The Provisions of Significant Beneficial Ownership (SBO), in a different form, been part of the Companies Act, 1956, under section 180(7) (3). The new avatar comes under Section 90 of the Companies Act, 2013, as amended in 2017.

The issue of the misuse of multi-layered corporate entities has grabbed attention of various policymakers and regulators. Regulatory authorities have adopted a step-by-step approach and tried to address this issue by enacting various legislations, notable among them being:

MCA

Significant Beneficial Owner:

Every individual,

> who acting alone or together, or

> through one or more persons or trust,

Possesses one or more of the following rights or entitlement in such reporting Company

Hold Directly OR together with Direct Holding

I. Not Less than 10% of Shares;

II. Not less than 10% of Voting Right in the shares;

III. Has right to receive or participate in not Less Than 10% of the total distribution of Dividend, or any other distribution, in a financial year (through indirect holding or together with any direct holding)

IV. Has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings along.

NOTE:

EXPLANATION-1: If an individual does not hold any right or entitlement indirectly under clause (i), (ii) and (iii) as mentioned above. He shall not be considered to be a significant beneficial owner.

DIRECT HOLDING OF RIGHT AND ENTITLEMENT:

Meaning of Hold ‘Right or Entitlement Directly” an individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, namely:-

a. The shares in reporting company representing such right or entitlement are held in the name of Individual;

b. The individual holds or acquires a beneficial interest in the share of the reporting company under section 89(2), and has made a declaration in this regard to the reporting company

INDIRECT HOLDING OF RIGHT AND ENTITLEMENT:

Meaning of Hold ‘Right or Entitlement Indirectly an INDIVIDUAL shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely:

A. Body Corporate Member:

Where the member of reporting Company is a body corporate.

Note:

  • Whether incorporated or registered in India Or
  • Whether Incorporated or registered in abroad.
  • Other than a Limited Liability Partnership and
  • Other than the Individual-

a. Hold majority stake in that Member(means such individual hold majority stake in that body corporate member); or

b. Hold majority stake in the ultimate holding Company of that Member

B. HUF Member:

Where the member of reporting Company is a HUF and individual is Karta of the HUF

C. Partnership Entity Member:

Where the member of reporting Company is a Partnership Entity and the Individual

Note:

  • Firm is member through itself or
  • Firm is member through partners.

a. Is a partner; or

b. Holds majority stake in the body corporate which is a partner of the partnership entity; or

c. Holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity;

D. Trust Member:

Where the member of reporting Company is a Trust (through trustee) and the Individual

a. Is a trustee in case of a discretionary trust or a charitable trust;

b. Is a beneficiary in case of a specific trust;

c. Is the author or settler in case of a revocable trust.

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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