MCA on 13.06.2018 issued a Companies (Significant Beneficial Owners) Rules, 2018 (SBO rules) for bringing transparency to the manner in which shares of companies are held. As per rules, SBO is an individual who is holding ultimate beneficial interest of not less than 10 % in a company but whose name is not in register of the members of the company as holder of such shares. SBO rules are applicable to companies which have shareholders other than individuals & natural persons & such shareholders hold beneficial interest as per the prescribed limits.
Now, on 08.02.2019 MCA issued notification amending SBO rules, 2018. SBO amendment rules, 2019 are as follows:
The word Control is given the meaning same as S. 2(27) of the Companies Act, 2013.
• Holds more than ½ of the equity share capital in body corporate; or
• Holds more than ½ of the voting rights in the body corporate; or
• Have right to receive or participate in more than ½ of the distributable dividend or any other distribution by the body corporate.
It means a partnership firm registered under the partnership Act, 1932 & LLP registered under the LLP Act, 2008.
It is given the same meaning as S. 2(20) of the Act of the Companies Act, 2013.
Significant Beneficial Owner
In relation to a reporting company, it means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:-
i. Holds indirectly or together with any direct holdings, not less than 10% of the shares;
ii. Holds indirectly or together with any direct holdings, not less than 10% of the voting rights in the shares;
iii. Has right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution.
iv. Has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone.
It is clarified that if an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant beneficial owner.
Also, an individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, namely.—
i. The shares in the reporting company representing such right or entitlement are held in the name of the individual;
ii. The individual holds or acquires a beneficial interest in the share of the reporting company under sub-section (2) of section 89, and has made a declaration in this regard to the reporting company.
As per Explanation III, it is further clarified that, an individual shall be considered to hold a right or entitlement indirectly in the reporting company, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely:-
i. Where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual,—
a. holds majority stake in that member; or
b. holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;
ii. Where the member of the reporting company is a Hindu Undivided Family (HUF) (through karta), and the individual is the karta of the HUF;
iii. where the member of the reporting company is a partnership entity (through itself or a partner), and the individual,-
a. is a partner; or
b. holds majority stake in the body corporate which is a partner of the partnership entity; or
c. holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
iv. where the member of the reporting company is a trust (through trustee), and the individual,-
a. is a trustee in case of a discretionary trust or a charitable trust;
b. is a beneficiary in case of a specific trust;
c. is the author or settlor in case of a revocable trust.
v. where the member of the reporting company is,-
a. a pooled investment vehicle; or
b. an entity controlled by the pooled investment vehicle,
based in member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle,-
A. is a general partner; or
B. is an investment manager; or
C. is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.
Where the member of a reporting company is a pooled investment vehicle or an entity controlled by the pooled investment vehicle, based in a jurisdiction which does not fulfill the requirements referred to in clause (v) of Explanation III, the provisions of clause (i) or clause (ii) or clause or clause (iv) of Explanation III, as the case may be, shall apply.
Also, if any individual, or individuals acting through any person or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’.
Further, it is clarified that the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as ‘shares’.
It means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies’.
Rule 2A is inserted substituting Rule 3 & 4 of the SBO rules, 2018 which casts a duty on the reporting company to make a declaration in Form No. BEN-1 by the individual identified as a SBO. Otherwise the reporting company shall seek information in Form No. BEN-4 from every member holding not less 10% of shares or voting rights or right to receive dividend.
Individual SBOs at the commencement of SBO amendment rules, 2019 i.e. 08.02.2019, every such SBO have to file Form No. BEN-1 to the reporting company within 90 days of the commencement.
Where individual becomes subsequently a SBO & if there is any change in his SBO then, such SBO shall file Form No. BEN-1 to the reporting company within 30 days from the date of becoming SBO or change in SBO.
After receiving declaration under rule 3, the reporting company will file a return in Form No. BEN-2 with registrar within 30 days from the date of receipt of declaration.
These rules are not applicable to the extent the shares are held by authority constituted under S. 125(5) of the Act, its holding reporting company (details are filed in form no. BEN-2), Central Government, state government or local authority, a reporting company or body corporate or an entity wholly or partly owned by Central or state government.
Also, these rules are not applicable on SEBI registered investment vehicles, real estate investment trusts, Infrastructure Investment Trust, RBI regulated Investment vehicles, IRDAI or Pension regulatory & development Authority.
New forms i.e. Form No. BEN-1, Form No. BEN-2, Form No. BEN-3 & Form No. BEN-4 are issued.