On November 9, 2023, in exercise of the powers conferred by section 79 of the Limited Liability Partnership Act, 2008 (“LLP Act”), the Ministry of Corporate Affairs (“MCA”) released the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 (“LLB SBO Rules”). The LLP SBO Rules came into effect on November 10, 2023. With the introduction of these LLP SBO Rules, Limited Liability Partnerships (“LLPs”) in India would be required to identify and declare their significant beneficial owners (SBOs). The key provisions of the LLB SBO Rules are summarised below:
Definition of Significant Beneficial Owner (SBO)
The LLP SBO Rules define a Significant Beneficial Owner (“SBO”) (in relation to a reporting LLP) as 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 LLP, namely:
(i) holds indirectly or together with any direct holdings, not less than 10% (ten percent) of the contribution;
(ii) holds indirectly or together with any direct holdings, not less than 10% (ten percent) of voting rights in respect of the management or policy decisions in such limited liability partnership;
(iii) has right to receive or participate in not less than 10% (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;
(iv) has right to exercise or actually exercises, significant influence or control, in any manner other than through direct holdings alone.
An individual will be considered to hold a right or entitlement directly in the reporting LLP, if he satisfies any of the following criteria, namely:
(i) the contribution in the reporting LLP representing such right or entitlement are held in the name of the individual;
(ii) the individual holds or acquires a beneficial interest in the contribution of the reporting LLP under sub-rule (2) of Rule 22B of the Limited Liability Partnership Rules, 2009 and has made a declaration in this regard to the reporting LLP.
An individual will be considered to hold a right or entitlement indirectly in the reporting LLP, if he satisfies any of the below mentioned criteria:.
|If the reporting LLP’s partner is a body corporate (whether incorporated or registered in India or abroad), other than an LLP.
|An individual who:
a) holds majority stake in that partner; or
b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that partner.
|If the partner of the reporting LLP is a Hindu Undivided Family (HUF) (through karta).
|An individual who is the karta of the HUF.
|If the partner of the reporting LLP is a partnership entity (through itself or a partner).
|An individual who:
a) is a partner; or
b) holds majority stake in the body corporate, which is a 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.
|If the partner of the reporting LLP is a trust (through trustee).
|An individual who:
a) is a trustee in case of a discretionary trust or a charitable trust;
b) is a beneficiary in case of a specific trust; or
c) is the author or settlor in case of a revocable trust.
|If the partner of the reporting LLP is
(i) a pooled investment vehicle; or
(ii) an entity controlled by the pooled investment vehicle, based in a member State of the Financial Action Task Force on Money Laundering, and the regulator of the securities market in such member State is a member of the International Organisation of Securities Commissions.
|An individual in relation to the pooled investment vehicle, who:
a) is a general partner;
b) is an investment manager; or
c) is a chief executive officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.
|Where the partner of a reporting LLP is (i) a pooled investment vehicle; or
(ii) an entity controlled by the pooled investment vehicle, based in a jurisdiction other than mentioned in clause (5) above.
|An individual who belongs to any of the clauses in (1) to (4) above.
Duties of the reporting LLPs
The LLP SBO Rules prescribe the following duties of the reporting LLPs:
(i) Form No. LLP BEN-1: Every reporting LLP will be required to determine, whether any individual is a SBO in connection with that reporting LLP, identify that person, and cause such individual to fill out Form No. LLP BEN-1 declaring their status.
(ii) Form No. LLP BEN-4: Every reporting LLP is required to give notice in Form No. LLP BEN-4 (seeking information pertaining to the SBO) to every partner (other than an individual) who holds not less than 10% of its contribution or voting rights or right to receive or participate in the distributable profits or any other distribution payable in a financial year.
Declaration of SBO
Every individual who is a SBOs in reporting LLPs is required to file a declaration in Form No. LLP BEN-1 within 90 days of the SBO Rules commencement. Any individual who subsequently becomes a SBO or undergoes any change in significant beneficial ownership, is required to file a declaration in Form No. LLP BEN-1 within 30 days (of acquiring such SBO or any change therein) to the reporting LLP.
Return of SBO in Contribution
Upon receipt of declaration as mentioned above, the reporting LLP is required to submit a return, in Form No. LLP BEN-2, to the Registrar of Companies within 30 days from the date of receipt of declaration in Form No. LLP BEN-1, along with the prescribed fees.
The LLPs are also required to maintain a register of SBOs in Form No. LLP BEN-3. Th LLP SBO Rules also provide for exceptions to its applicability to the extent the contribution of the reporting LLP is held by: (i) the Central Government, State Government or any local authority; (ii) a reporting LLP; or a body corporate; or 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; (iii) 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) and Infrastructure Investment Trust (InVITs); and 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.