Section 90 of the Companies Act 2013 substituted by a new set of law by the Companies Amendment Act, 2017 with the intent to identify Significant Beneficial Owner (SBO) in a company. The whole purpose of Sec 90 is to ensure that an artificial legal entity has a natural person who control its affairs.

The provisions are applicable to all companies– i.e., pubic as well as private companies, listed as well as unlisted companies, small as well as large companies.

Development on SBO law

1. 3rd January, 2018: President assent on Companies Amendment Act, 2017: Section 90 of the Companies Act, entirely substituted and brought new concept of Significant Beneficial Owner.

2. 13th June, 2018: MCA issued the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018 and enforced section 90 of the Amendment Act which require mandatory reporting of SBO details to MCA by 11th September, 2019

3. 6th September, 2018: MCA revised the time limit for filing the SBO details form, which would be 30 days from the date of deployment of SBO form (BEN-2 e-form) on the MCA-21 portal vide General Circular No. 07/2018 dated: 06/09/2018.

4. 8th February, 2019: MCA has notified the revised Rules on SBO i.e. Companies (Significant Beneficial Owner) Amendment Rules, 2019

According to revised SBO Rules, every individual, who indirectly or together with direct holding or with any other person, a) holds 10% or more share capital or b) holds 10% or more voting rights or c) has right to receive 10 % or more dividend and d) significant influence or control in the Reporting Company (which require to comply these SBO Rules and has to file BEN-2 to MCA) shall be considered as significant beneficial owner of Reporting Company.

Determining of Direct Holding: If a person have direct shareholding in reporting Company, he shall not be considered as a SBO and also he does not need to file any declaration to Reporting Company. An individual shall be considered to hold a direct holding, if:

  • Name of Individual is reflected in register of members of the Reporting Company
  • A person hold shares as a nominee as per Section 89 and declaration made under MGT-4 and MGT-5

Determining of indirect holding:

Where the member of Reporting Company is a Body Corporate The individual,–
a) Who holds majority stake in that member;
b) Who holds majority stake in the ultimate holding company of that member
Where the member of Reporting Company is a HUF The individual is the Karta of the HUF
Where the member of Reporting Company is a Partnership firm The individual who
a) Is a partner; or
b) Holds majority stake in the body corporate which is a partner of the partnership firm;
c) Holds majority stake in the Ultimate Holding Company of the body corporate which is a partner of the partnership firm.
where the member of the reporting company is a trust The individual who is
a) trustee in case of a discretionary trust or a charitable trust;
b) a beneficiary in case of a specific trust;
c) the author or settlor in case of a revocable trust.

Here Majority stake means:

1. holding of more than 50% of the equity share capital in the body corporate; or

2. holding of more than 50% of the voting rights in the body corporate; or

3. having the right to receive or participate in more than 50% of the distributable dividend or any other distribution by the body corporate

Example:
Mr. P (Individual) 60%→  M/s Holding Ltd (Holding Co.) 10%  →M/s T Limited (Target Co.)In above example, Mr. P holds majority stack in M/s. Holding Ltd and M/s. Holding Ltd holds 10% in M/s T Limited. As Mr. P holds majority stack (more than 50%) in M/s. Holding Ltd therefor, Mr. P has indirect interest and considered as SBO. Mr. P has to give declaration in form BEN-1 to T Ltd.

Declaration of beneficial interest by SBO

Initial Disclosure Every individual who is a SBO in a reporting company, is required to file a declaration in Form No. BEN-1 to the reporting company within 90 days from February 8, 2019.
Continual Disclosure Subsequently becomes a SBO/ or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein

Return of significant beneficial details by Reporting Company

Upon receipt of declaration in Form No. BEN-1 from SBO, Reporting Company has to file a return to MCA within 30 days from the date of receipt of such declaration.

Maintaining of Register of SBO

The Reporting Company shall maintain a register of significant beneficial owners in Form No. BEN-3.

Non-Applicability:

The rules are not applicable to the extent the shares of the reporting company is held by:

1. IEPF Authority

2. its holding reporting company, however, the details of such holding reporting company shall be reported in Form BEN-2

3. reporting company controlled by government

4. SEBI regulated Investment Vehicles

5. Investment Vehicles regulated by RBI, or IRDA, or Pension Fund Regulatory and Development Authority

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