Beneficial Interest in Company Section 89 of Companies Act, 2013

The Companies Act of 2013 provides a framework for legal and beneficial activities by companies, subject to approval and guidelines. Section 89 is a critical provision that allows individuals and companies to gain complete control over other companies. This article will look into Beneficial Interest in Company Section 89 of the Companies Act, 2013.

Section 89 of Companies Act, 2013

The Companies Act of 2013 allows companies to engage in legal and beneficial activities with approval or according to prescribed guidelines. Section 89 of this Act offers a way for an individual or company to achieve 100% control over another company. There are two options for establishing a company with full control by a single person:

One-Person Company (OPC): This option allows a single person to register a private company.
Section 89: Section 89 enables the registration of private and public companies as long as the required number of members is met. In this case, ultimate control resides with a single individual.

In summary, Section 89 provides a means for one person or entity to gain complete control over a company, and it applies to both private and public companies as long as certain criteria are met. Know more about the Commencement of Business Certificate (COB): Significance for Companies

Shareholder of a Company

A company typically has two types of shareholders: Registered Shareholders and Beneficial Shareholders.

Registered Shareholders: These individuals or entities have their names officially recorded in the company's register of members as shareholders. They are the ones whose names are legally associated with ownership of the shares.
Beneficial Shareholders: While their names may not appear in the register of members, they still hold a beneficial interest in the company's shares. This means they enjoy the benefits of ownership, such as receiving dividends and other perks, even though their names are not officially listed in the company's records.

Registered owner

This individual's name is recorded in the register of members but does not possess a beneficial interest in the shares. The legal interest in these shares belongs to the registered holders, also known as the 'registered or ostensible members.' The registered owner is entitled to all associated rights, including voting rights, participation in rights issues, and the ability to appoint proxies.

Beneficial owner

This person is the actual owner of the shares. The registered owner acts as a nominee on behalf of the beneficial owner, but the beneficial interest is firmly vested in the beneficial owner.

Beneficial Interest

A beneficial interest represents the entitlement to receive benefits from shares held by a different party. This concept frequently arises in discussions related to trusts, where an individual possesses a vested interest in the assets held within the trust. A beneficial interest refers to a person's rights in a contract executed with another party (a third party). Subsection 10 of Section 89 defines the term "beneficial interest in a share" for the purposes of this section and Section 90. It encompasses the right or entitlement of an individual, either independently or in conjunction with another party, to:

Exercise or facilitate the exercise of any or all of the rights associated with that particular share.
Receive or take part in any dividend or other distribution related to that share, whether directly or indirectly, through any contractual arrangement or otherwise.

Subsection 10

This subsection defines "beneficial interest in a share" for Sections 89 and 90. It includes the right or entitlement, whether individually or jointly, to exercise rights associated with a share and receive dividends or other distributions.

Declaration of Beneficial Interest in Shares

Declaration of Beneficial Interest in Shares According to Section 89 of the Companies Act 2013

Obligation of the Registered Holder:

When a person's name is recorded in the register of company members as the holder of shares, but they do not actually hold the beneficial interest in those shares, they must declare to that effect. This declaration should be submitted using Form No. MGT.4 within thirty days from the date on which their name is entered in the register of members of the company. Additionally, if any changes occur in the beneficial interest regarding those shares, the registered owner must, within thirty days from the date of such change, submit a declaration of that change to the company using Form No. MGT.4.

Obligation of the Company:

Once the company receives a declaration under Section 89, it has certain responsibilities to fulfil:

Recording the Declaration: The company must note the received declaration in the register of members. This record helps maintain transparency and accountability.
Filing a Return: Within thirty days from the date of receiving the declaration, the company is required to file a return. This return should be submitted in Form No. MGT.6 with the Registrar of Companies (ROC).
Payment of Fees: The return filing should be accompanied by the appropriate fees specified under the law.

By fulfilling these obligations, the company ensures compliance with Section 89 of the Companies Act 2013 and contributes to maintaining accurate records and transparency regarding beneficial interests in its shares.

Obligation of Beneficial Owner

Every person who holds or acquires a beneficial interest in shares of a company not registered in their name is referred to as the "beneficial owner." These individuals have specific obligations:

Declaration Filing: A beneficial owner must file a declaration disclosing their interest in Form No. MGT.5 within thirty days after acquiring such beneficial interest in the company's shares. This declaration is essential to ensure transparency and regulatory compliance.
Change in Beneficial Interest: If there is any change in the beneficial interest in such shares, the beneficial owner must declare this change to the company within thirty days from the change date. This helps in keeping the company's records accurate and up-to-date.
File Form MGT-6: Companies are then required to file Form MGT-6, which includes Form MGT-4 and MGT-5 as attachments. This combined filing ensures the company maintains proper registered and beneficial ownership records.
Exemption Clause: It's important to note that the rule regarding these declarations does not apply to trusts created to establish entities like Mutual Funds, Venture Capital Funds, or any other fund approved by the Securities and Exchange Board of India (SEBI).

Fees for Filing MGT-6:

The fees for filing Form MGT-6 depend on the nominal share capital of the company:

Less than 1,00,000 INR: Fee - 200 INR
1,00,000 to 4,99,999 INR: Fee - 300 INR
5,00,000 to 24,99,999 INR: Fee - 400 INR
25,00,000 to 99,99,999 INR: Fee - 500 INR
1,00,00,000 or more INR: Fee - 600 INR

These fees apply when submitting the MGT-6 return, which contains the declarations from registered and beneficial owners, ensuring compliance with Section 89 of the Companies Act 2013.

Exemptions

Under the proviso introduced by the Companies (Management and Administration) Second Amendment Rules 2014, effective from 24.07.2014, the provisions of this rule do not apply to trusts established to establish a Mutual Fund, Venture Capital Fund or any other fund approved by SEBI. This exemption means that such entities are not required to submit the declarations outlined in the respective section.

Punishment

Under Subsection 5 of Section 89, if an individual fails to submit the required declaration as stipulated in Subsections (1), (2), or (3), they shall incur a penalty of fifty thousand rupees. In the event of a persistent failure, an additional penalty of two hundred rupees per day will be imposed, starting from the day following the initial failure, with a maximum limit of five lakh rupees. Under Subsection 7 of Section 89, if a company, obligated to file a return as per Subsection (6), neglects to do so within the specified time frame, both the company and any officer of the company responsible for the default will be subject to a penalty of one thousand rupees for each day during which the failure persists. The company's maximum penalty is five lakh rupees, while the officer's maximum penalty is capped at two lakh rupees.

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