LLP Third Amendment Rules, 2023: Key Takeaways

On October 27, 2023, the Central Government notified the Limited Liability Partnership (Third Amendment) Rules, 2023, bringing in major changes pertaining to maintaining a register of partners, providing of declaration disclosing beneficial interest, etc.

The key features of the amendment rules, which came into force on the aforementioned notification date, are as follows: –

LLPs to maintain register of partners

As per the newly inserted provision, Rule 22A, if a Limited Liability Partnership (LLP) is incorporated subsequent to the date on which the amendment rules came into effect, it is required to maintain a register of its partners in Form 4A, from the date of its incorporation. The said register has to be kept at the LLP’s registered office. In case the LLP is already in existence, the LLP has to maintain such a register within 30 days of commencement of the amendment rules. The register of partners would have particulars including personal details of the partners (such as name, Corporate Identification Number, etc.), information regarding assets and other forms of contribution, and beneficial ownership, along with other necessary details.

When it comes to companies, such a requirement is already in place; a register of members has to be maintained by every company, as per Section 88 of the Companies Act, 2013, in the prescribed manner.

Declaration regarding beneficial interest

If a person with no beneficial interest in contribution is named in the register of partners, he has to furnish details of the person who actually holds the beneficial interest, in the form of a declaration in Form 4B, under Rule 22B. This declaration should be filed with the LLP within 30 days from the date on which his name was entered in the register. In the amendment rules, such persons are referred to as registered partners.

Sub-rule (2) of the said rule casts an obligation on persons whose names are not entered in the register but who hold or acquire a beneficial interest in contribution of the LLP, to disclose the beneficial interest vide declaration in Form 4C. The same has to be filed by such beneficial partners with the LLP within 30 days of acquiring the beneficial interest.

The abovementioned requirements to make declarations in respect of beneficial interest are similar to the ones applicable to companies under Section 89 of the Companies Act, 2013; if a person with no beneficial interest in the shares of a company has been named in the register of members of the company as the holder of shares, he is obligated to make a declaration in the prescribed manner. A person who holds or acquires a beneficial interest in the shares is also required to make a declaration to such a company.

Recording of declaration in the register of partners

When an LLP receives a declaration in Form 4B or Form 4C, the same has to be recorded in the register of partners. Further, the LLP has to file a return in Form 4D with the Registrar of Companies in this regard. The return has to be filed within 30 days from the date of receipt of the declaration.

This provision mirrors Section 89(6) of the Companies Act, 2013, as per which companies have to file a return with the Registrar in respect of the declaration received.

Appointment of designated partner

Under Rule 22B(4), an LLP is mandated to specify a designated partner for sharing information regarding beneficial interest in contribution, with the Registrar or any other authorised officer. The LLP would have to provide details of such a designated person in Form 4.

On a similar line, the Ministry of Corporate Affairs notified amendments to the Companies (Management and Administration) Rules, 2014, on the same day, i.e. October 27, 2023, making it mandatory for every company to designate a person for cooperating with and providing information to the Registrar (or any other authorised officer), with respect to beneficial interest in the shares of the company. The details of such a designated person have to be furnished by the company in its annual return.

Takeaways

As mentioned earlier, the Companies Act, 2013, requires every person who holds or acquires a beneficial interest in the share of a company to make a declaration in this regard. And now, the beneficial partners are mandated to file a declaration with the LLP, disclosing the beneficial interest, on par with the company form of entities. This will enable the Government of India to understand beneficial owners whose names may not always appear through direct investments.

On comparison of the provisions applicable to LLPs and companies, one can deduce that while the Companies Act, 2013, imposes punishment in the form of fines for failure in maintaining the register of members, making the declaration in respect of beneficial interest, or filing of return in respect of the declaration received by the company, the present notification makes no reference to the consequences of non-compliance with the amendment rules. However, in case of such non-compliance, Section 74 of the Limited Liability Partnership Act, 2008, would apply. The said Section specifies that if no penalty is provided for the contravention of any of the provisions of the Act or rules made thereunder, the penalty applicable to the LLP, partner, designated partner, or any other person who is in the default, would be as follows: –

  • a penalty of five thousand rupees.
  • in case of a continuing contravention, a further penalty of one hundred rupees for each day after the first during which such contravention continues, subject to a maximum of one lakh rupees.

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Under Rule 22B(4), an LLP is mandated to specify a designated partner for sharing information regarding beneficial interest in contribution, with the Registrar or any other authorised officer. The LLP would have to provide details of such a designated person in Form 4. On a similar line, the Ministry of Corporate Affairs notified amendments to the Companies (Management and Administration) Rules, 2014, on the same day, i.e. October 27, 2023, making it mandatory for every company to designate a person for cooperating with and providing information to the Registrar (or any other authorised officer), with respect to beneficial interest in the shares of the company. The details of such a designated person have to be furnished by the company in its annual return.

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