Significant Beneficial Ownership (Amendment) Rules, 2019

The Ministry of Corporate Affairs has issued the Companies (Significant Beneficial Ownership) Amendment Rules, 2019, to replace the 2018 Rules of the same name. The Rule was brought into force to curtail various illegal activities like tax evasion, money laundering, benami transactions and mandate all Companies to furnish a declaration to the Registrar of Companies (ROC) concerning their Significant Beneficial Owner. The move is expected to aid the Government authorities to track the actual holders of ownership of the corporate entity. This article looks at the newly framed rules.

Significant Beneficial Owner – a Preface

A person is considered as a Significant Beneficial Owner (SBO) if he/she, whether acting alone, together or through one or more individuals or trust holds a beneficial interest of at least 10% (25% previously). The beneficial interest could be in the form of a company’s shares or the right to exercise significant influence or control over the company. These individuals, as already stated, must make a declaration to the company specifying the nature of his/her interest and other essential particulars in the prescribed manner and within the permitted time frame. The Amended SBO Rules provide that a Significant Beneficial Owner is an individual (as specified above), who:

Holds indirectly, or along with any direct holdings, at least 10% per cent of the shares of the company.
Holds indirectly, or along with any direct holdings, at least 10% of the voting rights in the shares of the company.
Has been vested with the right to receive or participate in at least 10% of the total distributable dividend, or any other distribution in a financial year solely through indirect holdings, or along with any direct holdings.
Has been vested with the right of exercising significant influence or control through direct-holdings and other means.

Direct Right or Entitlement

Any individual holding shares in the Reporting Company in his/her name or holds/acquires a beneficial interest in the share of the Reporting Company and has a made a declaration under Section 89 of the Act are considered to hold a right or entitlement directly. The Amended Rules has laid out the criterion on the rights or entitlements of direct holding in the Reporting Company based on the legal structure of the member. Here's an overview of it:

Member Structure	Individual Holding Right or Entitlement
Body Corporate (whether registered in India or abroad)	Individuals holding a majority stake in that member Individuals holding a stake in the ultimate holding company of such member Note – The Amendment Rules has identified one or more of the following as a Majority Stake: 1. Holding more than one-half of the equity share capital in the body corporate. 2. Holding more than one-half of the voting rights in the body corporate. 3. Having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate.
Hindu Undivided Family (HUF) through Karta	Karta
Partnership Entity	Partner A person holding a majority stake in the body corporate which is a partner of the partnership entity A person holding majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.
Trust	The trustee – if it’s a discretionary or charitable trust The beneficiaries – if it’s a specific trust The author or settlor – if it’s a revocable trust

Responsibilities of the Reporting Company

Reporting Companies, as per the amended rules, are required to identify the existence of a Significant Beneficial Owner associated with it and necessitate him/her to file a declaration in Form Ben-1. The Reporting Company may issue a notice to a member seeking information in Form BEN-4 if the latter holds at least 10% of the former’s shares, voting rights or right to receive or partake in the dividend or any other distribution payable in a financial year. Apart from these, a Reporting Company is obligated to:

File a return in Form BEN-2 with the Registrar with respect to any declaration made by a Significant Beneficial Owner and any changes in the Significant Beneficial Ownership.
Maintain a register of Significant Beneficial Owners in Form BEN-3. The register must include their respective names, addresses, date of birth and details of ownership.
Issue notice to all its non-individual members who are holding more than 10% of the shares requiring them to disclose information of the SBO of such member (in Form BEN-4).
File an application to the National Company Law Tribunal (NCLT) to impose restrictions on the shares if a person doesn’t provide the required information.

Filing of Obligations

The amended Rules require every SBO to file a declaration in Form BEN-1 to the respective company within a time frame of 30 days of acquiring the status of SBO. On the same note, these SBOs are also required to file the same within 90 days of introducing the amended rules. The amendment was enforced on the 8^th of February this year.

Penalties

SBO's not filing Form BEN-1 would be imposed a fine ranging between INR 1,00,000 to INR 10,00,000 lakhs; and for a continuing offence, an additional fine of INR 1000 would be imposed for every day of default. Companies which are not compliant with the respective norms would be penalized with a sum of INR 10,00,000 to INR 50,00,000 (also applies to the people in-charge); and for continued offences, an additional fine of Rs. 1000 would be imposed for every day of default.

Non-applicability of the Amendment

The following persons need not make disclosures under the new SBO Rules:

The Investor Education and Protection Fund
The holding reporting company of the reporting company.
The Central Government, state governments and local authorities.
Entities administered by the Central Government, by any of the state governments or partly by the Central Government and any of the state governments.
All investment vehicles registered with the Securities and Exchange Board of India (SEBI).
Investment vehicles governed by the Reserve Bank of India (RBI)/Insurance Regulatory and Development Authority of India (IRDA)/ Pension Fund Regulatory and Development Authority.

Company Registration

OPC Registration