Compliances

Amendments in the Companies Rules and Revision of Form Number BEN 2

The Ministry of Corporate Affairs Government of India has recently released a notification on revision of form BEN 2 and amendment of the Companies {Significant Beneficial Owners} rules 2018 on 1^th July 2019. It is known as Companies {Significant Beneficial Owners} rules, 2019 after amendment. Let’s dig in deeper to know the details.

What is Form BEN 2?

Companies fill the Form no. BEN 2 to declare their beneficial owners under  Section 90 of the Companies Act 2013. Furthermore, the reporting company submits this form to the Registrar of Companies.

The Role of Section 90 of Companies Act, 2013 in Form BEN 2

The Section 90 {Investigation of beneficial ownership of shares in certain cases} of Companies Act 2013^[1] states that when the Central Government thinks there is a reason, it may appoint one or more authorized people to investigate and report about the beneficial ownership. This is done by checking their shares, or class of shares following the provisions of Section 216 and may act like it was ordered under this section of companies Act.

What does the MCA do? – Brief Introduction

MCA is the abbreviation given to the Ministry of Corporate Affairs. It regulates the corporate affairs in India through the Companies Act, 2013 and other allied acts. Its primary responsibilities include;

• Supervising the Competition Act, 2002 which prevent activities that affect the competition, also it promote and sustain competition in the industrial market and ensures public interests through the commissions established under this act 
• Directing the professional bodies namely, Chartered Accountants of India {ICAI}, Institute of Company Secretaries of India {ICSI} and Institute of Cost Accountants of India {ICAI}
•  It also administer the Partnership Act, 1932, Companies (Donations to National Funds) Act,1951 and the Societies Registration Act, 1980

Who is a Significant Beneficial Owner?

The significant beneficial Owner in relation to a reporting company refers to a person under Sub-Section 1 Section 90 of the Companies Act 2013, who is acting together or alone, with one or more individual (s) or trusts or possesses these rights in a company;

• 10 % or more of the shares,
• Voting rights- 10 % or more
• 10 % or more of the total attributable dividend, or other distributions,
• Or has right to exercise or exercises control or any type of influence in any manner other than direct holding. 

All About the Updates in Form BEN 2 and Companies Rules

The Ministry of Corporate Affairs has changed regulations in the Companies {Significant Beneficial Owners} rules on 1^st July 2019. Also they released a revised Form number BEN-2 which spells out the format in which companies will need to disclose their “{Significant Beneficial Owners (SBO)}” to the Registrar of Companies (RoCs).

The major updates of the amendments are as follows;

• These rules will come in to force on their publication date in the official Gazette
• The name of the rule will be changed to Companies {Significant Beneficial Owners} second amendment rules, 2019
• Now companies need to make public the declarations they receive from people claiming to be SBOs within 30 days. This helps the general public to know more about that company and their relevancy in the market.
• If a company fails to file the declaration in form no. BEN-2 to the registrar of companies or they deny inspection of the register, the respective company and every officer in that company will be liable for a fine from Rs 10 lakhs to Rs. 50 lakh.
• Furthermore, when the company continues to commit the offence they are fined with Rs. 1000 per day.
• And the principal rules for the form number BEN 2 will be changed as an effect of the revision

Highlights of the Companies {Significant Beneficial Owners} Amendment Rules, 2019

The last amendment in the Companies {Significant Beneficial Owners} amendment rules, 2019, held on 8^th February 2019. The key highlights of this amendment are;

• Definitions
  • the definition of “Control” under Section 2(27) of the Companies Act, 2013 is the right to appoint majority of directors or controlling the management or the policy decisions in any manner
  • The definition of “Form” is the form as stated in the Annexure of these rules
  • “Majority stake” means; possessing more than half equity share capital, more than half voting rights and the right to partake in more than half  of the distributable dividend or any other distribution of the company
  • any firm registered under the Indian Partnership Act, 1932 is
    “Partnership Entity”; a limited liability partnership registered under the limited liability partnership Act, 2008.
  • A company is a “Reporting Company” under Clause 20, Section 2 of the Companies Act and they need to comply with requirements of Section 90 of the same act.
  • “Section” depicts a section of the Act.
  • “Significant Beneficial Owners” – SBO Rules will be applicable to any of these company types(LLP, HUF, partnership or a foreign company ) holding 10% or more of the shares, voting rights, total distributable dividend, or other distributions, or has right to exercise or exercises control or any type of influence in any manner other than direct holding.  
• Second point explains the cases and the conditions to be followed by companies
• The third point specifies the duties of the reporting company as;
  • Taking steps to identifying a beneficial owner and make them to report the declaration in Form number BEN 1
  •  Giving notice to its members holding not less than 10 per cent of its; shares, voting rights or the right to receive or participate in the dividend or other distributions
• The fourth agenda specifies or rather declares an individual as Significant Beneficial Owner under the prescribed rules and when they need to file the type of declaration form.
• The fifth point provides details about the return of Significant Beneficial Owner. It specifies when the company receives the receipt of declaration under rule 3; the reporting company should file a return in form no. BEN 2 to the registrar of companies within 30 days and the  late fees
• The sixth point specifies the situation when a reporting company needs to apply to the tribunal (court of justice)
• The seventh point provides with the information and the situations when the reporting company do not need to comply with these rules.
• The details of the form is provided in the eight point are;
  • Form no. BEN 1: is the declaration by the beneficial owner who holds significant beneficial owner in shares. The SBO sumbits this form to the reporting company
  • Form no. BEN 2: is the return in respect of declaration under section 90 of Companies Act. The reporting company submits this form to the RoC
  • Form no. BEN 3: is the register of beneficial owners holding significant beneficial interest. And the reporting company maintain this.
  • Form no. BEN 4: the company give this notice of significant beneficial ownership to the respective individual. The reporting company gives this to the respective SBO

For full details of the previous amendment of the companies rules 2019, dated 8^th February 2019 click here.

New Amendment in Filing of Form Ben-2 in July 2019

In recent amendment, the MCA has extended the last date for filing e-form BEN-2 to 30th September 2019 without payment of additional fee. However,additional fee shall be payable after the prescribed time.

One can read the complete notification here,

PDF

Conclusion

The amendments in the Companies rule will let the people know all about the Beneficiary owners of a company. Making public these details increases the credibility of that company in the market. Also the form number BEN 2 was revised which will be used by these companies to reveal the details of their beneficial owners to the registrar of companies. Moreover, this has to be done within 30 days