The Ministry of Corporate Affairs, vide issue of notification dated February 8, 2019 has notified Companies (Significant Beneficial Ownership) Amendment Rules 2019 replacing provisions of Companies (Significant Beneficial Owners) Rules, 2018.The new rules are effective from the date of publication in Official gazette (i.e, February 8, 2019) and are applicable to every company having significant beneficial owners.
Summary of major changes notified in new rules are provided below:
- Introduction of definition of term “majority stake” to mean:
i) holding more than one-half of the equity share capital in the body corporate; or
ii) holding more than one-half of the voting rights in the body corporate; or
iii) having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate
- Substitution of definition of ‘significant beneficial owner’ (SBO) as follows:
Significant beneficial owner, in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely:
i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;
ii) holds indirectly,- or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;
iii) has right to receive or participate in not less than ten per cent. of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;
iv) has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct-holdings alone.
An individual shall be considered to hold a right or entitlement directly in the reporting company, if he satisfies any of the following criteria, namely:
i) the shares in the reporting company representing such right or entitlement are held in the name of the individual;
ii) the individual holds or acquires a beneficial interest in the share of the reporting company under subsection (2) of section 89, and has made a declaration in this regard to the reporting company.
- The new rules cover situations where individuals hold right or entitlement in the reporting company indirectly through HUF, body corporates, partnership entities and trusts. The amendment also extends the application of rules to pooled investment vehicles.
- Introduction of Rule 2A specifying duty of reporting company:
Every company shall take necessary steps to find out if there is any individual who is SBO as defined in the Rules, and make such individuals to file declaration in Form no BEN -1. The company shall also serve notice to all members (other than individuals) of a company who are holding more than 10% of shares or voting rights or right to receive/ participate in dividend or any distribution payable in a financial year, seeking information in Form No. BEN-4.
- Declaration of significant beneficial ownership:
The rule requires every SBO to file declaration within 90 days of commencement of the new rules (i.e, by May 10, 2019). Further, every individual, who subsequently becomes SBO, or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein.
- Application to the Tribunal:
Subsequent to the amendment, the reporting company can also make an application to the Tribunal in case any person fails to give the information required by the notice in Form No. BEN-4 within the time specified therein or where the information given is not satisfactory.
- Non – applicability:
The area covered by the non-applicability of these rules have also been widened to include those share which is held by Investor Education and Protection Fund (IEPF), holding reporting company, Central/ state Government or any local Authority, a reporting company or a body corporate or an entity controlled by the Central/ state Government.
- Prior to the amendment, the major deviation under the Rules from Section 90(1) of the Companies Act, 2013 (“Act”) was the threshold provided for an individual to classify as SBO was 10% in contrast to the threshold of 25% prescribed under the Act. However, the current scenario dictates the meaning of SBO in relation to a reporting company as an Individual who is acting alone or together or through one or more persons or trust, possesses one or more of rights or entitlements prescribed therein in such reporting company.
- Earlier, there was no specific provision which required the reporting company to give notice to members to seek information holding more than 10% hares, voting rights or right to receive or participate in the dividend or any other distribution payable in a financial year.
- Forms as prescribed in the rules have been revised seeking information in a detailed manner.
- Disclosures relating to SBO will lead to transparency of shareholding structures and help in identifying benami transactions and prevent money laundering activities. Apart from providing more clear definitions for determining whether an individual or an entity has significant beneficial ownership, corporates will be required to provide the details in a more elaborate manner to the regulators.
The detailed notification is attached for reference.