WHOLE LOT ABOUT Significant Beneficial Ownership
WHOLE LOT ABOUT
Significant Beneficial Ownership
SHORT
SUMMARY:
The Ministry of Corporate Affairs (the ‘MCA’) vide its
circular dated the 13th of June, 2018 introduced the Companies (Significant
Beneficial Owners) Rules, 2018 (‘Rules’).
In this editorial author shall discuss the basics about ‘Beneficial
Ownership’, and Significant Beneficial Ownership legal provisions about
beneficial ownership, compliance requirement as per Companies Act, 2013 in this
respect.
We have found there is always
confusion in relation to the Beneficial Ownership or like: who is beneficial
owner, what are the rights or liabilities of beneficial owner, what are the
legal compliances for beneficial owner etc. vice versa.
BACKGROUND:
The Provisions of SBO, in a different form, been part of the Companies
Act, 1956, under section 180(7)(3). The new avatar comes under Section 90 of
the Companies Act, 2013, as amended in 2017.
The issue of the misuse of multi-layered
corporate entities has grabbed attention of various policymakers and
regulators. Regulatory authorities have adopted a step-by-step approach and
tried to address this issue by enacting various legislations, notable among
them being:
Basic Terms to understand the Concept:
a.
Registered Owner: means a person whose name is entered in the register
of members of a company as the holder of shares in that company but who does
not hold beneficial interest in such shares;
In general words, this person are not an actual
owner of shares. Only his name is entered into register of members. He is not
entitled to dividend, officer for right issue of shares, bonus shares etc.
However, this person having voting rights in the Company, Vote on poll, name
shall be entered in registered of member, entitle to sign proxy form, shall be
count for the quorum etc.
b.
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.
In general words, beneficial owner is actual
owner of the shares. Only his name is not entered in register of members. He is
entitled to all beneficial interest as mentioned below.
c.
Beneficial Interest: Beneficial interest in a share includes, directly or
indirectly, through any contract, arrangement or otherwise, the right or entitlement of a
person alone or together with any other person to;
(i) Exercise or cause to be exercised any or all of the rights attached
to such share; or
(ii)Receive or participate in any dividend or other distribution in
respect of such share.
In general words, beneficial
owner is entitled to exercise all the rights of the shares like: Dividend,
right issue, bonus of shares etc.
d.
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.
Note:
I.
For the purpose of calculation of 10% of beneficial
interest in shares, Shares Includes…Instrument in
form of
·
Global Depository Receipts,
·
Compulsorily Convertible Preference Shares or
·
Compulsory convertible debentures.
II.
For the purpose of significant beneficial owner, in
case of ‘person other than individuals or natural person’, shall be determined as under:
S. No.
|
Where Member is
|
Along with
|
Percentage
|
A.
|
Company
|
Significant beneficial owner is the natural person, who,
- Whether acting alone or
- together with other natural persons, or
- through one or more other persons or trust
|
Hold atleast 10% of share capital of the Company or
Who exercise significant
influence or control in the company through other means.
|
B.
|
Partnership Firm
|
Significant beneficial owner is the natural person, who,
- Whether acting alone or
- together with other natural persons, or
- through one or more other persons or trust
|
Hold atleast 10% of capital or
Has entitled of not less than 10% of profits of the partnership firm.
|
C.
|
Trust
|
The beneficial owner shall includes
- identification of the author of the turst, and
- the trustee,and
- the beneficiaries with not less than 10% interest in the trust and
- any other natual person exercising ultimate effective control over
the trust through a chain of control or ownership.
|
Note:
Where no natural person is identified in point No. 1 and 2, the
significant beneficial owner is the relevant natural person who holds the
position of Senior
Managing official;
FOOD FOR THOUGHT…………….
I.
What is meaning of Senior Management as per above mentioned note?
II.
How to calculate 10% Share Capital in above mentioned Table Point No. A,
in case Where Company A hold 70% share capital of Company B and Mr. X is
holding 10% shares of Company A and Mr. Y is holding 20% shares of Company A.
“Whether Mr. X and Y shall be fall in the point or have to file BEN-1”.
III.
If any person taking benefit from the trust more than 10% whether
require to file BEN-1?
Compliance
requirement – Beneficial interest
A.
Compliance by Registered owner:
A declaration to that effect in Form No.MGT.4 within
a period of thirty days from the date on which his name is entered in the
register of members of such company. {Section 89(1) read with Rule 9(1)}
B.
Compliance by Beneficial Owner:
A
declaration disclosing such interest in Form No.MGT.5 within thirty
days after acquiring such beneficial interest in the shares of the company.{Section 89(2)
read with Rule 9(2)}
C.
Compliance by Company:
Where any declaration as mentioned above received by the company, the
company shall make a note of such declaration in the register of members and
shall file, within a period of
thirty days from the date of receipt of declaration by it, a return in Form
No.MGT.6 with the Registrar in respect of such declaration with fee.{Section 89(6)
read with Rule 9(1)}
Food for thought………..
IV.
Whether beneficial owner can claim the rights, where no declaration u/s 89(2) made by the beneficial owner?
Section 89(8)No right in relation to any share in respect of which a
declaration is required to be made under this section but not made by the
beneficial owner, shall be enforceable by him or by any person claiming through
him.
Compliance requirement –
SIGNIFICANT BENEFICIAL INTEREST
A.
Compliance by Significant Beneficial Owner:
First
Disclosure: Every significant beneficial owner (SBO) shall file a
declaration in Form No.BEN-1 to company in which he holds the
significant beneficial ownership on the date of commencement of these rules within
90 days from commencement of these rule i.e. 13th June, 2018.
Disclosure
on change basis: Every SBO shall file any change in his significant
beneficial ownership within 30 days to the Company. {Section 90(1) read with Rule 3 of
SBO Rules}
Become
Significant Beneficial Owner: Every individual, who acquires significant
beneficial ownership in a Company, shall file a declaration in Form No.BEN-1to
the Company within 30 days of acquiring such significant beneficial ownership.
B.
Compliance by Company:
Registers:
Every company shall maintain a register of the interest declared by individual’s
u/s 90(1).
Return:
Company shall file a return in Form No.BEN-2 with ROC within 30
days from the date of receipt of declaration in BEN-1. {Section 90(4)
read with Rule 3 of SBO Rules}
Registers: The Company shall maintain a register of significant
beneficial owner in Form No. BEN – 3.
Note:
Above compliances shall be done by Company after receipt of information
from the Significant Beneficial Owner. There is a question:
Food for thought………..
V.
If Company has not received any such BEN-1 from significant beneficial
Owner, then whether company have to take any actions to obtain such
information?
As per provisions of Section 90(5) read with rule 6 of (SBN Rules,
2018),
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,
and who is not registered as a significant beneficial
owner with the company as required under this section.
Rule 6: Company shall give notice
seeking information in Form No.BEN-4.
PROCESS:
STEP: 1 - Reply by Concerned Person:
The person to whom notice has been issue shall revert
to the Company within 30 days of Notice.
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.
FAQ’S
A.
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%.
B.
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)
C.
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
D.
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.
E.
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.
F.
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 Divesh Goyal, 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.
Thank you sir for the detailed article over SBO.
ReplyDeleteI have a query that if a Private Company is a subsidiary of foreign holding company (shareholding-54%). And by virtue of shareholding the Holding Company nominated directors on the Board of Indian subsidiary. Whether the BEN 4 is required to be given to all three directors and also BEN 1 is applicable to them.
Thank you.
Very informative and clear doubt,thanks a lot for sparring your valuable time for the benefit of professional brothers
ReplyDeleteCrucial subject explained in best possible way
ReplyDeleteVery helpful.
ReplyDeleteThank you sir.
thanku sir.
ReplyDeleteGreat share!
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