Government tightens norms for firms to disclose beneficial interests

The government has in recent days tightened rules to ensure firms disclose and report beneficial interests in them in a move that is expected to improve transparency about their holding structure. The Ministry of Corporate Affairs has through two separate notifications specified fresh provisions for companies and limited liability partnerships on beneficial ownership. 

The MCA has notified the Companies (Management and Administration) Second Amendment Rules, 2023 (Amended Rules), under which each firm will designate a person to declare beneficial interests in the company’s shares to the Registrar of Companies. The designated person will be the company secretary or a key managerial person. Until the company appoints a designated person, the company, Managing Director or Manager or every director, as the case may be, shall be deemed to be the designated person.   

It has also notified the Limited Liability Partnership (Third Amendment) Rules, 2023, under which all limited liability partnerships have been mandated to maintain a register of partners at their registered office. Additionally, all LLPs would also have to declare the names of persons holding interest in the LLP (by way of contributions) through a nominee or registered holder-beneficial owner relationship. 

 The notifications are effective from October 27.  

Experts believe that the norms will help in better compliance by companies in disclosing beneficial interests. 

Anjali Malhotra, Partner–Regulatory, Nangia Andersen India, said the Companies (Management and Administration) Second Amendment Rules to designate a person affixes responsibility of providing beneficial shareholding on the designated persons to ensure overall compliance with provisions of Section 89 of the Companies Act, 2013. 

“Earlier Section 89 of the Companies Act required companies to declare beneficial ownership to the ROC, though the responsibility was not clearly demarcated. Now with the Amendment…responsibility is not only limited to reporting rather, the designated person is also responsible for furnishing, and extending co-operation for providing, information to the ROC or any other authorised officer with respect to beneficial interest in shares of the company,” she said. 

Minhaz Lokhandwala, Partner, IndusLaw said the intent of the amendment is to impose specific obligations and liability on company’s officers to ensure that information on beneficial interest in company’s shares is accurately reported, and cooperation on information requested by the Registrar in relation to beneficial interest is seamlessly offered. 

In a note, PwC said that LLPs must maintain a register of partners as per the timeline prescribed. “However, in case of declarations of beneficial interest, the LLPs need to evaluate their structures to understand the applicability of the Amended Rules and accordingly take further steps,” it said.  

Companies registered under the Companies Act 2013, were always required to declare their nominee or beneficial owner relationships under section 89. “However, no similar provisions were provided under the LLP Act, 2008,” it further said, adding that as LLPs are a popular legal entity structure, the MCA is now directing its efforts to strengthen the disclosure regime in terms of beneficial interests held by persons in the LLP. 

Also Read: Not Narayana Murthy's 70 hours, but Indians do work very hard, shows ILO data