MCA to now enforce beneficial interest reporting regime for LLPs also

MCA to now enforce beneficial interest reporting regime for LLPs also

Subject : Economy

Section: Monetary policy

In News: Government extends the law of beneficial interest to LLPs as well. Earlier, it applied only on equity shares of companies.

Key Points:

• 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 latest MCA move comes after 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.
• 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.

Why the policy change?

• The purpose of this policy change is to ascertain the true or “beneficial” owner’s interest in and control over the contributions made by the partners to the LLP.
• Further in the last few years, there has been increased preference to set up LLPs due to several advantages including lower compliance for such structures.
• LLP formation has boomed because company disclosures have become more stringent and moreover they face lesser questioning from auditors.

Compliance by LLPs now:

• 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
• They need to have a designated partner who 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