Governing Laws of Significant Beneficial Owner (SBO)
1. Section 90 of the Companies Act, 2013
2. Companies (Significant Beneficial Owners) Rules 2018
3. Companies (Significant Beneficial Owners) second Amendment Rules, 2019
As per Section 90 of Companies Act, 2013, every individual, who acting alone or together, or through one or more persons or trust, including a trust and person’s resident outside India, has (indirectly or indirect with direct holdings) following rights in reporting company:
1. Holds not less than 10% of the shares;
2. Holds not less than 10% of the voting rights in the shares;
3. Has right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution, in a financial year on his holding
4. Has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone:
Direct Holding: Means any person (individual) satisfy any of the following criteria i.e. holding shares of the company
- on his own name and his name appeared in the Register of Member of the reporting company,
- if any individual (Beneficial Owner) who holds or acquires a beneficial interest in the shares of the reporting company under sub-section (2) of section 89, and has made a declaration in Form MGT-5 in this regard to the reporting company. Further, he will be treated as the member of the company.
Indirect Holding: If name of the Individual is not appeared in the Register of Members of the reporting Company. Further, an individual shall be considered to hold a Right or Entitlement Indirectly in the reporting company, if he satisfies any of the following Criteria, in respect of a Member of the reporting company, namely: –
1. In case the Member of Reporting Company is any Body Corporate (Whether Incorporated Or Registered In India Or Abroad) and
The individual, –
- Holds Majority Stake* in that member; or
- Holds Majority Stake* in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;
2. In case the Member of Reporting Company is any Hindu Undivided Family (Huf) (through Karta) and
The individual is the Karta of the HUF.
3. In case the Member of Reporting Company is any Partnership Entity (Through itself or A Partner) and
The individual, –
- Is a partner; or
- Holds majority stake in the body corporate which is a partner of the partnership entity; or
- Holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
4. In case the Member of Reporting Company is any Trust (Through Trustee)
The individual, –
- is a trustee in case of a Discretionary Trust or a Charitable Trust;
- is a beneficiary in case of a Specific Trust;
- is the author or settlor in case of a Revocable Trust?
5. In case the Member of Reporting Company is
(a) A Pooled Investment Vehicle (i.e Mutual Fund, Venture Captital Fund, etc.) ; or
(b) An Entity Controlled by the Pooled Investment Vehicle,
based in member State of the FATF on Money Laundering and the regulator of the securities market in such member State is a member of the IOSCO.
Further, the individual in relation to the Pooled Investment Vehicle is-
(a) A General Partner; or
(b) An Investment Manager; or
(c) A CEO where the Investment Manager of such pooled vehicle is a Body Corporate or a Partnership entity.
Reporting Company: Means a company as defined under section 2(20) of the Companies Act, 2013, which required to comply with the provisions of Section 90 & identify the SBO. Further, cause him to comply with same provisions related to SBO.
Significant Influence: Means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies.
Note: Only Indirect holding OR Direct + Indirect holding shall attract the provisions of the Significant Beneficial owner (SBO).
Procedural requirement for SBO under Section 90 & Rules made thereunder:
- Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to file a declaration in Form BEN-1 to the reporting Company.
- The SBO shall file form within 90 days from the commencement of Companies (Significant Beneficial Owners) second Amendment Rules, 2019. Further, where an individual becomes SBO subsequently, he has to file such form within 30 days from acquiring such ownership and any change thereon.
- Upon receipt of declaration as above, the reporting company shall file a return in Form No. BEN-2 with the Registrar in regards with such declaration, within 30 days along with the fees.
- The company shall maintain a register of significant beneficial owners (SBO) in Form No. BEN-3.
- Without prejudice the generality of the procedure as above stated, every reporting company shall give notice, in Form No. BEN-4, to any person (whether he is a member of the company or not) where company believes or has reasonable cause to believe—
1. to be a SBO of the company;
2. to be having knowledge of the identity of a SBO or another person likely to have such knowledge; or
3. to have been a SBO of the company at any time during the immediately preceding last 3 years from notice is issued,
Further, who is not registered as a significant beneficial owner with the company as required under section 90.
- Such person has to provide such information with 30 days from receipt of notice from reporting company.
Application to the Tribunal (NCLT)
The reporting company shall make the application to the tribunal if:
- Such person fails to provide the information required by notice in form BEN-4 within 30 days or
- Information provided is not satisfactory
Within a period of 15 days of the expiry of the period specified in the notice, for order directing that the shares in question be subject to restrictions with regards to
- Transfer of interest,
- Suspension of all rights (right related to dividend or voting right) attached with the shares.
- Any other restriction.
Further, the tribunal after giving the opportunity of being heard to both the concerned parties, pass the order as deemed fit, within 60 days of receipt of application.
Further, if any party is aggrieved by the order, may make application for relaxation or lifting of the restrictions within 1 year from the date of order.
If no such application has been filed within a period of 1 year from the date of the order, such shares shall be transferred, without any restrictions, in the Government bank’s account i.e. IEPF Account.
Non-Applicability of the said Rules & Regulations
The SBO Rules shall apply to every type of Companies (Small/Private/Public/Listed)
except to the extent the share of the reporting company is held by: –
1. The authority constituted under sub-section (5) of section 125 of the Act (i.e. IEPF);
2. Its holding reporting company: Provided that the details of such holding reporting company shall be reported in Form No. BEN-2.
Note: A holding reporting Company means a Company which required to file Form BEN-2.
3. The Central Government, State Government or any local Authority;
4. (i) A reporting company, or
-
- A body corporate, or
- An entity,
Controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;
5. Securities and Exchange Board of India registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by the Securities and Exchange Board of India,
6. Investment Vehicles regulated by Reserve Bank of India (RBI), or Insurance Regulatory and Development Authority of India (IRDAI), or Pension Fund Regulatory and Development
Conclusion: If any individual becomes the significant beneficial owner (SBO), Then, he is required to comply with the provisions of the section 90 of Companies Act, 2013, Companies (Significant Beneficial Owners) Rules 2018 and Companies (Significant Beneficial Owners) second Amendment Rules, 2019. Further, reporting companies also required to file declaration to ROC and shall be required to comply with the above mentioned provisions. Accordingly, there is responsibility on both.
Author Bio
PQR LLP (Reporting LLP) has 2 Partners:
XYZ LTD hold 80% (Body Corporate)
Mr. L hold 20% (Individual)
XYZ LTD has 3 shareholders:
Mr. X hold 50% (individual),
Mr. A hold 1% (individual) &
ABC PVT LTD hold 49% (body corporate).
ABC PVT LTD has 2 shareholders:
Mr. X holding 99% (individual)&
Mr. M 20% (individual).
Except Mr. L all are related parties in some or the other way.
How will the provisions of LLP (SBO) Rules 2023 will be applicable in this case and what will be the percentage of beneficial interest that will be reported to the reporting LLP by XYZ LTD?