Significant Beneficial Owner – faq’s - SBO


Significant Beneficial Owner – faq’s- SBO

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:

Legislature Background:

The author has already discussed the provisions in relation to Section 197 and Amended Schedule V in article series no. 378 and the same has been published on blog of author www.csdiveshgoyal.info.

i.            To Which Companies these SBO provisions shall apply?

Provisions of SBO applicable on all the Companies. (Here company means reporting Company)

               i.        Listed Public
             ii.        Unlisted Public and
            iii.        Private


ii.            To Which Companies these SBO provisions shall not apply?

The provisions shall not apply to the holding of shares of companies/body Corporates, in case of pooled investment vehicles/investment funds such as Mutual Funds,
               i.        Alterative Investment Funds (AIFs),
             ii.        Real Estate Investment Trusts(REITs) and
            iii.        Infrastructure Investment Trusts (lnvlTs) regulated under SEBI Act.


iii.            The word “together with any other person to” includes interest of Relatives in shares also?

Computing threshold of 10%, the combined holding of the person along with the holding of such other persons having common interest shall also be considered.

iv.            Whether a Company/ Trust/ Body Corporate can be Significant Beneficial Owner?

As per Section 90, only a Natural Person can be Significant Beneficial Owner. 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.    
INDIVIDUAL
- who acting alone or    
- together, or
- through one or more persons or trust, including a trust and persons resident outside India


Hold at least 10% of share capital of the Company
B.     
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.



C.    
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 at least 10% of capital

or


Has entitled of not less than 10% of profits of the partnership firm.

D.    
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.



v.            If an individual holding interest in shares less than 10% whether SBO rules shall apply on such person
First Condition for applicability of SBO Rules and section 90 i.e. Natural person should have at least 10% of interest in ‘Shares’.
Example:
Capital Structure of Company ABC limited is as following:
·         Equity Share Capital of                                 Rs. 1,000
·         CCD’s of                                               Rs. 1,500
·         CCPS’ of                                               Rs.   500
TOTAL             Rs. 3,000      
       
Mr. A beneficially holds Rs. 260 equity shares in the Company. Whether Mr. A beneficially required to give disclosure under SBO?

Solution: For the purpose of SBO Rules share capital includes (CCD’s and CCP’s). Therefore total share capital of the Company is Rs. 3,000/-.

Mr. A beneficially holds Share capital of Rs. 260/-. His percentage of holding is 260/3000= 8.667%.

As holding of Mr. A beneficially is less than 10% therefore no need to give disclsoures u/s 90 of SBO Provisions.



vi.            Meaning of Shares under Section 90 read with relevant rules.

As per Explanation II of Rule 2 (e) of SBO Rules, 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.

vii.            Whether SBO rules applicable on person resident outside INDIA (Non-Resident.

The definition of SBO includes non-residents as well. Therefore, the non-residents shall also be covered by the said provisions.

viii.            Checks for applicability of SBO Provisions and rules?  
         1.    There should be an Natural Person.
         2.   Individual having beneficial interest not less than 10% of share capital.
         3.   Name of such individual not entered into register of Members.
   4.   Share capital includes (GDR+CCP’s+CCD’s)

  What is meaning of Senior Managing Official?
The same has not been defined in the final rules or anywhere else under Companies Act.  
Therefore, as per the General practices:
Ø SMO shall be someone who exercises strategic decision making powers in respect of the legal person (for example, a company director).
 Ø In situations where there is more than one official of a legal person with strategic decision making powers and none is senior to the others, all should be treated as senior managing officials.
 Ø Accordingly, the CEO/ MD/ Manager/WTD of the company to be identified as SBO.
HYPOTHETICAL SITUATIONS

     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 Director Shareholding and Indirect Share holding?
·        Mr. X hold 25% shares of XYZ limited in his Name.
·        Mr. Y hold 99% shares of ABC Limited and ABC Limited Hold 70% shares in XYZ Limited in its name.

In the above mentioned case Mr. X hold Directly 25% shares in XYZ
And
Mr. Y holds indirectly 70% shares of XYZ Limited.

      E.     Mr. X hold beneficial interest in A Ltd, B Ltd, C LTD and D LTD. Should Mr. X disclose in BEN 1 to all the Companies?

Yes, Mr. X has to disclose to all the Companies.

     F.      Mr. X holds 80% of P Ltd, which holds 80% of Q Ltd. Can Mr. X claim that I have complied with my obligation having disclosed to P Ltd, and P Ltd should have disclosed my indirect holding to Q? Can Mr. X say that he has no idea about P’s holding of Q?

No. The SBO should provide the declaration of its beneficial interest in all the companies. It is pertinent to note that the one who has control or significant influence cannot plead unawareness. Therefore, right upto the vertical spectrum, Mr. X will have to keep disclosing

     G  .  Mr. A holds 30% of P Ltd. Now, P Ltd holds 60% of Q Ltd, and Q Ltd holds 30% of R Ltd. Mr. A holds some 5% directly into R Ltd. So, should Mr. A disclose to P Ltd, Q Ltd and R Ltd?

Yes. The definition of beneficial interest covers both direct as well as indirect holding. Therefore, the Mr. A should provide the declaration to all the companies except P Ltd.

    H.    XYZ Limited is a company where no natural person is identified even though in the shareholding pattern its shareholders are company and firms both. But in spite of all efforts no natural person is identified who can be categories as a significant beneficial owner in XYZ Ltd.
Keeping in view, the provisions of Section 90 read with relevant rules who would be treated as significant beneficial owner

As per Rule 2(e) (iii) of Companies (Significant Beneficial Owners) Rules, 2018, the natural person who holds the position of Senior managing official such as Directors, Managing Directors, or any person what so ever designation he holds, but who controls the affairs of the company shall be consider as significant beneficial owner

I.        Situation

Mr. X Hold 10% share holding of                          PQR Limited
PQR Limited hold 90% share holding of              XYZ Limited
XYZ Limited Hold 15% share holding of               ABC Limited

        a.      Whether Mr. X need to Give SBO disclosure to PQR Limited
No, because he is holding shares in PQR limited directly not as beneficial.

        b.      Whether Mr. X need to Give SBO disclosure to XYZ Limited
No, because his holding in XYZ limited is less than 10%. (90 * 10% = 9%)

        c.       Whether Mr. X need to Give SBO disclosure to ABC Limited
No, because his holding in ABC limited is less than 10%. (15 * 90% * 10% = 1.35%)

       J.      Situation

Mr. X Hold 5% share holding of                            PQR Limited
Mr. X Hold 15% share holding of                          XYZ Limited
XYZ holds 95% share holding of                           PQR Limited

        a.      Whether Mr. X need to Give SBO disclosure to XYZ Limited
No, because he is holding shares in PQR limited directly not as beneficial.

b.      Whether Mr. X need to Give SBO disclosure to PQR Limited
Yes, Because X Natural Person acting as as Registered Owner As Well As SBO for XYZ Limited.

Mr. A Directly hold shares                                      5%
Through XYZ limited Holds (95 * 15%)                   14.25%

Ultimate holding of A in XYZ is (5+14.25 = 19.25%) directly or indirectly

      K.     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 ‘H’
Holding of ‘H” in ‘S’
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 ‘H’
Holding of ‘H” in ‘S’
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 ‘H’
Holding of ‘H” in ‘S’
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.



(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


CS DIVESH GOYAL
GOYAL DIVESH & ASSOCIATES
MOB: 8130757966
EMAIL ID: CS@CSINDIA.CO.IN
BLOG: WWW.CSDIVESHGOYAL.INFO





Comments

  1. Dear Sir,

    Thank you for elaborate explanation, in my Company , we are 100% subsidiary of the Japanese Company say X Ltd. X Ltd., i.e. our Japanese parent company is listed on Tokyo Stock Exchange , Parent company's shareholder pattern shows some Y ltd, holds 43% of the shares in the X Ltd., but the shareholding of y Ltd. is difficult to extract as parent Company is not ready to share its shareholders details.

    Now ,my query is do we need to take any declaration from parent Company in this regard ? what should be the declaration like being listed Company , X co. Ltd. does not have any individual shareholder who holds majority stake in the Company and hence, we declare that there is no natural person who holds majority stake in the company. (actually , X Ltd. has only one individual shareholder who holds 3% of shares in its list of major shareholders of the Company.

    Or do we need to declare name of the BOD of the X Co. Ltd. as SBO, please guide.

    ReplyDelete

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