Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Wednesday, May 20, 2020

Significant Beneficial Owner (SBO) in Companies - Related Compliance (BEN-1, BEN-2)

Legal References

1) Section 90 of the Companies Act, 2013
2) Companies (Beneficial Interest and Significant Beneficial Interest) Rules, 2018
3) Companies (Significant Beneficial Owners) Amendment Rules, 2019 (MCA Notif. 08.02.19)

Important Concepts

Registered Owner: 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 hold the beneficial interest in such shares

Beneficial Owner: A person who actually holds the beneficial interest in the shares but whose name is not registered in the Register of Members is commonly called as the beneficial owner.

Wholly Owned Subsidiary: A wholly owned subsidiary is a company that is completely owned by another company. The company that owns the subsidiary is called the parent company or holding company.

Significant Beneficial Owner (SBO): SBO in relation to a reporting company means an individual who directly and/or indirectly through one or more persons such as companies, partnership firms or trusts possesses:

(i) No. of Shares: not less than 10% shares; or
(ii) Voting Rights: not less than 10% of the voting rights in the shares; or
(iii) Right to Dividend: right to receive or participate in not less than 10% of the total distributible dividend; or
(iv) Significant Influence or Control: has right to exercise significant influence or control in any manner other than through direct-holdings alone.

Significant Influence: Significant influence means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company.

Control: Right to appoint majority of directors or control management or policy decisions excercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of the shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

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

(i) Body Corporate: where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a LLP, and the individual
(a) holds majority stake in such body corporate; or
(b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;
(Majority stake means holding more than 50% of the equity share capital or 50% of the voting rights in the body corporate or having the right to receive more than 50% of the distributable dividend.)

(ii) HUF: where the member of the reporting company is a HUF and the individual is the Karta of the HUF;

(iii) Partnership: where the member of the reporting company is a partnership entity [either under the Partnership Act or LLP Act] and the individual:
(a) is a Partner; or
(b) holds majority stake in the body corporate which is a partner of the partnership entity; or
(c) holds majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.

(iv) Trust: where the member of the reporting company is a trust and the individual
(a) is a trustee in case of a discretionary trust or a charitable trust;
(b) is a beneficiary in case of a specific trust;
(c) is the author or settlor in case of a revocable trust.

(v) Pooled Investment Vehicle: where the member of the reporting company is
(a) a pooled investment vehicle; or
(b) an entity controlled by the pooled investment vehicle, based in member State of the Financial Action Task Force on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions, and the individual in relation to the pooled investment vehicle is a general Partner or Investment Manager or CEO

Documents & Forms

BEN-1: Declaration to be filed by every individual who is an SBO in a reporting company

BEN-2: Return to be filed by reporting company with MCA in e-form on receipt of declaration from SBO. The e-Form can be downloaded with Instruction Kit from the MCA website here.

BEN-3: Register to be maintained by reporting company with details of beneficial owners

BEN-4: Notice given by a reporting company to an individual or other entity seeking for them to declare beneficial ownership in the company

Process for Reporting & Timelines

1) A company which has entities other than individuals as shareholders and has information and/or reason to believe that any such individuals may hold significant beneficial interest in the company, it may then give a notice to such individuals or entities in Form BEN-4 to declare its beneficial interest in such reporting company.

2) Every SBO is required to file the Declaration in Form BEN-1 within 90 days from the date of commencement of Companies (SBO) Amendment Rules (i.e. 08-May-2019), and within 30 days of change in SBO with the reporting company in which the hold beneficial interest.

3) Reporting company to file e-Form BEN-2 with ROC within 30 days of receipt of declaration in BEN-1 from the SBO.

4) Reporting company to maintain a register of SBOs in the format prescribed under BEN-3, which should be available for inspection to the members at its registered office.

5) The MCA had issued Circular 01 dated 01.01.2020 whereby the date of filing BEN-2 without late fee was extended up to 31st March, 2020.

Penal Provisions

Failure to make declaration by SBO in BEN-1:
(i) Imprisonment up to 1 year; or
(ii) Fine from Rs. 1 lakh up to Rs. 10 lakh; or
(iii) Both imprisonment and fine.

Failure to maintain Register in BEN-3:
Company and/or every officer in default may be fined from Rs. 10 lakh to Rs. 50 lakh

Willful furnishing of incorrect information:
Penalty under section 447 of the Companies Act, 2013


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