To facilitate the implementation of the\nprovision and to remove the practical difficulties faced by the stakeholders in\ncomplying with the requirements of the provisions:<\/p>\n\n\n\n
- The MCA on 8 February 2019 (Effective Date) has\nnotified the Companies (Significant Beneficial Owners) Amendment<\/a> Rules, 2019 (also\nknown as SBO Amendment Rules). <\/li>
- The amendments were much-awaited and follow the\nnotification of the principal rules on 14 June 2018, where a shareholding of\n10% or more of an Indian company was considered as the threshold for\ndetermining ‘significant beneficial ownership’.<\/li>
- The principal rules caused a fuss because of the\nlow threshold limit of 10% for determination of significant beneficial\nownership as compared to the 25% threshold in most of the developed countries.<\/li>
- In\naddition, there were various ambiguities and interpretation issues which were\nsubsequently raised with the MCA by various stakeholders.<\/li><\/ul>\n\n\n\n
The following article explains the revised\nrequirement of the rules and responsibilities of the companies and the\nimmediate actionable to be taken in order to comply with the revised\nrequirements. But before moving ahead, let us try to discuss few of the terms\nin detail for better understanding.<\/p>\n\n\n\n
What is Significant Beneficial Ownership (SBO)?<\/strong><\/h2>\n\n\n\n
As per the amended Section 90 of the Companies Act, 2013<\/a>, SBO can be understood as under:<\/p>\n\n\n\n
![\"Significant](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/03\/Significant-Beneficial-Ownership-1024x385.png\")
<\/figure><\/div>\n\n\n\nAccordingly,\nthe revised rules provides the following definition as –<\/p>\n\n\n\n
“Significant Beneficial Owner in relation to a\nreporting company means an individual referred to in sub-section (1) of section\n90, who acting alone or, together, or through one or more persons or trust, who\npossesses one or more of the following rights or entitlements in such company,\nnamely:-<\/p>\n\n\n\n
- Holds\nindirectly, or together with any direct holdings, not less than ten percent of\nthe shares;<\/li>
- Holds indirectly,\nor together with any direct holdings, not less than ten percent of the voting\nrights in the shares;<\/li>
- Has the\nright to receive or participate in not less than ten percent of the total\ndistributable dividend, or any other distribution, in a financial year through\nindirect holdings alone, or together with any direct holdings;<\/li>
- Has the\nright to exercise or actually exercises, directly or indirectly, significant\ninfluence or control, in any manner other than through direct holdings alone.<\/li><\/ul>\n\n\n\n
What is Indirect\nHolding?<\/strong><\/h2>\n\n\n\n
If an individual does not hold any right or entitlement\nindirectly as per the above-mentioned clauses, then he should not be considered\nto be a significant beneficial owner. Therefore, in order to be an SBO, a\nperson must have an indirect right or entitlement and where the person has only\ndirect holding, he shall not be termed as the SBO. <\/p>\n\n\n\n
How would you determine\nDirect Holding and Indirect Holding?<\/strong><\/h2>\n\n\n\n
You can determine the holdings in the way mentioned below:<\/p>\n\n\n\n
Determining Direct Holding<\/strong><\/h4>\n\n\n\n
An\nindividual shall be considered to hold a right or entitlement directly in the\nreporting company, if he satisfies any of the following criteria:<\/p>\n\n\n\n
- The shares in the reporting company representing such a right or entitlement are held in the name of the individual – this means that the name of such person should be reflected in the register of members of the company.<\/li>
- The individual holds or acquires a beneficial interest in the share of the reporting company under sub-section (2) of section 89, and has made a declaration in this regard to the reporting company – this means that the company <\/a>must be fully informed about the details of such person by furnishing form MGT 4 and MGT 5.<\/li><\/ul>\n\n\n\n
Determining Indirect Holding<\/strong><\/h4>\n\n\n\n
An individual is considered to hold a right or entitlement in a direct if he satisfies any of the following criteria’s:<\/p>\n\n\n\n
![\"\"](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/03\/Significant-Beneficial-Ownership-1.png\")
<\/figure><\/div>\n\n\n\nRevised\nKey Terms<\/strong><\/h2>\n\n\n\n
The following key terms are very important to know:<\/p>\n\n\n\n
1. Majority\nStake: <\/strong>This term has been newly inserted in the amended rules which\ndefine:<\/p>\n\n\n\n
- Holding of more than 50% of the equity share\ncapital in a body corporate; or<\/li>
- Holding of more than 50% of the voting rights in\na body corporate; or<\/li>
- Having the right to receive or participate in\nmore than 50% of the distributable dividend or any other distribution by the\nbody corporate.<\/li><\/ul>\n\n\n\n
2.\nPerson Acting Together: <\/strong>If any individual or a group of individuals\nacting through any person or trust, act with a:<\/p>\n\n\n\n
- Common intent; or<\/li>
- Purpose of exercising any rights or\nentitlements; or<\/li>
- Exercising control; or<\/li>
- Significant influence,<\/li><\/ul>\n\n\n\n
on a reporting company through an agreement which can be\nformal or informal. Hence, such individuals or a group of individuals shall be\ndeemed to be ‘acting together’.<\/p>\n\n\n\n
3.\nShares: <\/strong>Shares apart from including equity shares also includes\ninstruments in the form of Global Depository Receipts, compulsorily convertible\npreference shares or compulsorily convertible debentures shall also be treated\nas shares.<\/p>\n\n\n\n
Declaration\nof Significant Beneficial Ownership under Section 90<\/strong><\/h2>\n\n\n\n
We can divide the declaration into two stages:<\/p>\n\n\n\n
- Initial\nMandatory Disclosure:<\/strong> On the date of commencement of the Companies\n(Significant Beneficial Owners) Amendment Rules, 2019, every individual who is\na significant beneficial owner in a reporting company, shall file a declaration\nin Form No. BEN-1 to the reporting company within ninety days from the date of\nthis notification i.e. 8th February, 2019<\/li>
- Continual\nDisclosure:<\/strong> Where an individual becomes a significant\nbeneficial owner, or where his significant beneficial ownership undergoes any\nchange shall file a declaration in Form No. BEN-1 to the reporting company,\nwithin 30 days of acquiring such significant beneficial ownership or any change\ntherein.<\/li><\/ul>\n\n\n\n
Return\nof SBO in shares<\/strong><\/h2>\n\n\n\n
The reporting company shall file a return in Form No. BEN-2\nwith the Registrar in respect of such declaration, within a period of thirty\ndays from the date of receipt of such declaration<\/p>\n\n\n\n
Non\nApplicability of the Amendment<\/strong><\/h2>\n\n\n\n
These rules would not be applicable to the extent the share\nof the reporting company is held by:<\/p>\n\n\n\n
- Continual\nDisclosure:<\/strong> Where an individual becomes a significant\nbeneficial owner, or where his significant beneficial ownership undergoes any\nchange shall file a declaration in Form No. BEN-1 to the reporting company,\nwithin 30 days of acquiring such significant beneficial ownership or any change\ntherein.<\/li><\/ul>\n\n\n\n
- Initial\nMandatory Disclosure:<\/strong> On the date of commencement of the Companies\n(Significant Beneficial Owners) Amendment Rules, 2019, every individual who is\na significant beneficial owner in a reporting company, shall file a declaration\nin Form No. BEN-1 to the reporting company within ninety days from the date of\nthis notification i.e. 8th February, 2019<\/li>