SBO Rules: Lack of clarity may hamper compliance

By Siddharth Nair and Ritwik Mukherjee, Shardul Amarchand Mangaldas & Co
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Based on recommendations of the Financial Action Task Force, the Ministry of Corporate Affairs (MCA), in order to identify the ultimate beneficial owner of shares in investments made through multi-layered structures, notified the Companies (Significant Beneficial Owners) Rules, 2018 (SBO Rules), on 13 June 2018, under the section 90 of the Companies Act, 2013 (act), as substituted by the Companies (Amendment) Act, 2017.

Siddharth Nair and Ritwik Mukherjee Shardul Amarchand Mangaldas & Co
Siddharth Nair
Shardul Amarchand
Mangaldas & Co

Section 89 of the act requires a person registered as the holder of shares in the registers of a company, but who does not hold beneficial interest in such shares, to make a declaration to the company furnishing particulars of the person who holds such beneficial interest. In turn, the company would be required to file such declaration with the jurisdictional registrar of companies.

Section 90 of the act appears to operate independently of section 89, and provides (when read in conjunction with the SBO Rules) that every individual who holds a beneficial interest of 10% or more of a company’s shares, or the right to exercise, or actually exercises “significant influence” or “control” over the company (SBO), must declare to the company the nature of the interest. This would apply whether or not the SBO is acting alone or together with, or through, one or more persons or trust or persons resident outside India. Companies are required to maintain registers in respect of SBOs, including the name, date of birth, address, details of ownership in the company and other prescribed details. The SBO Rules do not apply to the holding of shares by pooled investment vehicles and investment funds that are regulated by the Securities and Exchange Board of India (SEBI). Foreign venture capital funds registered under the SEBI (Foreign Venture Capital Investors) Regulations, 2000, while investing under the FVCI route may be eligible for this exemption.

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Siddharth Nair is a partner at Shardul Amarchand & Co and Ritwik Mukherjee is an associate.

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Shardul Amarchand Mangaldas & Co
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Mumbai: Akshay Chudasama
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