[Opinion] SBOs Behind LLPs All Set to Be Surfaced

Avinash Shetty & Hari Dwivedi – [2023] 156 taxmann.com 593 (Article)

Introduction

The Ministry of Corporate Affairs (‘MCA’) in the year 2018, introduced the provision for declaration by individuals identified as Significant Beneficial Owners (‘SBOs’) for companies under section 90 of the Companies Act, 2013 (‘Act’). Subsequently, MCA extended the ambit of the said provisions to Limited Liability Partnerships (LLPs) through notification dated February 11, 2022. However, the notification prompted concerns and queries regarding the implementation of SBO provisions on LLPs. These concerns have been addressed by the recent notification dated November 9, 2023 (‘LLP SBO Rules’) . The rationale behind this extension is to align the framework for identification of SBO’s of LLPs with that of companies

While the provisions are on similar lines as that brought for companies under the Act, however, the difference is mostly in terms of the manner of determining the SBOs in case of LLPs. In case of LLPs it is calculated based on holding of capital contribution (shares in case of companies), voting rights in respect of management or policy decisions of LLP (shares in case of companies) and right to receive or participate in distributable profits (dividend in case of companies) or any other distribution besides, the right to exercise control or significantly influence in any manner other than direct holdings.

The article explains the requirements of the LLP SBO Rules, obligations of the LLPs, and the actionables to be taken in order to comply with the requirements.

Applicability

The LLP SBO Rules are effective from November 10, 2023, the date of publication in the Official Gazette. These rules are applicable to all LLPs except for certain kinds of contribution as discussed in the para dealing with exemptions below.

Meaning of SBO

SBO, in relation to a reporting LLP, means an individual who possesses one or more of the following rights or entitlements in such reporting LLP, acting alone or together with one or more persons or trust, namely:-

(i) holds indirectly or together with any direct holdings not less than 10% of the contribution;

(ii) holds indirectly or together with any direct holding voting rights not less than 10% of voting rights in respect of the management or policy decisions in such LLP;

(iii) has right to receive or participate in not less than 10% 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.

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