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The Government of India has amended the significant beneficial ownership rules for companies, putting in place a more clear regulatory framework that would also help identify entities that might be controlled from outside the country. The Ministry of Corporate Affairs (MCA) has issued amendments to the Significant Beneficial Ownership rules under the Companies Act, 2013.
Apart from providing more clear definitions for determining whether an individual or an entity has significant beneficial ownership, corporate will be required to provide the details in a more elaborate manner to the ministry. For the first time, the ministry issued the rules pertaining to significant beneficial owners in June 2018.
The amended rules are clear, precise and “all forms of control” that could be exercised in the affairs of a company are being captured.
To facilitate the implementation of the provision and to remove the practical difficulties faced by the stakeholders in complying with the requirements of the provisions:
The following article explains the revised requirement of the rules and responsibilities of the companies and the immediate actionable to be taken in order to comply with the revised requirements. But before moving ahead, let us try to discuss few of the terms in detail for better understanding.
As per the amended Section 90 of the Companies Act, 2013, SBO can be understood as under:
Accordingly, the revised rules provides the following definition as –
“Significant Beneficial Owner in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or, together, or through one or more persons or trust, who possesses one or more of the following rights or entitlements in such company, namely:-
If an individual does not hold any right or entitlement indirectly as per the above-mentioned clauses, then he should not be considered to be a significant beneficial owner. Therefore, in order to be an SBO, a person must have an indirect right or entitlement and where the person has only direct holding, he shall not be termed as the SBO.
You can determine the holdings in the way mentioned below:
An individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria:
An individual is considered to hold a right or entitlement in a direct if he satisfies any of the following criteria’s:
The following key terms are very important to know:
1. Majority Stake: This term has been newly inserted in the amended rules which define:
2. Person Acting Together: If any individual or a group of individuals acting through any person or trust, act with a:
on a reporting company through an agreement which can be formal or informal. Hence, such individuals or a group of individuals shall be deemed to be ‘acting together’.
3. Shares: Shares apart from including equity shares also includes instruments in the form of Global Depository Receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall also be treated as shares.
We can divide the declaration into two stages:
The reporting company shall file a return in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of such declaration
These rules would not be applicable to the extent the share of the reporting company is held by:
The revised format of the Forms BEN-1, BEN2, BEN-3 and BEN -4 has been provided, however, the electronic version of the BEN-2 is still awaited. For more information, you can read the official notification here
While the revised rules and forms seem to simplify and ease the practical implementation of the rules, the real test will be for the companies to ensure compliance of the revised requirements and to implement them. Due to the lowered threshold limit for determining the ownership, the compliance burden of the companies will increase drastically and, hence, it will be interesting to witness how the companies implement the provisions of the revised rules.