In a strategic move, the Indian government has extended the regulatory framework, initially designed for companies, to include Limited Liability Partnerships (LLPs). This shift, introduced through a Ministry of Corporate Affairs (MCA) notification on February 11, 2022, and further detailed by the Limited Liability Partnership (Significant Beneficial Owners) Rules, 2023 (SBO Rules) on November 9, 2023, aims to fortify transparency and accountability within LLP structures.
Unveiling Significant Beneficial Owners (SBOs)
The identification and disclosure of Significant Beneficial Owners (SBOs) within LLPs have garnered considerable significance. Aligned with Financial Action Task Force (FATF) guidance, this regulatory move seeks to prevent money laundering, tax evasion, fraud, and other illicit activities. It also addresses the issue of corporate anonymity, ensuring accountability among ultimate proprietors.
Declaration and Compliance Requirements
Under the SBO Rules, individuals identified as SBOs in an LLP must submit a declaration within 30 days of acquiring such status or any subsequent change. This declaration includes particulars of the individual, nature of significant beneficial ownership, and other prescribed information. LLPs, in turn, are obligated to file a return of SBOs with the registrar within 30 days of receiving the declarations. Additionally, LLPs must maintain a register of SBOs, accessible to partners upon payment of prescribed fees.
Obligations Imposed by Section 90(5) Limited Liability Partnership (Significant Beneficial Owner Rules), 2023
Section 90(5) of the Act imposes obligations on LLPs to dispatch notices to persons known or reasonably believed to be significant beneficial owners. Non-compliance by SBOs may lead to an LLP petitioning the National Company Law Tribunal (NCLT) to impose restrictions on the interests held by SBOs in the LLP.
Exemptions and Implications
The SBO Rules do not extend to contributions held by the Central or State Government, local authorities, reporting LLPs, or entities under government control. Investments by SEBI-regulated or RBI, IRDA, and PFRDA overseen entities are also exempt. However, the new mandate increases compliance requirements for LLPs, necessitating adherence to reporting and disclosure obligations, accurate information maintenance, and partner inspections.
Potential Misuse and Safeguards
Section 90(7) of the Act, outlining provisions for NCLT petitioning, raises concerns about potential misuse, particularly in conflicts between majority and minority stakeholders. Safeguards are in place to address such scenarios, with the NCLT adjudicating allegations by majority shareholders against minority shareholders to prevent adverse impacts.
As the LLP business model gains popularity in India, the government's inclusion of LLPs in the regulatory framework for identifying and reporting SBOs underscores its commitment to elevate transparency levels. This move reflects a strategic effort to align LLP structures with internationally recognized standards and practices, reinforcing the fight against illicit financial activities and upholding accountability within the business landscape.