Limited Liability Partnership needs to disclose the Significant Beneficial Owner

Limited Liability Partnership needs to disclose the Significant Beneficial Owner

The Ministry of Corporate Affairs (MCA) had introduced the concept of Significant Beneficial Ownership (SBO) for Limited Liability Partnerships (LLPs) vide notification dated 11 February 2022 whereby SBO provisions as prescribed under the Companies Act, 2013 (the Act) made applicable to LLPs as well.

However, the application of the provisions of the Act posed certain interpretational challenges. That led to a lot of confusion amongst the stakeholders, requiring clarification.

Therefore, to address the concerns of the stakeholders, the government introduced the LLP SBO Rules on 9 November 2023. Accordingly, every LLP (except exempted LLPs) is required to comply with the SBO provisions.

Concept of SBO

Unlike the Act, the SBO Rules do not define the basic meaning of beneficial ownership. It directly defines SBO in relation to LLP, which means an individual who possesses one or more of the following rights or entitlements in the reporting LLP, acting alone or together with one or more persons or trust, namely:

  • holds indirectly or together with any direct holdings not less than 10% of the contribution;
  • 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;
  • has the 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;
  • has the right to exercise or actually exercises significant influence or control in any manner other than through direct holdings alone.

It is pertinent to note here that likewise, the concept in the Act, an individual, either alone or acting with the other person, shall hold the rights or entitlements indirectly, which means just direct holdings will not be enough to categorize an individual as an SBO.

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