All about Significant Beneficial Ownership
In order to bring more clarity and transparency MCA has notified the amendments to the Companies (Significant Beneficial Ownership) Rules, 2018 dated 08.02.2019 vide Companies (Significant Beneficial Owners) Amendment Rules, 2019. The amendments inter alia pertain to widening the definition and scope of “significant beneficial owner” to include direct and indirect ownership, making the disclosures of such ownership by the reporting company more stringent, defining “significant influence”, “control” and “majority stake” etc., as under:
1. Definition of “Significant beneficial owner” (SBO): Significant beneficial owner in relation to a reporting company [a company required to comply with section 90 of the Companies Act 2013 means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:
(i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;
(ii) holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;
(iii) has right to receive or participate in not less than ten per cent. of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;
(iv) has right to exercise, or actually exercises, significant influence or control,in any manner other than through direct-holdings alone;
Significant influence means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies. A reporting company means a company required to comply with section 90 of the Act;
Control has the same meaning as given in section 2 (27) of the Companies Act 2013, i.e. the right to appoint majority of directors or control management or policy decisions excercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of the shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
Explanation I: If an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii) above, he shall not be considered to be a SBO.
Explanation II: 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:
(i) the shares in the reporting company representing such right or entitlement are held in the name of the individual;
(ii) the individual holds or acquires a beneficial interest in the shares of the reporting company and has made a declaration in this regard to the reporting company under sub-section (2) of section 89.
Explanation III : an individual shall be considered to hold a right or entitlement indirectly in the reporting company if he satisfies any of the following criteria in respect of a member of the reporting company, namely:
(i) where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual (a) holds majority stake in that member; or (b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;
[Majority stake means holding more than one half of the equity share capital or one half of the voting rights in the body corporate or having the right to receive or participate in more than one half of the distributable dividend or any other distribution by the body corporate
(ii) where the member of the reporting company is a HUF (through karta), and the individual is the karta of the HUF;
(iii) where the member of the reporting company is a partnership entity [either under the Partnership Act or LLP Act] (through itself or a partner) and the individual (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.
(iv) where the member of the 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 settlor in case of a revocable trust.
(v) where the member of the reporting company is (a) a pooled investment vehicle; or (b) an entity controlled by the pooled investment vehicle, based in member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle,-
(A) is a general partner; or
(B) is an investment manager; or
(C) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.
Explanation IV : Where the member of a reporting company is (i) a pooled investment vehicle; or (ii) an entity controlled by the pooled investment vehicle, based in a jurisdiction which does not fulfil the requirements referred to in clause (v) of explanation III above, the provisions of clauses (i), (ii), (iii) or (iv) of Explanation (3), as the case may be, shall apply.
Explanation V : If any individual or individuals acting through any person or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’.
Explanation VI : The instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’.
2. Duty of a reporting company: A new Rule 2A has been inserted to provide that every reporting company shall find out any SBO and cause him to file a declaration under Form No. BEN-1. Every reporting company shall, in all cases where a member (other than an individual) holds not less than ten percent of its (i) shares; or (ii) voting rights; or (iii) right to receive or participate in the dividend or any other distribution payable in a financial year, give notice to such member to provide information in Form No. BEN-4.
3. Declaration of Significant Beneficial Ownership: Rule 3 has been substituted to provide for the following :
(i) Every individual who is an SBO on the date of commencement of these Rules shall file a declaration in BEN-1 within 90 days of such commencement.
(ii) Every individual who subsequently becomes a SBO or his ownership undergoes a change, shall file such declaration to the reporting company within 30 days of acquiring such ownership or any change therein.
(iii) Where an individual becomes a SBO or there occurs a change in the significant beneficial ownership of a company within ninety days of the commencement of these Rules, it shall be deemed that the individual became a SBO or any change therein happened on the expiry of 90 days of the commencement of these Rules, and the 30 day period for filing will be considered accordingly.
4. Non-applicability of the Rules:Rule 8 has been substituted to provide that the Rules shall not apply to the extent the share of the reporting company is held by:
1. the authority constituted under sub-section (5) of section 125 of the Act (for administration of the Investor Education and Protection Fund) ;
2. its holding reporting company: Provided that the details of such holding reporting company shall be reported in Form No. BEN-2.
3. the Central Government, State Government or any local Authority;
4. a reporting company or a body corporate or an entity controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;
5. SEBI registered Investment Vehicles such as mutual funds, AIF, REITs, lnVITs,
6. lnvestment Vehicles regulated by RBI, or IRDA, or PFRDA.
5. Forms substituted: Form Nos. BEN-1, BEN -2, BEN -3 and BEN -4 have been substituted.
Form BEN-1
It is duty of every reporting company to find out or identify individual who is a significant beneficial owner and make such individual(s) to file declaration in Form BEN-1 to the Company.
Time Limit:
On commencement of Amendment Rules within 90 days from the commencement of these rules (i.e., by 9th May, 2019).
Subsequent changes or acquiring the status of SBO: significant beneficial ownership undergoes any change shall file Form BEN-1 within 30 days of such change and or acquiring significant beneficial ownership
Form BEN-2
Company shall file a Return of significant beneficial owners in shares by company in form BEN-2.
Time Limit: within a period of 30 days from the date of receipt of Form BEN-1
Form BEN-3
Register of beneficial owners holding significant beneficial interest: Every company shall maintain a register of the interest declared which shall include the name of individual, his date of birth, address, details of ownership in the company and such other details as may be prescribed.
Form BEN-4
Company shall in all cases where its member (other than an individual), holds not less than ten per cent. of its;-
(a) shares, or
(b) voting rights, or
(c) right to receive or participate in the dividend or any other distribution payable in a financial year,
give notice to such member for seeking information in Form No. BEN-4
6. NCLT Route for the reporting company upon non receipt of reply from SBO
Company shall apply to the National Company Law Tribunal (NCLT) within 15 days from the date of expiry of period specified in the notice,
- in case the significant beneficial owner fails to give the information required by the notice in Form No. BEN-4
- or given information are not satisfactory,
for directing that the shares in question be subject to restrictions, including:
- Restrictions on the transfer of interest attached to the shares in question;
- Suspension of the right to receive dividend or any other distribution in relation to the shares in question;
- suspension of voting rights in relation to the shares in question;
- Any other restriction on all or any of the rights attached with the shares in question.
7. WHO IS SIGNIFICANT BENEFICIAL OWNER
The definition of Significant Beneficial Owner has also been amended. “Significant beneficial owner, means an individual who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, viz:
(i) Holds indirectly, or together with any direct holdings, not less than 10% of the shares;
(ii) Holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares;
(iii) Has right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;
(iv) Has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct-holdings alone.
For the purpose of this clause, if an individual does not hold any right or entitlement INDIRECTLY under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant Beneficial owner.
It means that any individual who does not hold any such right shall not be treated as a SBO.
8. Non-Applicability of the Rules
The area covered by the non-applicability of these rules have also been widened to include
those share which is held by:
- The authority constituted under sub-section (5) of section 125 of the Act (IEPF);
- Its holding reporting company:
Provided that the details of such holding reporting company shall be reported in Form No. BEN-2.
- The Central Government, State Government or any local Authority;
- (i) a reporting company, (ii) a body corporate, or (iii) an entity, controlled by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments;
- Securities and Exchange Board of India (SEBI) registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by the SEBI,
- investment Vehicles regulated by Reserve Bank of India (RBI), or Insurance Regulatory and Development Authority of India (IRDA), or Pension Fund Regulatory and Development Authority.
Republished with amendments
Author Bio
(1) In Form BEN No. 1, is it not necessary to state the Name of the Holder of Significant Beneficial Interest prominently before the name and address of the Company?
(2) In Form No. BEN – 4, Subject is stated to be Notice under Section 90(5) of the Companies Act, 2013……Would it be better to state the Subject as Significant Beneficial Interest? Would it be appropriate to state the Notice u/s 90(5) of Cos. Act, 2013 as reference instead?When Forms Nos. BEN Nos. 1, 2, 3 and 4 will be made available for downloading from MCA 21 website?