Overview of Section 89:
The Companies Act of 2013 allows companies to engage in activities that are legal and beneficial to stakeholders, subject to approval from the appropriate authority or notification in accordance with the prescribed guidelines.
Section 89 of the Companies Act of 2013 provides a means for a person or company to obtain 100% control over a company.
Two options exist for establishing a company with complete control by a single person: through the creation of an OPC (One Person Company) or via Section 89.
While only private companies may be registered by a single person through the OPC, Section 89 permits the registration of both private and public companies, provided the required number of members are present, with ultimate control resting in the hands of a single individual.
Case Study:
Mr. A desires to hold complete ownership of Z Private Limited, but due to the mandatory minimum number of members, he cannot do so alone. Thus, he may present Mr. B as a representative to fulfill the minimum requirement of at least two members. Mr. B’s name would be listed on the register of members, although he would indirectly serve as the company’s owner (beneficial owner) and controller.
In this scenario, Mr. B serves as the registered owner, while Mr. A serves as the beneficial owner, with Z Private Limited serving as the company. This example may also apply to a public company, which requires a minimum of seven members. Any company may substitute Private Limited in this case.
Compliances
Declaration of registered owner: Registered owner shall file with COMPANY, a declaration in form MGT-4 within 30 days of entering his name in register of members or change therein as the case may be.
Declaration by holder of benefit interest: Beneficial owner shall file with COMPANY, a declaration in form MGT-5 within 30 days of entering his name in register of members or change therein as the case may be.
Return to be filed by the Company: If a declaration is made to a company under this section, the company must enter the details of the declaration in the register of members and submit a return in the MGT-6 form to the Registrar within 30 days of receiving the declaration.
The company has two compliance obligations in this regard – first, to record the particulars of the declaration in the register of members, and second, to file the return in the specified format with the Registrar.
Exemptions: Certain persons and entities are exempt from the requirement to make a declaration of beneficial ownership. These include:
- Mutual funds, alternative investment funds and other regulated entities
- Banks and other financial institutions
- The Central Government, State Governments and their agencies
In conclusion, Section 89 of the Companies Act, 2013 is an important provision that aims to increase transparency and accountability in corporate ownership. By requiring beneficial owners to make a declaration of their ownership, the Act seeks to prevent misuse of corporate structures for illegal activities such as money laundering and tax evasion.
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