LLPS to disclose ‘beneficial ownership’
Limited liability partnerships (LLPS) will have a stricter compliance regime, such as disclosing significant beneficial ownership, with the Ministry of Corporate Affairs (MCA) planning to extend various provisions of the Companies Act to the LLP Act soon.
A notification on the MCA website advised LLPS to take note of the modifications that are likely to be made soon for appropriate action.
One of the important changes with the extension of Section 90 of the Companies Act to the LLP Act means all such partnerships will have to disclose significant beneficial ownership.
The rules for disqualification of directors for non-filing of annual returns for any three consecutive years will also be made applicable to LLPS.
While earlier there were no curbs on the number of LLPS a person could be appointed a designated partner, the MCA plans to impose a limit on the maximum number of such positions a person can now hold. A similar law under Section 165 of the Companies Act says no person can hold office of a director in more than 20 companies at the same time.
“With these changes coming into force, the designated partners will need to structure their partnerships. Further, LLPS will also need to identify details of individuals holding beneficial interests similar to companies,” said Sumit Naib, associate director, Nangia Andersen India.
The government has also decided to make Section 167 of the Companies Act — which deals with the vacation of office of the director — applicable to LLPS. Experts said the implementation of these provisions remains to be seen. For instance, in case of vacating office, a director is giving up an office, but a partner will have to cede ownership.
“Not all these provisions may be applicable to LLPS. The government will have to make relevant modifications to the Act,” said Ankit Singhi, partner, Corporate Professionals.
The MCA is also planning to bring a Bill to decriminalise the LLP Act, 2008, during the Budget session of Parliament, as announced by Finance Minister Nirmala Sitharaman in her Budget speech on February 1.
In all, 12 offences are proposed to be decriminalised and one provision (Section 73) entailing criminal liability is proposed to be omitted. The 12 decriminalised offences will then get shifted to an internal adjudication mechanism to help in declogging criminal courts from routine cases.
The ministry is also proposing to create a class of LLP called ‘small LLP’ in line with the concept of small companies. Such small LLPS will be subject to fewer compliances, reduced fee or additional fee, and smaller penalties in the event of default.
“Thus, the lower cost of compliance will incentivise unincorporated micro and small partnerships to convert into the organised structure of an LLP and derive its benefits,” said a senior official.
LLPS are also proposed to be allowed to raise capital through the issue of fully secured non-convertible debentures as an alternative to equity participation from investors regulated by the Securities and Exchange Board of India or the Reserve Bank of India. This is expected to deepen the debt market and enhance the capitalisation of LLPS.