A Reporting Company can follow the below mention steps in order to ascertain, whether any SBO exist or not:

1. Check whether you have shareholders in form of Body Corporate/HUF/Partnership/LLP/Trust/PIV (“Indirect Entities”)?

2. If answer is no, then no reporting required.

3. If answer to (1) is Yes, check whether they hold 10% or more?

4. If yes, you need SBO reporting.

5. If answer to (3) is No, then no SBO reporting required unless:

1. an individual is holding shares directly, also holds indirectly through various entities mentioned in (1), aggregating to 10% or more

2. an individual is holding shares indirectly through various entities mentioned in (1), aggregating to 10% or more

Note: Identification of SBO based out of step-5 is difficult for a company, therefore

6. Also check whether you are subsidiary company in chain of subsidiary company? If Yes, no reporting required for shares held by Holding Company.

7. Check whether an individual exercise significant influence or control? If yes, SBO reporting required.

DIFFERENCE BETWEEN BENEFICIAL OWNER AND SIGNIFICANT BENEFICIAL OWNER

Beneficial Owner: Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests,  in shares of a company or the right to exercise, or the actual exercising of significant influence or control.

Significant Beneficial Owner: means beneficial owner holding ultimate beneficial interest not less than 10% and whose name not entered in the register of members of a Company.

EXAMPLES

1. A Ltd is a target company, whose SBO is to be identified. Y, a partnership firm is a registered member of A Ltd holding 11% of its share capital. Further, D is a partner at Y who is entitled to 11% of the profits of the partnership firm.

A Ltd (target company) ← 11% Y (partnership firm, intermediary entity) ← 11% D (partner, natural person)

In this situation, D will be the SBO of A Ltd because she holds 11% of the profits of the partnership firm (which is above the materiality threshold) even though her ultimate interest in A Ltd, the target company is merely 1.21% (11 % of 11) and that too if computed on a proportionate basis. According to the explanation, in order to identify the natural person who is a SBO, the 10% requirement has to be considered only at the intermediary entity level and there is no need to further look through.

2. X Ltd is a target company of which Y Ltd is a registered member holding 20% of its share capital. Further A is a natural person holding 15% of the share capital of Y Ltd.

X Ltd (target company) ← (20%) Y Ltd ← (15%) A (natural person)

In this situation, if the 10% threshold be applied at the intermediary level, then A will be the SBO of X Ltd as she holds 15% of the share capital of Y Ltd which is an intermediary entity. This is despite the fact that A’s ultimate interest in X Ltd is 3% (15% of 20%), again if computed on a proportionate basis.

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION.IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

SOURCE:-COMPANIES ACT 2013

THE AUTHOR CAN BE REACHED AT VINAYAK.CHARU@GMAIL.COM AND AT 6283643738

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