New rules require LLPs to be more open about beneficial ownership

New Delhi: The ministry of corporate affairs has mandated that limited liability partnerships (LLPs) be more open about their beneficial owners by stepping up reporting obligations for firms and their partners.

The new rules – the LLP (Third Amendment) Rules, 2023 – announced on Saturday require both the partners in the firm representing the beneficial interest of third parties, and those who have such an interest in the firm but remain anonymous, to disclose their true status.

The new rules say that all LLPs being incorporated must maintain a register of partners at their registered office and that existing ones must do this within 30 days. Beneficial ownership refers to the right of a person to enjoy the benefits or profits from an asset even though the legal title may be in someone else’s name.

The move aims to improve transparency in ownership of assets and businesses as LLPs are becoming more popular thanks to the flexibility they provide.

The rules also say that the register of partners must include details about the amount and nature of any other contribution that the partners have made to the LLP including tangible, intangible, movable, immovable or other benefits. This covers money, promissory notes and other agreements to contribute cash, property or services to the LLP. LLPs are formed by pooling contributions from their partners in cash or in kind.

Under the new rules, changes to these details must be recorded within a week, and any rectifications to the register based on a regulatory order must be recorded in detail.

The union government has been implementing various measures to identify people holding beneficial interests in entities and tackle money-laundering and this is the latest step in that direction, said Noorul Hassan, partner at law firm Lakshmikumaran & Sridharan Attorneys. The rule changes mirror the requirement for companies to disclose beneficial interests under the Companies Act, 2013, Hassan added.

Under the amended LLP rules, people whose names are in the mandated register but do not hold beneficial interest in the contribution of an LLP, and those whose names are not in the register but hold a beneficial interest must make disclosures in specified forms. LLPs must report these details to the regulatory authorities within 30 days of receiving the disclosure.

“Additionally, the persons concerned must specify the reason for not registering their contribution in their own name. Also, the scope of ‘contribution’ in this context is broad in nature to include any kind of benefit that can be connected to monetary value,” Hassan said.