The Ministry of Corporate Affairs ("MCA") on October 27, 2023, issued certain amendments vis-à-vis private companies and limited liability partnerships ("LLPs") impacting issuance of shares, declaration of beneficial interest etc. to increase accountability and disclosures. The 3 (three) key notifications amended are: the Companies (Prospectus and Allotment of Securities) Rules, 2014, the Companies (Management and Administration) Rules, 2014, and the Limited Liability Partnership Rules, 2009, which are discussed in detail below.

1. Dematerialisation of Securities

MCA has notified Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 ("Prospectus Amendment Rules") vide notification no. G.S.R. 802(E) dated October 27, 2023. The Prospectus Amendment Rules have revised Rule 9 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, by adding new sub-rules relating to dematerialisation of securities. Some of the changes include:

a. Dematerialization of share warrants by public companies: In terms of Rule 9(2), all public companies that had issued share warrants prior to commencement of the Companies Act, 2013 and have subsequently not converted the same, are now required to inform the Registrar about the details of such share warrants in Form PAS-7, within 3 (three) months from the date of commencement of the Prospectus Amendment Rules i.e., October 27, 2023.

Rule 9(3) requires the bearers of the aforesaid share warrants to surrender such warrants to the company and get the shares dematerialised in their account and for this purpose the company is required to place a notice for the bearers of share warrants within 6 (six) months of commencement of Prospectus Amendment Rules. In case the bearer of the share warrant does not surrender the same within such period of 6 (six) months, the company is required to convert such share warrants into dematerialised form and transfer the same to the Investor Education and Protection Fund.

b. Dematerialisation of securities by private companies: The new Rule 9B inter alia requires private companies to issue securities only in dematerialised form and has provided a period of 18 (eighteen) months from March 31, 2023 to comply with the said requirement. However, an exemption has been provided to small companies and government companied from complying with the aforesaid provision.

Going forward, all private companies are required to ensure that prior to making any offer for issue of any securities including bonus and rights issue or buyback of securities or transfer of securities, entire holding of securities of its promoters/directors/KMPs/transferor are in dematerialised form.

2. Appointment of designated person for disclosing beneficial interest in shares

MCA has notified Companies (Management and Administration) Second Amendment Rules, 2023 ("Management Amendment Rules") vide notification no. G.S.R. 801(E) dated October 27, 2023 relating to declaration of beneficial interest in any shares.

The Management Amendment Rules inter alia require every company to designate an individual who will be responsible for furnishing and extending co-operation for providing information to the Registrar with respect to beneficial interest in shares of the company. In this regard, the company may designate any of the following individuals as the designated persons:

a. A company secretary; or

b. Key managerial personnel; or

c. Every director in case there is no company secretary or key managerial personnel.

The details of the designated individual is required to be furnished by the company in its annual return and any change in the details of the designated induvial is required to be intimated to the Registrar in e-Form GNL-2.

3. Maintenance of register of partners and disclosure of beneficial interest by LLPs

MCA has notified Limited Liability Partnership (Third Amendment) Rules, 2023 ("LLP Amendment Rules") vide notification no. G.S.R. 803(E) dated October 27, 2023. The LLP Amendment Rules have inserted Rule 22A and Rule 22B which require the following:

a. Maintenance of Register of Partners: In terms of Rule 22A, every LLP is required to maintain a register of partners in Form 4A from the date of its incorporation to be kept at the registered office of the LLP. A period of 30 (thirty) days has been provided to the LLPs existing prior to commencement of LLP Amendment Rules to comply with the aforesaid compliance. The register of partners should inter alia include details of partners, amount and nature of contribution (indicating tangible, intangible, movable, immovable or other benefits to the LLP) and any other interest of the partner. In case of any change in the aforesaid details of the partners, entries concerning the same is required to be made by the LLP within 7 (seven) days of such change.

b. Declaration in respect of beneficial interest in any contribution: Rule 22B inter alia requires declaration of beneficial interest in any contribution in the LLP to the Registrar of Companies as under:

i. Form 4B - A declaration is required to be filed by the Registered Partner (a person whose name is entered in the register of partners but does not hold any beneficial interest in the contribution) within 30 (thirty) days from the date on which such Registered Partner's name is entered in the register of partners, specifying the name and other particulars of the person who holds the beneficial interest in such contributions.

ii. Form 4C - A declaration is required to be filed by the Beneficial Partner (person who holds beneficial interest in a contribution to the LLP but whose name is not registered in the Register of Partners) with 30 (thirty) days of acquiring such beneficial interest in the contribution of the LLP specifying the nature of interest, particulars of the partner in whose name the contribution is registered in the books of the LLP.

iii. Form 4D - The LLP upon receipt of declarations in Form 4B and 4C by the Registered Partner or Beneficial Partner, is required to furnish the same to the Registrar within 30 (thirty) days from the date of receipt of such declaration.

iv. Form 4 - Every LLP is required to specify a designated partner responsible for furnishing and extending co-operation for providing information to the Registrar with respect to the beneficial interest in contribution in the LLP. Further, details of such designated partner are required to be reported by the LLP in Form 4.

The aforesaid amendments appear to have been introduced with the intention of increasing transparency and accountability of private companies and LLPs and to identify the true owners of the shares. Many shareholders who prefer to have their shares in physical form have raised concerns to the amendment pertaining to issuance of shares in dematerialised form. Concerns are also being raised by LLPs for being made responsible for more compliances and making the operations of LLPs more cumbersome.

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