In this article, Shivam Gupta and Mayank Ratnaparkhe, both pursuing B.A.LL.B (4th Year) from Rajiv Gandhi National University of Law discusses the Compliance Requirement under Companies (Significant Beneficial Owners) Rules, 2018.
Section 90 of the Companies Act, 2013 (hereinafter “Act”) which relates to significant beneficial ownership has gained much relevance since the notification of Companies (Significant Beneficial Ownership) Rules, 2018 (hereinafter “SBO Rules”) on 13th June 2018. According to Rule 3(1) of the SBO Rules the last date for filing a declaration by every Significant Beneficial Owner (hereinafter “SBO”) is 90 days from commencement of SBO Rules which makes the due date as 13th September 2018. This article focuses on a brief introduction to the concept of SBO, the intricacies involved while identifying the SBO in different structures of ownership and the legal compliances that an SBO and the company are required to abide.
INTRODUCTION
According to Section 90(1) of the Act
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 percent 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…….
Reading the abovementioned provision of the Act along with Rule 2(1)(e) of the SBO Rules clarifies that an SBO is an individual who is holding ultimate beneficial interest of not less than 10 percent in a company but whose name is not entered in the register of the members of the company as holder of such shares.
Hence, the concept of SBO revolves around five broad heads which are discussed under.
Every SBO is an individual
- Section 89(1) of the Act explains that every person (including non-natural persons) who holds shares in a company but does not hold a beneficial interest in such shares, shall make a declaration to the company specifying the particulars of that person who holds such beneficial interest.
- Whereas Section 90(1) of the Act states that it is the obligation of every individual who holds beneficial interest in the company to make a declaration regarding such interest to the company.
- Therefore the basic line of difference between these two provisions is that Section 89 provides that registered owner of shares shall declare to the company regarding the beneficial interest of such other person whereas Section 90 stresses upon an individual’s intimation to the company regarding its beneficial interest.
- Hence, the central point of every SBO will always be an individual.
A member of a company cannot be an SBO
An SBO is an individual who enjoys beneficial interest in the shares of the company but his name is not entered in the register of the members of the company as holder of such shares.
Beneficial Interest
SBO means an individual holding ultimate beneficial interest of not less than 10 percent but whose name is not entered in the register of members of company as the holder of such shares.
Significant Influence
An individual would be considered to have a significant influence over the affairs of the company when it holds not less than 20 percent of total voting power or has a participation in business decisions under an agreement.
Control
An individual would be considered to have control over the affairs of the company when it has power to appoint majority of directors or controls the management or the policy decisions.
APPLICABILITY AND NON-APPLICABILITY OF SBO RULES
The SBO Rules are applicable to companies which have shareholders other than individuals and natural persons and such shareholders hold beneficial interest as per the prescribed limits.
The SBO Rules are not applicable to the holding of shares of companies/body corporates, in case investment funds such as Mutual Funds, Alterative Investment Funds (AlFs), Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) regulated under SEBI Act.
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COMPLEXITIES INVOLVED IN IDENTIFICATION OF AN SBO
The real issue involved while identifying the SBO is whether the chain of ownership needs to be seen right up to the top or only one level above in the ownership chain. The main reason giving birth to this issue is ambiguously drafted sections of the Act and SBO Rules. So as to understand the ambit and the real intention behind the Act and the Rules it is important to refer to the recommendations of the Company Law Committee which suggested these provisions.
“Complex structures and chain of corporate vehicles are used to hide the real owner behind the transactions made using these structures. Realising this, jurisdictions world over have been putting in place mechanisms to identify the natural persons controlling the corporate entity.”
It can be concluded from the recommendations of the Company Law Committee that to determine the real owner we need to go right up to the top and not just one level up.
ILLUSTRATION – HOW TO DETERMINE AN SBO
In the above mentioned arrangement A is a company in which X Co. and Y Co. hold 25% and 75% shares respectively.
In X Co. two individuals M and N hold 50% shares each and in Y Co. three individuals P, Q and R hold 8%, 46% and 46% shares respectively. P is also the promoter of Y Co. and as per the company’s internal arrangement has the power to appoint 8 out of 10 directors.
In this arrangement tracing right up to the top we can identify that M and N are SBO’s as they have 50% stake each in X Co. The ownership structure of Y Co. is a bit more complex than that of X Co. In Y Co. Q and R are SBO’s by virtue of their respective stake holdings of 46% each while P is also an SBO as he is a promoter who by virtue of the internal arrangement has power to appoint 8 out of 10 directors and hence exercises control over the affairs of the company.
LEGAL COMPLIANCES TO BE FOLLOWED BY SBOs
There are 4 forms which are prescribed by the SBO Rules.
BEN-1
It is mandatory for every SBO to file a declaration in form BEN-1 to the company in which he holds significant beneficial ownership. As per the rules the last date for filing declaration under this form is 13th September 2018. If there is any change in significant beneficial ownership then the SBO should inform the company regarding the same within 30 days of such change. Further every individual who acquires SBO under any company after the commencement of these rules is also required to file a declaration under this form to the company under 30 days of acquiring such significant beneficial ownership.
BEN-2
It is the liability of the company to file a declaration under form BEN-2 with the registrar in respect of the declaration the company received by the SBO under form BEN-1 within 30 days from the date of receipt of such declaration.
BEN-3
It is the obligation of the company to maintain the register of SBO’s under form BEN-3. This register shall be open for public inspection during business hour on every working day on payment of such fee as may be specified by the company but not exceeding Rs. 50 for each inspection.
BEN-4
The company can give notice to the individuals which they apprehend to be the SBO’s to provide the company with required information under form BEN-4.
Simply Put
| Â Â Â S.No. | Â Form/Return | Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Purpose |
| Â 1. | Â Â Â BEN-1 | Under the revised Companies Rules, 2018, every Significant Beneficial Owner (holding ultimate beneficial interest of not less than ten per cent) shall file a declaration in Form No. BEN-I to the Company in which he holds Beneficial interest within 90 days from the date of commencement of these new rules. In case of any change in his Significant Beneficial Ownership, then he shall file the declaration within 30 days of commencement of these new rules. |
|  2. |     BEN-2 | Then under the Statutory Law, the company within a period of 30 days from the date of receipt of declaration of BEN-1 shall file Form No. BEN-2 in respect of declaration including the fees payable to Registrar, as prescribed in  Companies (Registration Offices and Fees) Rules,2014. |
| Â 3. | Â Â Â BEN-3 | The company is under the obligation to maintain a separate register containing the details of every Significant Beneficial Owner in Form No. BEN-3. |
| Â 4. | Â Â Â BEN-4 Â Â | The company seeking information regarding Significant Beneficial Owners shall file notice in Form No. BEN-4. |
- The main intention behind the enactment of SBO Rules is the prevention of money laundering and terrorist activities. This provision will lead to the identification of the individuals whose beneficial interest is involved in the company.
- While the final rules and forms seem simple and easy to understand, there are some issues with the vague language used in the Act and the SBO Rules which creates divergent views.
- The real test will be for the companies to ensure the fulfilment of legal compliances. It will be interesting to witness how the companies implement the provisions of the final rules.
- Further, with the lowered threshold limit for determining the ownership, the compliance burden of the companies will increase drastically.
