Disclosure of Significant Beneficial Ownership

Narendra Kumar

08 May, 2019

The disclosure requirement for significant beneficial ownership has been amended by the ministry of corporate affairs. The reporting companies need to disclose the details such as name, PAN and nationality of the beneficial owner.

What is Significant Beneficial Ownership?

Every individual who possesses one or more of the following rights (whether acting alone or together or through one or more person or trusts) in such reporting company by holding directly or together with direct holding-

• Shares of not less than 10%.
• Voting rights not less than 10% in the shares.
• Right to exercise, significant influence or control in any manner other than through direct holdings.
• Right to receive or participate in not less than 10% of the total distribution of dividend, in a financial year.
• Right to exercise or actual exercise significant influence or control in any manner other than through direct holding.

Direct holding refers to an entitlement where an individual shall be considered to hold a right in the reporting company, by satisfying any of the criteria-

• The shares representing such right (entitlement) are held in the name of the individual.
• He holds or acquires a beneficial interest in the share of the reporting company and has made a declaration regarding that.

Indirect holding refers to an entitlement where an individual shall be considered to hold (entitlement) directly in the reporting company by satisfying any of the criteria, in respect of the members of the reporting company. The member of the reporting can be-

• Body corporate Member whether registered in India or Abroad other than individual and LLP.
• HUF member-An SBO Will Be Individual Who Is Kurta Of HUF
• Partnership Member-An SBO Will Be the Individual Who Is A Partner/Or Holds Major Stake in The Body Corporate Which Is the Partner in The Firm/Holds Major Stake*in The Holding Company of The Body Corporate
• Trust member-An SBO Will Be the Individual Who is a Trustee in Case of a Discretionary Trust/Charitable Trust/Author/Settlor in Case Of Revocable Trust.

An SBO In Case of Pooled Investment Will Be Individual Who is a General Partner/Investment Manager/Chief Executive Officer

Scenario of Significant Beneficial Ownership in India

Taking into consideration the recent changes, most significant developments has been made according to which the individual as significant beneficial owner is now based on direct and indirect holding of right or entitlement in the reporting company. In order to bring transparency Section 90 was as per the Companies Act 2013 was introduced which deals in the disclosure of significant beneficial owner of a company and compliance thereof. Due to some ambiguities found in the in 2018 SBO Rules, the MCA has suspended the prescribed filings and meanwhile some changes have been introduced in section 90.

Applicability

All listed entities shall be required to disclose all the information related to significant beneficial owners in the format prescribed at Annexure specified by the SEBI circular.

Note-Listed entities that are reporting company under Companies (Significant Beneficial owners) Rules 2018 is required to disclose details pertaining to significant beneficial owners in the specific format.

The details of beneficial ownership by the SBO shall be submitted to the company within the timeline of 90 days as granted by the MCA from the date of enforcement of the amendment of the SBO Rules.

Non Applicability

Certain classes of Individuals are exempt from making disclosure under the SBO Rules-

• IEPF (Investor education and protection Fund)
• Holding reporting company of the reporting company
• Central government, State government and local Authority and entities controlled by the central and state government whether fully or partially.
• Investment vehicles registered with SEBI, IRDA, RBI and Pension fund Regulatory and development authority.

Compliance under the New SBO Rules

• Every Significant Beneficial Owner and every time any individual acquires significant beneficial ownership in a company, required to make a declaration in Form No. BEN-1 in the respective company in which the individual holds the significant beneficial ownership within 90 days of the New SBO Rules coming into effect and in case of individual acquires SBO in company has to be file BEN-1 within 30 days of acquiring such significant beneficial ownership.
• After declaration by an SBO is received by the reporting company, the reporting company is required to, file a return in Form No. BEN-2 within 30 (thirty) days of receiving such declaration, with the relevant registrar of companies in respect of each such declaration received by the reporting company.
• It is required to maintain a register of SBOs in Form No. BEN-3 by the company which shall be available for inspection to the shareholders.
• Every company will be required to give notice in Form No. BEN-4 to all its members (who are not individuals) who hold more than 10% of the shares asking the members to, inter alia, disclose information of the SBO of the member.

However, in case no declaration is filed by the SBOs to the reporting company or where the information provided by the SBOs is deemed unsatisfactory by the reporting company, the reporting company is entitled to apply to the NCLT for imposing restrictions on the shares held by the SBOs.

Requirement of intimating the ROC regarding the identification of SBOs

The declaration is required to be filed in Form No. BEN-2 of beneficial interest received by the company, with the Registrar in respect of such declaration, within a period of 30 days from the date of receipt of declaration by it, by the company.

Records to be maintained by the SBOs

Every company is required to maintain a register in Form BEN-3 and it shall be open for inspection by any members of the company during business hours not less than 2 hours on payment of such fees not exceeding 50 Rs for each inspection.

Conclusion

SBO rules has been drastically changed with the intent to facilitate the implementation of the provision and with the aim to remove the practical difficulties faced by the stakeholders in complying with the requirements of the provisions. The revised Rules and forms came into existence to simplify ease the practical implementation of the Rules.