The concept of beneficial ownership has emanated from FATF recommendations, Panama Paper Case, PMLA Rules, Prohibition of Benami Transactions and myriad other factors. Under the FATF Recommendations, 2012 and 2023, the member states are required to collect and scrutinize the data of companies for prevention of money laundering, counter terrorist financing. Under PMLA Rules, 2015, the banks are required to check KYCs of the clients. In India, there have several attempts to refine and amend the Significant Beneficial Ownership under Section 89/90 and the rules made thereunder.
Let us start to explore the concept /compliance:
1. Beneficial Owner: It simply means that owner who takes the benefits or has beneficial interest in share of a company.
Beneficial interest as explained in Section 89 (10) includes:
2. Compliance for Beneficial Owner under Section 89: Compliance needs to be done by the reporting company, its officer and the beneficial owner.
3. Individual as Significant Beneficial Owner: Section 90 and SBO Rules are relevant here. In simple terms, there must be certain threshold (a critical level) beyond which a beneficial owner would become a Significant Beneficial Owner (SBO).
Please note that there is difference of threshold as per Section 90 and Rule 2 (1)(h) of SBO Rules
4. Legal Entity as Significant Beneficial Owner:
If member of the reporting company is legal entity, there are separate yardsticks to identity SBO:
|Legal Entity as member||SBO||Conditions|
|Body Corporate||Individual||Holding majority stake in the member or who holds majority stake in ultimate holding company|
|HUF||Individual||Karta of HUF|
|Partnership||Individual||(i) Partner or
(ii) Holder of majority stake in the body corporate which is a partner in the partnership or
(iii) Who holds majority stake in the ultimate holding company of the body corporate which is partner of the partnership entity.
|Trust||Individual||– Who is trustee of a discretionary trust or charitable trust
– Who is beneficiary of a specific trust
– Who is author or settler of a revocable trust.
|Pooled Investment Vehicle or controlled entity||Individual|| CEO- in case of body corporate or partnership or individual General Partner
Or Individua Investment manager
5. Compliance Requirements for SBO:
1. SBO Action: He must declare beneficial interests within 30 days in Form BEN-1.
2. Reporting Company Action:
6. Consequences for the non-compliance of SBO:
7. Exemptions from SBO Rules:
In conclusion, the concept of SBO is ever evolving and may soon reach to the level of Ultimate Beneficial Ownership. Meanwhile, the companies need to be very careful and must ensure the compliance.
In case you have any concern and queries or need any support in compliance/Company Law/NCLT, you may like to contact us.
Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, email@example.com