WHOLE LOT ABOUT - Significant Beneficial Ownership

WHOLE LOT ABOUT - Significant Beneficial Ownership SHORT SUMMARY: The Ministry of Corporate Affairs (the MCA)videits circular dated the 13^th of June, 2018introduced the Companies (Significant Beneficial Owners) Rules, 2018 (Rules). In this editorial author shall discuss the basics about Beneficial Ownership, and Significant Beneficial Ownership legal provisions about beneficial ownership, compliance requirement as per Companies Act, 2013 in this respect. We have found there is always confusion in relation to the Beneficial Ownership or like: who is beneficial owner, what are the rights or liabilities of beneficial owner, what are the legal compliances for beneficial owner etc. vice versa. Basic Terms to understand the Concept:

1. Registered Owner: means a person whose name is entered in the register of members ofa company as the holder of shares in that company but who does not hold beneficial interest in such shares;

In general words, this person are not an actual owner of shares. Only his name is entered into register of members. He is not entitled to dividend, officer for right issue of shares, bonus shares etc. However, this person having voting rights in the Company, Vote on poll, name shall be entered in registered of member, entitle to sign proxy form, shall be count for the quorum etc.

2. Beneficial Owner:Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, in shares of a company or the right to exercise, or the actual exercising of significant influence or control.

In general words, beneficial owner is actual owner of the shares. Only his name is not entered in register of members. He is entitled to all beneficial interest as mentioned below.

3. Beneficial Interest: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;

(i) Exercise or cause to be exercised any or all of the rights attached to such share; or

(ii)Receive or participate in any dividend or other distribution in respect of such share.

In general words, beneficial owner is entitled to exercise all the rights of the shares like: Dividend, right issue, bonus of shares etc.

4. Significant Beneficial Owner:means beneficial owner holding ultimate beneficial interest not less than 10% and whose name not entered in the register of members of a Company.

Note: 1. For the purpose of calculation of 10% of beneficial interest in shares, Shares IncludesInstrument in form of a. Global Depository Receipts, b. Compulsorily Convertible Preference Shares or c. Compulsory convertible debentures. 2.For the purpose of significant beneficial owner, in case of person other than individuals or natural person, shall be determined as under:

S. No.	Where Member is	Along with	Percentage
A.	Company	Significant beneficial owner is the natural person, who, - Whether acting alone or - together with other natural persons, or - through one or more other persons or trust	Hold atleast 10% of share capital of the Company or Who exercise significant influence or control in the company through other means.
B.	Partnership Firm	Significant beneficial owner is the natural person, who, - Whether acting alone or - together with other natural persons, or - through one or more other persons or trust	Hold atleast 10% of capital or Has entitled of not less than 10% of profits of the partnership firm.
C.	Trust	The beneficial owner shall includes - identification of the author of the turst, and - the trustee,and - the beneficiaries with not less than 10% interest in the trust and - any other natual person exercising ultimate effective control over the trust through a chain of control or ownership.

Note: Where no natural person is identified in point No. 1 and 2, the significant beneficial owner is the relevant natural person who holds the position of senior managing official; FOOD FOR THOUGHT.

1. What is meaning of Senior Management as per above mentioned note
2. How to calculate 10% Share Capital in above mentioned Table Point No. A, in case Where Company A hold 70% share capital of Company B and Mr. X is holding 10% shares of Company A and Mr. Y is holding 20% shares of Company A. Whether Mr. X and Y shall be fall in the point or have to file BEN-1.
3. If any person taking benefit from the trust more than 10% whether require to file BEN-1

Compliance requirement Beneficial interest Compliance by Registered owner: A declaration to that effect inForm No.MGT.4within a period of thirty days from the date on which his name is entered in the register of members of such company. {Section 89(1) read with Rule 9(1)} Compliance by Beneficial Owner: A declaration disclosing such interest inForm No.MGT.5within thirty days after acquiring such beneficial interest in the shares of the company.{Section 89(2) read with Rule 9(2)} Compliance by Company: Where any declaration as mentioned above received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return inForm No.MGT.6with the Registrar in respect of such declaration with fee.{Section 89(6) read with Rule 9(1)} Food for thought.. Whether beneficial owner can claim the rights, where no declaration u/s 89(2) made by the beneficial owner Section 89(8)No right in relation to any share in respect of which a declaration is required to be made under this section but not made by the beneficial owner, shall be enforceable by him or by any person claiming through him. Compliance requirement SIGNIFICANT BENEFICIAL INTEREST A. Compliance by Significant Beneficial Owner: First Disclosure: Every significant beneficial owner (SBO) shall file a declaration in Form No.BEN-1 to company in which he holds the significant beneficial ownership on the date of commencement of these rules within 90 days from commencement of these rule i.e. 13^th June, 2018. Disclosure on change basis: Every SBO shall file any change in his significant beneficial ownership within 30 days to the Company.{Section 90(1) read with Rule 3 of SBO Rules} Become Significant Beneficial Owner: Every individual, who acquires significant beneficial ownership in a Company, shall file a declaration in Form No.BEN-1to the Company within 30 days of acquiring such significant beneficial ownership. B. Compliance by Company: Registers: Every company shall maintain a register of the interest declared by individuals u/s 90(1). Return: Company shall file a return in Form No.BEN-2 with ROC within 30 days from the date of receipt of declaration in BEN-1. {Section 90(4) read with Rule 3 of SBO Rules} Registers: The Company shall maintain a register of significant beneficial owner in Form No. BEN 3. Note: Above compliances shall be done by Company after receipt of information from the Significant Beneficial Owner. There is a question: Food for thought.. If Company has not received any such BEN-1 from significant beneficial Owner, then whether company have to take any actions to obtain such information As per provisions of Section 90(5) read with rule 6 of (SBN Rules, 2018), Section 90(5) A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe (a) To be a significant beneficial owner of the company; (b) To be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or (c) To have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section. Rule 6: Company shall give notice seeking information in Form No.BEN-4. PROCESS: STEP: 1 - Reply by Concerned Person: The person to whom notice has been issue shall revert to the Company within 30 days of Notice. STEP: 2- Action by Company The company shall, (a) Where that person fails to give the company the information requiredby the notice within the time specified therein; or (b) Where the information given is not satisfactory, {Section 90(7) read with Rule 6 of SBO Rules} The Company shall apply to Tribunal within 15 days of the expiry of the period specified in Notice. Notice for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed. Food for Thought. 1.) What is difference between Beneficial Owner and Significant Beneficial Owner 2.) What are the Specific rights of Registered Owner 3.) What are the specific rights of Beneficial Owner 4.) While calculating 10% of beneficial interest only Equity share capital of company shall be considered or CCPS and CCD shall also be considered 5.) Whether an individual can create beneficial interest without any contract or arrangement, if yes what are the ways 6.) As per Section 90, if a person hold 25% of right then shall be considered as Significant Beneficial Owner, however as per Rules if a person holds 10% of interest then shall be considers as significant beneficial owner. While making compliances which shall be consider

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(Author CS DiveshGoyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]) Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

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