Simplified Analysis of Reporting of Significant Beneficial Ownership(SBO) in Companies

1      Introduction

Section 90 of the Companies Act was amended w.e.f.13th June 2018. Sub-section(1) of the section 90 provides as under: 

“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, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company (herein referred to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed:

Provided that the Central Government may prescribe a class or classes of persons who shall not be required to make declaration under this sub-section.”

 Subsequently a notifications was issued notifying the “The Companies (Significant Beneficial Owners) Rules, 2018 on 13th June 2018, which was again amended vide Notification dated 8th February,2019.These rules prescribe the manner in which Significant beneficial ownership is to be ascertained, informed, recorded and filed with the regulatory Authorities.

2      Who is “Significant Beneficial Owner”?

All the following conditions to besatisfied to be SignificantBeneficial Owner:

  • Has to be an Individual
  • Must hold indirectly any right or entitlement (shares/Voting rights/ participation in distributable dividend or any other distribution in the reporting company.
  • Must hold not less than 10% indirectly or along with any direct holdings any right or entitlement (shares/Voting rights/ participation in distributable dividend or any other distribution in the reporting company.

                                                   OR

An individual has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone.  

3      What is to be considered as direct holding of a right or entitlement?

  • Shares in the reporting company are held in thename of the individual

Or

  • The individual holds or acquires a beneficial interest in the shares of the reporting company and has made declaration in this regard to the reporting company.

4      What is to be considered as indirect holding of a right or entitlement?

4.1    Indirect holding through body corporate:

  • If an individual holds rights and entitlements in the reporting company through a body corporate other than LLP and the said individual must hold more than 50% of rights and entitlement (Majority stake) in that body corporate or in the ultimate holding company of that body corporate.

Example 1:

Question: Mr X is holding 5% shares in A Ltd(Reporting entity) and he also hold 51% shares in B Ltd, which is also a member/shareholder of A Ltd and is holding 10% shares in A Ltd.

(i) Whether Mr Xis holding majority stake in B Ltd? (ii) Whether Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) and if yes then to what extent/percentage.

Answer:

 (i) Yes, Mr X is holding majority stake in BLtd as he holds more than 50% shares in B Ltd.

 (ii) Yes, Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) having direct holding of 5% shares and indirect holding of (10%X 51%)= 5.1% shares, which in totality becomes 10.1%.

Example 2:

Question: Mr X is holding 8% shares in A Ltd(Reporting entity) and he also hold 40% shares in B Ltd, which is also a member/shareholder of A Ltd and is holding 10% shares in A Ltd.

(i) Whether Mr Xis holding majority stake in B Ltd? (ii) Whether Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) and if yes then to what extent/percentage.

Answer:

 (i) No, Mr X is not holding majority stake in B Ltd as he holds not more than 50% shares in B Ltd.

 (ii) No, Mr X is a not a Significant Beneficial owner in A Ltd (Reporting Entity) having direct holding of 8 % shares and do not hold any indirect holding as Mr X is not holding any majority stake in BLtd.

4.2    Indirect holding through HUF:

If an individual holds rights and entitlements in the reporting company through Hindu Undivided Family and the said individual is Karta.

Example 3:

Question: Mr X is holding 5% shares in A Ltd(Reporting entity) and he also through M/s X(Huf)  as a Karta also hold 9 % shares in A Ltd.) Whether Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) and if yes ,then to what extent/percentage.

Answer:

Yes, Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) having direct holding of 5% shares and indirect holding of 9% shares, which in totality becomes 14%.

4.3    Indirect holding through a partnership entity:

  • If an individual holds rights and entitlements in the reporting company through a Partnership firm or LLP and the said individual:
    •  is partner; or
    • hold more than 50% of rights and entitlement (Majority stake) in the body corporate which is a partner of the partnership entity; or
    • hold more than 50% of rights and entitlement (Majority stake) in the ultimate holding company of the body corporate which is a partner of the partnership entity

Example 4:

Question: Mr X is holding 5% shares in A Ltd(Reporting entity) and he also hold 35% Share of profits M/s B LLP, which is also a member/shareholder of A Ltd and is holding 20% shares in A Ltd.

Whether Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) and if yes then to what extent/percentage?

Answer:

Yes, Mr X is a Significant Beneficial owner in A Ltd (Reporting Entity) having direct holding of 5% shares and indirect holding of (20%X 35%)= 7% shares, which in totality becomes 12%.

4.4    Indirect holding through TRUSTS:

  • If an individual holds rights and entitlements in the reporting company through a Trust and the said individual is:
    •  is a trustee in case of a discretionary Trust or a charitable trust;
    • is a beneficiary in case of a Specific Trust;
    • is the author or settlor in case of revocable trust?

5      Duty of Reporting Company

  • Take necessary steps to find out if there is any individual who is a SBO and cause such individual to make a declaration in FormNo.BEN-1.
  • Every company shall in all cases where its member (other than individual), holds not less than 10 %, give notice to such member, seeking information in Form No.BEN-4.
  • Reporting Company shall file a return in Form No.BEN-2 with ROC within 30 days of receipt of declaration.
  • The reporting company shall maintain a register of Significant beneficial owners in Form No.BEN-3.

6      Duty of Significant Beneficial Owner

  • Shall file a declaration in Form No.BEN-1 to the reporting Company within 90 days for the first time i.e. on or before 8th May 2019 and within 30 days from the date of change or becoming SB,  if any afterwards.

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