Expanding the net. MCA enforces beneficial interest reporting regime for LLPs

The Centre has enhanced its supervision over Limited Liability Partnerships (LLPs), requiring them to become more transparent and declare the “beneficial interest” holders, if any, on the contributions of their partners.

The Corporate Affairs Ministry (MCA) has amended the LLP Rules to make it mandatory for every person holding or acquiring a ‘beneficial interest’ in the contribution of partner (to an LLP) to declare such interest to the LLP, who in turn has to file a return with the Registrar of Companies (RoCs) on this front.

In essence, this signifies the intent to ascertain the true or “beneficial” owner’s interest in and control over the contributions made by the partners to the LLP.

Between April 2022 till September 2023, about 64,000 LLPs have been incorporated in the country.  LLP formation has boomed because company disclosures have become more stringent and moreover CARO (Auditor report order) is not applicable to LLPs, implying lesser questioning from auditors, said experts.

An LLP is quintessentially a hybrid between a Limited Liability Company and a Partnership. It has the advantage of being a body corporate, but at the same time internal governance and inter se relations among partners and LLP are regulated by the LLP Agreement and not by any statutory provisions.

Every LLP must now designate a partner who will have to cooperate with the RoC or any other MCA authorities in furnishing information about beneficial interest of the contributions received by such structures, MCA has said.

Single point contact

This designated partner will act as a single point contact for MCA authorities as regards compliance on ‘beneficial interest’.

Also every LLP must now maintain a Register of Partners and detail the quantum and nature of contributions received from each Partner.

Put simply, the government has now extended the law of beneficial interest to LLPs as well. Earlier, it applied only on equity shares of companies. 

The latest MCA move comes close on the heels of the government tightening the ‘beneficial interest’ regime in shares, requiring corporates to be more transparent and appoint a ‘designated person’ who can be a single point contact for the government authorities.

Over the last few years, there has been increased preference to set up LLPs due to several advantages including lower compliance for such structures. 

Experts’ take

Amarjit Chopra, former ICAI President, said that MCA move to bring LLPs under the ‘beneficial interest’ supervisory regime was a “fair” decision. 

He highlighted that some of the companies and bigger partnerships had got converted into LLPs to take advantage of lesser compliance burden.

“For a concept of ‘beneficial interest’, whatever is applicable for Companies should be applicable for LLPs also. That is why MCA has brought LLPs into play”.

Harish Kumar, Partner, Luthra and Luthra Law Offices India, said: “With this amendment in place, the true ownership of LLPs would become clearer/transparent along with a designated person being specifically made responsible for co-operating with the government in relation to such compliance.”

Anjali Malhotra, Partner- Regulatory, Nangia Andersen India, said, “Pursuant to this Amendment, the requirement which has been applicable to Companies has now been extended to LLPs as well.”

The growing popularity of LLPs may be attributed to simpler corporate structures and fewer regulatory requirements, she added.

Shiju PV, Senior Partner, IndiaLaw LLP, said, “By the amendment, the legislature aims to establish further checks and balances and transparency in the functioning of the LLP. 

“With the rising number of LLPs and the dynamic nature of the contributions by partners, this amendment shall streamline and give a true status of the contributions and beneficial interest as on that date”.

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