The Companies Act, 2013, supplemented by the Companies (Management and Administration) Rules, 2014, mandates the declaration of beneficial interest in shares. This requirement is detailed under Section 89 of the Act and Rule 9 of the aforementioned rules. It ensures transparency and accountability in the ownership and beneficial interest of company shares. The concept of beneficial interest is crucial as it pertains to the rights associated with shares that may be registered in another’s name.
Statutory Requirement Pursuant to Section 89 of the Companies Act, 2013 (“the Act”) read with Rule 9 of Companies (Management and Administration) Rules, 2014:
- Where the name of a person is entered in the register of members of a company maintained under section 88 as the holder of shares in that company but who does not hold the beneficial interest* in such shares, such person shall make a declaration in Form MGT-4 within 30 days from the date on which his name is entered in the register of members of such company.
- Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company in Form MGT-5 within 30 days after acquiring such beneficial interest in the shares of the company.
Further, where any change occurs in the beneficial interest in such shares, the registered owner shall make a declaration of such change to the company in Form MGT-4 and the beneficial owner shall make a declaration in Form MGT-5 within a period of thirty days from the date of such change.
(* Beneficial Interest implies the rights associated with the shares of a company even if shares are owned in someone else’s name.)
Let’s understand with an example:
ABC Family Trust wants to purchase shares of Company X. Now, the Trust not being a separate legal entity cannot own shares in its own name. However, such shares can be registered in the name of one or more trustees/ trustee companies. Let us say Mr. P, acting as a trustee, on behalf of, ABC Family Trust purchases 20 shares of Company X on 15.01.2024.
This is when the provisions related to registered owner and beneficial owner come into play:
In the register of members/ List of Beneficial Owners (In case shares are held in dematerialized form) as maintained by the Company/ Depositories, respectively, Mr. P is the registered owner for the 20 shares purchased. However, the beneficial interest in such shares vests with ABC Family Trust.
In this case,
Mr. P is the registered owner and ABC Family Trust is the Beneficial owner.
Accordingly, Mr. P shall make a declaration to Company X in Form MGT-4 and ABC Family Private Trust shall declare its beneficial interest in such shares in Form MGT-5 within 30 days from where the transaction took place i.e. purchase of shares by Mr. P.
Compliances to be ensured by the Company:
Where any declaration in said forms MGT-4 and MGT-5 is received by the company, the company shall file Form MGT-6 within 30 days from the date of receipt of declaration by it.
Further, relevant entries shall be made in the register of members.
In the illustration above, Company X shall file form MGT-6 within 30 days of receipt of declaration in Form MGT-4 and MGT-5.
Such 30 days shall not include the date on which declaration is received by the company. i.e. Company X shall file form MGT-6 on or before 14.02.2024 post which additional fee shall be levied.
Attachments to the form:
- MGT-4 in the prescribed format received from the registered owner.
- MGT-5 in the prescribed format received from the beneficial owner.
- Self-attested ID Proofs of the registered owner and the beneficial owner.
- Instrument/ document under which the beneficial interest is created/ transferred/ changed.
(DEMAT transaction statement in case shares are held in dematerialized form or a written contract/ agreement/ resolution in case of shares being held in physical mode.)
Conclusion: The declaration of beneficial interest under the Companies Act, 2013, is a critical compliance mechanism that ensures transparency in shareholding structures. By mandating the filing of Forms MGT-4, MGT-5, and MGT-6, the legislation provides a clear framework for both registered owners and beneficial owners to declare their positions. This system helps in preventing misuse of shareholding and promotes a clear understanding of the actual beneficiaries of the shares, which is essential for the governance and administration of companies in India.
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very well explained