FAQ’s – Significant Beneficial Ownership - Series - 358


FAQ’s – Significant Beneficial Ownership

SHORT SUMMARY:
The author has already issued an article Series No. 351 in relation to provisions of “Beneficial Owner (hereafter referred as “BO”) and Significant Beneficial Owner (hereafter referred as “SBO”)”. That editorial includes provisions, process, food for thoughts in relation to BO and SBO.

In this editorial author shall endeavor to discuss some FAQ’s and hypothetical situations in relation to significant beneficial interest.

FAQ’S

     A.   If an Individual (‘a’) holding shares in any Company (Exp. Mr. A Holding 50% shareholding of ABC Pvt. Ltd. and his name entered into register of member) Whether provisions of SBO shall be applicable on Mr. A or Not?

As per meaning “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.”

Therefore, One can opine that SBO provision applicable on person who is holding beneficial interest and whose name not entered into register of members.  In above mentioned example individual holding shares directly in the company in his name therefore provision of SBO not applicable on such individual.

    B.     If an Individual (‘a’) holding shares in any Company, (Exp. Mr. A Holding 5% shareholding of ABC Pvt. Ltd. and his name not entered into register of member).
On behalf of Mr. a name of Mr. B entered into register of Members. Whether provisions of SBO shall be applicable on Mr. A or Not?

As per SBOSignificant 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.

In the above mentioned question, shareholding is less than 10% therefore question of SBO doesn’t arise. No need to made compliances as per SBO.

     C.   If in the question B; Mr. A Holding 18% shareholding of ABC Pvt. Ltd. and his name not entered into register of member). On behalf of Mr. a name of Mr. B entered into register of Members. Whether provisions of SBO shall be applicable on Mr. A or Not?

Mr. A is beneficial owner and Mr. B is registered owner. Mr. B holding shares on behalf of Mr. A which is more than 10%.

As per SBO provisions, Mr. A fall under conditions of Section 90. Therefore, have to comply with the provisions of Section 90.

   
    D.   What is 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.

Conclusion:  To check relation of BO and SBO, percentage of interest shall require checking.  Beneficial owner required to make disclosures as per Section 89 even if interest is more then or less than 10%.

However, disclosures requirement of SBO shall occur only if interest is at least 10%.

      E.     What are the specific rights of Beneficial Owner?

·        To exercise any or all the rights attached to the shares.
·        Receive and participation in the dividends
·        Receive and participation in other distribution in the shares (like: Right offer, bonus Shares)
  
      F.      What are the specific rights of Register Owner?

·        Right to get notice of General Meetings
·        Right to attend General Meeting
·        Right to appoint Proxy
·        Right to vote in the Meeting
·        Right to demand poll

   G.  Whether Calculating 10% interest in the shares, whether Debentures or preference shares shall be include or exclude?

As per explanation to the SBO Rules, following shall be including in shares while calculating 10% interest in shares:
·         Global Depository Receipts,
·         Compulsorily Convertible Preference Shares or
·         Compulsory convertible debentures.


Some Important Question - SBO

     H.    COMPANY:

Holding Company (H)                                  Subsidiary Company     (S)
Shareholder of H:                     Mr. A           Mr. B                     Mr. C

Situation I:

Company ‘H’ holding 50% shareholding of Company ‘S’. Mr. A, B and C hold 10%, 20% and 30% shares of Company ‘H’. Whether A, B, C have to file BEN-1 to Company‘s’?

Solution:  Interest of A, B, C in ‘S’ shall be as follow:

   
S. No.
Shareholders
Holding in ‘S’
Holding of ‘S” in ‘H’
Ultimate inters of Shareholders in ‘S’
BEN-1
1.       
A
10%
50%
(50*10%) =     5%
N
2.       
B
20%
50%
(50*20%) =     10%
Y
3.       
C
30%
50%
(50*30%) =     15%
Y
                   
Situation II:

Company ‘H’ holding 30% shareholding of Company ‘S’. Mr. A, B and C hold 50%, 30% and 5% shares of Company ‘H’. Whether A, B, C have to file BEN-1 to Company‘s’?

Solution:  Interest of A, B, C in ‘S’ shall be as follow:

S. No.
Shareholders
Holding in ‘S’
Holding of ‘S” in ‘H’
Ultimate inters of Shareholders in ‘S’
BEN-1
1.       
A
50%
30%
(30*50%) =     15%
Y
2.       
B
30%
30%
(30*30%) =     9%
N
3.       
C
5%
30%
(30*5%) =       1.5%
N

Situation III:

Company ‘H’ holding 10% shareholding of Company ‘S’. Mr. A and B hold 99%, and 1% shares of Company ‘H’. Whether A and B have to file BEN-1 to Company‘s’?
Solution:  Interest of A, B, C in ‘S’ shall be as follow:

S. No.
Shareholders
Holding in ‘S’
Holding of ‘S” in ‘H’
Ultimate inters of Shareholders in ‘S’
BEN-1
1.       
A
10%
99%
(10*99%) =     9.9%
N
2.       
B
10%
1%
(30*1%) =         .1%
N

NOTE:

As we discussed about the Company as Beneficial Interest same is situation with Partnership firms or Trust.

     I.        On the basis of above mentioned situation, what should be course of action on the part of Company H, Company S, Auditors / Directors of Company ‘S’

There are following course of actions for above mentioned parties:

I.        Company S: As per section 90(5), A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe
(a)  To be a significant beneficial owner of the company;
(b) To be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or
(c) To have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued,
Rule 6: Company shall give notice seeking information in Form No.BEN-4.
STEP: 2- Action by Company
 The company shall,—
(a) Where that person fails to give the company the information required by the notice within the time specified therein; or
(b) Where the information given is not satisfactory, {Section 90(7) read with Rule 6 of SBO Rules}
The Company shall apply to Tribunal within 15 days of the expiry of the period specified in Notice.
Notice for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed.

II.            Auditor/ Person who is signing MGT-7 of Company ‘S’:
·   Auditors’ while audit the Company have to check whether there is any body corporate is shareholder of Company ‘S’.
·   If Yes, whether BEN-1 is received by the Company.
·   If BEN-1 not received, whether Company sent notice to such persons.
·   If Notice Sent, reply not received whether Company has taken action in Tribunal.
In case of non-compliance by the Company, auditor has to report the same in his Report.

III.            Directors/ Officer in Default of Company ‘S’:
It is responsibility of the directors as officer in default to do followings:
·         They shall check whether there is any beneficial owner of shares of Company.
·         Whether there is any Holding Company
·         Whether there is any Subsidiary, WOS, associate Company
If Company having any Holding Company has to follow process as mentioned in Section 90(5) discussed above.
If Company having Subsidiary, Associate Company they have to check whether their shareholders required to file BEN-1, If yes they will follow with them to file BEN-1 to subsidiary/ associate Company.

(Author – CS DiveshGoyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

Comments

  1. Very apt and thoughtful interpretation Divesh. However, the above situations work when 'the company' mentioned in second last line of 2.1.(e) Explanation 1. (i) of the said rules, is referred to the 'subsidiary company' and not the 'holding co.'. Can you help with a basis of such interpretation.

    ReplyDelete
  2. Hi Divesh,

    i have gone through your examples like in situation 1 but have one confusion that there in table one column 3 the heading should be 'holding in H'and in column 4 it should be 'Holding of H into S'. please correct me if iam wrong.

    thanks
    Sunil Mangla
    9654290691

    ReplyDelete

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