Deepak Gupta | Jul 16, 2018 |
Concept of Beneficial and Significant Beneficial Owners in Companies Act 2013 : Declaration by Beneficial and Significant Beneficial Owners Section 89 and 90 of the Companies Act 2013 :
This write up is prepared in regards to the newly introduced/ substituted provisions under the Companies Act, 2013 (herein referred thereafter the Act) i.e. Section-90 (Register of significant Beneficial Owners in a Company) herein enforcedand the Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018 (Final Rules) issued by MCA in relation to Significant Beneficial Ownership (SBO) by MCA vide its Notification dated June 13, 2018.
Why this concept
This measure is implemented for the avoidance of misuse of Corporate vehicles such as such as companies, trusts, foundations, partnerships, and other types of legal persons and arrangements, which plays a vital role in economy round the globe. These corporate vehicles in some or the other ways are misused for unlawful purposes such as Tax Evasion, Money Laundering, Corruptions, insider dealing and other illegal/ Benami transactions.
By introduction of this concept in India law, it attempts to procure and conceal as much information about the legal owners and beneficial owners (who are actual source of these corporate vehicles) about their beneficial interest which enhances transparency in corporate world. By securing the Legal and beneficial ownership information, aid to the concerned investigation and other competent authorities can be provided which allows them to identify those natural persons who may be responsible for the underlying fraudulent or illegal activity of concern, or who may have relevant information to further an investigation.
Individuals, every so often create, administer, control, own and operate numerous corporate vehicles financially or in other specified manner from different countries with ready access to the international financial system, thereby making difficult for investigation and other competent authorities for procurement of information from different jurisdiction which is exposed to investigation under Money Laundering or other illegal transaction. For Example: Information in regards to Beneficial Owner can remain unnoticed through following ways:
Therefore, Law in India; herein the companies act, 2013 has recognised the concept Declaration in Respect of Beneficial Interest in any Share under Section 89 of the Act and Maintenance of Register of significant beneficial owners in a company under section 90 of the Act which will ensure that adequate, accurate and timely information on the beneficial ownership of corporate vehicles is available (in form of declaration of beneficial interest in a share to be given by both the legal owner and the person holding beneficial interest) which increases transparency and avoidance of illicit transactions.
Terminologies
Before understanding the provisions of the sections, lets discuss with the crux of the sections and important terms used therein:
Erstwhile, the expression beneficial interest was not defined, and in absence of specific provisions, the term has been defined by amending the section 89 of the Act, in form of insertion of sub section (10);
It provides the following- beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to
Please Note: beneficial Interest Cannot be created for Debentures
It means a person whose name is entered in the register of members of a company as the holder of shares in that company but who does not beneficial interest in such shares.
Beneficial owner definition includes it includes natural persons on whose behalf a transaction is being conducted, even where that person does not have actual or legal ownership or control over equity. Its like person enjoy ownership of the shares irrespective of the title.
In other words: on the natural (not legal) persons who actually own and take advantage of capital or assets of the legal person; and have control over it rather, than just the persons who are legally (on paper) entitled to do so.
For example: if a company is legally owned by a second company (according to its corporate registration information), the beneficial owners are actually the natural persons who are behind that second company or ultimate holding company in the chain of ownership and who are controlling it.
| SBO means | Individual Referred in sub section (1) of section 90
|
| Holding beneficial Interest | Holding beneficial Interest:
Threshold limit has been decreased to 10%
|
| Securities Covered | Equity shares, Global Depository Receipts, Convertible Preference Shares, Compulsory Convertible Debentures; (For the purpose of SBO) |
| Register | And whose name is not entered in Register of Members It means shareholders whose name is entered in Register are not required to file. |
| Difference between Beneficial owner and Significant Beneficial Owner | BO: They are required to make disclosures as per section 89 of the Act, even when their holdings are less than 10%. SBO: They are required to make disclosures as per section 90 of the Act if interest is or more than 10% |
| MEMBER WILL BE: | SIGNIFICANT BENEFICIAL OWNER | HOLDING |
| Company | Natural Person
|
|
| Partnership firm | Natural Person
through one or more other persons or trusts | |
 | ||
| Trust through trustee | SBO will be: -author of the trust, -the trustee -the beneficiaries- Holds at least 10 % of interest in trust -any other natural persons- exercising of significant influence or control | |
QUICK REFERNENCER FOR DECLARATION: IN SECTION 89 OF THE ACT:
As per Section 89 and the Companies (Management and Administration) Rules, 2014; Declaration in Respect of Beneficial Interest in any Shares by Registered owner and beneficial Owner is to be made in following Manner:
| Registered owner (Section 89 (1)) |
|
| Beneficial owner (Section 89 (2)) |
|
| In case of Change of Beneficial Interest (Section 89 (3)) |
|
| Declaration by Company[13] (Section 89 (6)) |
|
| Penal Provision for RO or BO |
|
| Penal Provision for Company |
|
QUICK REFERNENCER FOR DECLARATION: IN SECTION 90 OF THE ACT:
As per Section 90 and the Companies (Significant Beneficial Owners) Rules, 2018; Declaration in Respect of Significant Beneficial Ownership in any Company by Significant Beneficial owner is to be made in following Manner:
| Ownership (As on commencement date: 13.09.2018) |
|
| Ownership (Acquisition after commencement date: 13.09.2018) |
|
| Declaration by Company |
|
| Maintenance of registers |
|
| Powers of Company (Section 90(5) & (6)) |
i. To be SBO
|
| Power to Apply to Tribunal |
i. Restriction on transfer of shares
|
| Penal Provisions for SBO (Section 90 (10)) |
|
| Penal Provisions for Company (Section 90 (11)) |
|
EXEMPTIONS FROM DECLARATIONS:
Section 89 and 90 of the Act, will not apply to a Government Companies, vide Notification dated 05.06.2015.
Further rule 8 of the Companies (Significant Beneficial Owners) Rules, 2018 identifies that compliance of declaration is not required: for holding shares of following Companies / body corporate regulated under SEBI Act:
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