LLPs Governance Reforms
Good Corporate Governance has been one of the cornerstones of the current government’s corporate policies and latest notification regarding the amendments to the LLP Act only puts more emphasis on it. With a view to ensure better compliance and monitoring of LLPs, the MCA has decided to make certain provisions of the Companies Act, 2013 pertinent to LLPs, thus plugging significant loopholes in LLP Act with respect to its compliance.
- The first amendment speaks about the applicability of Section 90 (Register of beneficial owners) of CA, 2013 to LLP. This change would be a huge predicament for the ones who created LLPs to avoid disclosure of beneficial owners. The synopsis of Section 90 of Companies Act ,2013 is that every Significant Beneficial Owner will have to make declarations to the reporting company and such reporting company shall maintain a register of such significant beneficial owners in the prescribed form. Moreover, the reporting company is required to intimate such declarations to the Registrar. Hence speaking in context of LLPs, LLPs will have to not only maintain records but also make proper and accurate disclosures regarding their significant beneficial owners.
- The next amendment speaks about the applicability of certain provisions relating to directors in the Companies Act. Section 164 (1) & (2); Section 165 (1), (3) to (6); Section 167 (1) to (3) are the provisions that are going to be applicable to LLPs. In a nutshell, all disqualifications applicable to directors, limits of directorships and circumstances for vacation from office shall now be applicable upon the Designated Partners of LLPs. However certain provisions like Section 167(4) [which is only applicable to a private company] & Section 165(2) will not be applicable. Hence LLPs will have to thoroughly focus on filing financial statements and annual returns on time and not to trudge upon any events where Designated Partners will face disqualification or vacation from office.
- The next amendments are the applicability of Section 206 (5), Section 207 (3) & Section 252 (1)-(3) of the Companies Act ,2013. This means that once this notification comes into effect, the Registrar will have the power to call for information, inspect books and conduct inquiries in respect of any LLP and if any person ,creditor ,workmen or LLP itself is aggrieved by the order of ROC stating dissolution, an appeal can be made within the time limits prescribed in the section as will be provided by the Government.
- The final amendment is the applicability of Section 439 (1) –(4) of the Companies Act , 2013.This section primarily specifies that all offences are deemed non-cognizable and no court shall take cognizance of an offence except on a complaint in writing by the registrar, a shareholder or by a person authorized by the Central Government.
Transparency and effective monitoring mechanisms are important pedestals of efficient compliance. MCA by making the above-mentioned provisions applicable to LLPs intends to make them more transparent and compliant. Increased transparency and compliance do not only lead to increased stakeholder confidence but also depict good corporate governance. Hence LLPs should take note of this and act accordingly.