Summary: Sections 89 and 90 of the Companies Act, 2013, address different aspects of share ownership transparency. Section 89 focuses on disclosing legal ownership when the registered shareholder is not the ultimate beneficial owner. This often occurs when a company holds shares in a wholly-owned subsidiary through nominee shareholders to meet statutory minimum member requirements, or when securities are held in a nominee’s name to comply with limits under Section 187. In such cases, the nominee files Form MGT-4, the beneficial owner (e.g., the holding company) files Form MGT-5, and the company intimates these declarations to the Registrar of Companies via Form MGT-6. In contrast, Section 90 targets Significant Beneficial Ownership (SBO), aiming to uncover individuals who ultimately control or influence a reporting company, directly or indirectly, holding 10% or more. This includes holdings through various entities like other body corporates, HUFs, partnership firms, trusts, or pooled investment vehicles. SBOs must declare their interest in Form BEN-1 to the company, which then files Form BEN-2 with the ROC and maintains an SBO register in Form BEN-3. This provision helps prevent illicit activities like money laundering and tax evasion by identifying the true individuals behind corporate structures.
SECTION 89 VS SECTION 90
Sections 89 and 90 of the Companies Act, 2013 are commonly confused, yet they serve fundamentally different purposes. Section 89 focusing on legal ownership disclosures and Section 90 focusing on uncovering ultimate beneficial ownership for corporate transparency.
SECTION 89 OF THE COMPANIES ACT, 2013:
Normally, every member holding shares in a company possesses both ownership and beneficial rights which are normally vested in the same person. However, when ownership rights and beneficial rights are held by different persons, Section 89 of the Companies Act, 2013 will be applicable.
This situation commonly arises when a company proposes to make another company as its wholly owned subsidiary (WOS). In such case, the holding company must hold 100% of the shares in its WOS. However, to comply with the statutory requirement of minimum number of members in the WOS, the holding company may hold at least one share through a nominee shareholder.
Further, The Act also mandates that all the properties and securities should be held by the companies in its own name. However, proviso to Section 187 allow the Companies to hold securities in the name of its nominee(s) to comply with statutory limits.
In such instances, Section 89 mandates
Nominee shareholder to submit Form MGT-4, declaring that they hold the shares on behalf of the holding company;
The Holding company to submit Form MGT-5, declaring its beneficial ownership of the shares and
The WOS to file Form MGT-6 to intimates these declarations with the Registrar of Companies (ROC).
SECTION 90 OF THE COMPANIES ACT, 2013:
The Section 90 of the Act deal with compliance of Significant Beneficial Ownership (SBO).
The SBO who holds indirectly along with directly holdings, holds not less than 10% or more in the reporting company, required to file a declaration in Form BEN 1 with reporting company which in turn files an intimation to ROC in BEN 2 about the SBO and his ownership.
Here, the SBO can hold indirect holdings through
- a body corporate, whether incorporated in india or abroad;
- Hindu Undivided Family;
- Partnership firm;
- Trust;
- Pooled Investment vehicles or its parent entity.
The reporting company is required to maintain a Register in Form BEN 3 containing details of SBO and its holdings.
The reporting company shall identify the SBO and notify him to comply with this section. In case, such SBO not provides required information or failed to comply with the provisions, the reporting company can apply to NCLT to restrain the SBO to transfer of his shares or suspend his all rights w.r.t. those shares.
The intent of the lawmakers behind this provision is to prevent SBOs from using companies as channels for money laundering, tax evasion, and other illegitimate transactions related to the reporting company.
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