The Ministry of Corporate Affairs (MCA) on February 8, 2019 has notified amended Companies (Significant Beneficial Owners) Rules 2018. This rule came into effect on February 08, 2019. These provisions require certain compliances to be followed by the Significant Beneficial Owner and the reporting company.

 

Who is a ‘Significant Beneficial Owner’?

 

First Condition:

 

“Significant Beneficial Owner” means an individual who acting alone or together, or through one or more persons including a trust and persons resident outside India, holds indirectly or together with any direct holdings have a beneficial interest of not less than ten percent in shares of a company or voting rights or of the total distributable dividend, or any other distribution or the right to exercise, or the actual exercising of significant influence or control in a company.

 

If an individual does not hold any right or entitlement indirectly he shall not be considered to be a significant beneficial owner.

 

Second Condition:

 

An individual shall be considered to hold a right or entitlement indirectly in the reporting company if he satisfies any of the following criteria:

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Sr. No.        Where Member is             Who is Significant Beneficial Owner?

A.                    Company                         Significant Beneficial Owner is the Individual, who holds a majority stake (more                                                                        than 50%) in that member; or holds a majority stake in the ultimate holding                                                                                company (whether incorporated or registered in India or abroad) of that member.

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B.                  Partnership                       FirmSignificant Beneficial Owner is the Individual, who is a partner; or holds a                                                                           majority stake in the body corporate which is a partner of the partnership entity;                                                                       or holds a majority stake in the ultimate holding company of the body corporate                                                                       which is a partner of the partnership entity.

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C.                        Trust                             The Significant Beneficial Owner is an individual who is a trustee in case of a                                                                              discretionary trust or charitable trust or is a beneficiary in case of a specific trust                                                                      or is the author or settlor in case of a revocable trust.

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D.                       HUF                              The Significant Beneficial Owner is an individual who is a Karta of the HUF

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E.          Investment Vehicle                The Significant Beneficial Owner is an individual who is a is a general partner, or                                                                      (B) is an investment manager; or is a Chief Executive Officer where the investment                                                                    manager of such pooled vehicle is a body corporate or a partnership entity.

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What is the obligation of a Significant Beneficial Owner?

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• Every individual who is a significant beneficial owner in a reporting company shall file a declaration in Form No. BEN-1 to the reporting company within ninety days from such commencement of this rule i.e. by May 09, 2019.

 

• Every individual, who subsequently becomes a significant beneficial owner, or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within thirty days of acquiring such significant beneficial ownership or any change therein.

 

What are the obligations of the Company?

 

• The company receiving the declaration has to maintain a register of Significant Beneficial Owners.

 

• The company has to file a return in Form No. BEN-2of significant beneficial owners of the company and changes therein with the Registrar within 30 days from the date of receipt of the declaration.

 

• Maintain a register of significant beneficial owner in Form No. BEN – 3.

 

• Also, if the Company knows or has reason to believe that someone is a Significant Beneficial Owner (or has been a Significant Beneficial Owner in last three years) and is not registered with the company as a Significant Beneficial Owner then, the company is required to give notice to such person seeking information in Form No. BEN-4.

 

What happens if I don't follow the disclosure norms?

 

• The Shares may be made subject to the restriction on transfer;

 

• Suspension of all rights attached to shares example voting rights, dividend, etc;

 

• Imprisonment upto 1 year or fine of INR 1,00,000 upto INR 10,00,000/- and on continuation default with INR 1,000 per day; and

 

• Can be charged with fraud under Section 447 of Companies Act, 2013.

 

What are the penalties for the company?

 

Fine up to INR 10,00,000/- to INR 50,00,000/- for the company and defaulting officer and on continuation with INR 1,000 per day.

 

Who is exempted?

 

• Shares held by IEPF;

• Shares held by Holding reporting company;

• Government Authority;

• Mutual Funds;

• Alternative Investment Funds (AIFs);

• Real Estate Investment Trusts(REITs) and Infrastructure Investment Trusts (lnvlTs);

• Investment vehicles regulated by RBI.

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