On 13 June 2018, the Ministry of Corporate Affairs (MCA), released the Companies (Significant Beneficial Ownership) Rules, 2018. The rules, along with amendments to sections 89 and 90 of the Companies Act, 2013, marks an effort to make Indian laws consistent with global anti-money laundering standards. While 11 September 2018 was indicated as the last date for compliance with reporting requirements under the rules, the MCA issued a circular on 10 September 2018 clarifying that Form BEN-1 under the rules was being revised and advised stakeholders to wait for the revision.
A significant beneficial owner (SBO) under the rules is an individual holding ultimate beneficial interest of not less than 10% share capital in a company or who has the right to exercise, or actually exercises, significant influence or control over the company, but whose name is not in the register of members. The rules explain that for a member who is a company, the SBO is the natural person holding 10% or more share capital or exercising significant influence or control over the member, and for a partnership firm, the SBO is the natural person holding 10% capital in the partnership, or who has entitlement of not less than 10% of profits of the partnership. If no person is identified as above, then the SBO of the legal entity will be the senior managing official.
An SBO is required to give a declaration to the company (in Form BEN-1). The company is then required to file the form with the Registrar of Companies (in Form BEN-2) and also maintain a register of beneficial ownership (in Form BEN-4). The rules empower a company to seek information about SBOs from persons that it has reasonable cause to believe are SBOs, have been SBOs of the company in the preceding three years or may have knowledge on the identity of SBOs. Any person who receives such a request from the company is required to respond to the company within 30 days, failing which the company may apply to the National Company Law Tribunal for an order restricting transfer of the shares in question or suspending the rights with respect to such shares.
The rules are not made applicable to the holding of shares in pooled investment vehicles and investment funds regulated under Securities and Exchange Board of India Act. This is because the Securities and Exchange Board of India has its own framework on identification of beneficial ownership.
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Aparna Ravi is a partner and Surabhi Rao is an associate at the Bengaluru office of Samvad Partners.
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