4. What is the meaning of Individual acting together

As per Explanation V of Definition of “Significant Beneficial Owner”, if any individual acts through any person or trust, act with a common intent of exercising any rights or entitlements, or exercising control or significant influence, over a reporting limited liability partnership, pursuant to an agreement or understanding, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be “acting together”.

5. What is the obligation of Reporting LLP

As per Rule 4 of LLP (SBO) rules, Every reporting limited liability partnership is required to take following actions:

take necessary steps to find out a significant beneficial owner and upon identification, cause such individuals to make a declaration in Form No. LLP BEN-1
In cases where its partner (other than an individual), holds not minimum 10% of its-
1. contribution; or
2. voting rights; or
3. right to receive or participate in the distributable profits or any other distribution payable in a financial year,-

give notice to such partner in Form No. LLP BEN-4, seeking information in accordance with Section 90(5) of Companies Act, 2013 as applied to the limited liability partnership as per the notification.

6. Declaration by SBO

SBO At the time of Implementation of Rules: Every individual who is a significant beneficial owner in a reporting limited liability partnership at the time of commencement of this Rules, he shall file a declaration in Form No. LLP BEN-1 to the reporting LLP within 90 days from date of applicability of these rules.

Subsequently becoming SBO: Every individual, who subsequently becomes a SBO or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. LLP BEN-1 to the reporting LLP within 30 days of becoming SBO or change.

Where an individual becomes a SBO or where his SBO undergoes any change within 90 days of the commencement of these rules, it shall be deemed that such individual became the significant beneficial owner or any change therein happened on the date of expiry of 90 dats from such commencement, and the period of 30 days for filing Form LLP BEN-1 shall be computed accordingly.

7. Return of SBO

Upon receipt of declaration, the reporting LLP shall file a return in Form No. LLP BEN-2 with the Registrar within 30 days from the date of receipt of such declaration along with applicable fees.

8. Register of SBO

The limited liability partnership shall maintain a register of SBO in Form No. LLP BEN-3.The register shall be open for inspection during business hours for a reasonable time of not less than 2 hours.

9. Non-applicable of SBO Rules

Provision of SBO rules shall not apply to the extent the contribution of the reporting LLP is held by:
1. The Central Government, State Government or any local authority;
2. a reporting limited liability partnership, or
3. a body corporate, or

An entity controlled by the Central Government or State Government or partly by both;
An investment vehicle registered with SEBI such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs).
an investment vehicle regulated by the RBI or the Insurance Regulatory and Development Authority of India, or the Pension Fund Regulatory and Development Authority.

10. Application to Tribunal

The reporting LLP shall apply to the Tribunal in following cases:

where any person fails to give the information required by the notice in Form No. LLP BEN-4 within the time specified therein; or
where the information given is not satisfactory, under sub-section (7) of section 90 of Companies Act, 2013

On application of LLP, the Tribunal may any order which Tribunal deems fit, including-

restrictions on the transfer of interest attached to the contribution in question;
suspension of the right to receive profits or any other distribution in relation to the contribution in question;
suspension of voting rights;

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

Change in Registered Office of Company| Compliance under Companies Act, 2013

Loans or Deposits from Members or Shareholders | Companies Act, 2013- Part-2

Loans or Deposits from Members or Shareholders | Companies Act, 2013- Part-1

Declaring a Dormant Company under Companies Act, 2013

MCA imposed Penalty for failure to issue and transfer shares in Demat form

Others

MCA imposed Penalty for failure to issue and transfer shares in Demat form

As per Section 29(1A) of Companies Act read with Rule 9A of The Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company shall ensure that before issuance of any securities entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act 1996. Further, every shareholder of an unlisted public company is required to dematerialise its securities before transfer, if such transfer is made on or after 2nd October, 2018.

23/04/2024 No Comments

Change in Registered Office of Company| Compliance under Companies Act, 2013

Others

Change in Registered Office of Company| Compliance under Companies Act, 2013

If new registered office is situated outside the city, village or town, then as per Section 12(5) of Companies Act, 2013, the company is required to obtain prior approval of shareholder. Accordingly, the company has to make following compliances.

26/06/2023 No Comments

Loans or Deposits from Members or Shareholders | Companies Act, 2013- Part-2

Others

Loans or Deposits from Members or Shareholders | Companies Act, 2013- Part-2

Apart from Loans from Banks and NBFCs, companies do have options to borrow funds from shareholders or members. However, since funds are involved of the shareholders, therefore, company law contains detailed provisions related to loans and deposits from Member or shareholders. Companies are required to follow detailed procedure to obtain deposits and also are required to repay the same within committed time.

19/06/2023 No Comments