Govt preparing to make LLP ownership transparent this month

Corporate Affairs Ministry is expected to notify a key disclosure requirement LLP This month which will mandate them to report the ultimate natural person behind these commercial vehicles.

Removing the corporate veil will bring LLPs at par with companies and reveal who is really behind the business. An effort in this direction was made by the ministry earlier this year, but it was postponed due to the second wave of the pandemic. The wave has now come to an end, with the ministry feeling that the time has come to go ahead with regulatory changes.

“This disclosure requirement will be enforced with prospective effect. That is, once notified, LLPs will get some time to comply,” a person explained the government’s move. The idea is to give the LLPs adequate notice before regulatory changes begin from a specified tentative date. The government agrees. That a higher level of transparency in the affairs of businesses would in itself improve corporate governance.

The ministry is also expected to limit the number of LLPs in which one person can be a ‘designated partner’, who is responsible for its management and compliance. The move seeks to ensure that the designated partners are able to do justice to their statutory obligations.

“Reporting the ultimate natural person behind the LLP will bring greater transparency in business matters including related-party transactions. This will help in improving governance standards and bring LLPs and companies at par with their disclosure requirement regarding ownership,” Pawan Kumar Vijay, Founder, Corporate Professionals Group, a consulting firm.

A separate notification, which is expected later this month, will give effect to the de-criminalisation of the LLP Act passed by Parliament in the monsoon session. These changes will simultaneously improve transparency and, at the same time, improve ease of doing business, said the person cited above.

The LLP Act amendment reduced the number of penal provisions from 24 to 22 and made 12 provisions free of offense.

The move to increase the transparency requirements of LLPs comes at a time when a Pandora Papers investigation by the International Consortium of Investigative Journalists (ICIJ) showed that the wealthy elite of more than 200 countries and territories, including some in India, used shell entities. has done. Hide assets in lower tax jurisdictions. Low tax compliance has long been a regulatory headache for India, forcing the government to renegotiate bilateral tax treaties and sign automatic information exchange deals with foreign governments. Disclosure of assets belonging to an individual enables the authorities to see whether these are in proportion to the reported income.