UNDERSTANDING THE SIGNIFICANCE OF SIGNIFICANT BENEFICIAL OWNERS (SBO) IN CORPORATE GOVERNANCE

 

INTRODUCTION

The Companies Act of 2013 in India has established a comprehensive framework to regulate the ownership structure of companies, ensuring transparency and accountability. Section 90 of the Companies Act, 2013, along with the Companies (Significant Beneficial Owners) Rules 2018 and the Companies (Significant Beneficial Owners) Second Amendment Rules 2019, plays a pivotal role in identifying and regulating Significant Beneficial Owners (SBOs) in reporting companies.

 

I. DEFINING SIGNIFICANT BENEFICIAL OWNERSHIP:

Section 90 outlines the criteria for an individual to be considered a Significant Beneficial Owner (SBO) in a reporting company. An SBO is an individual who, either alone or in conjunction with others, directly or indirectly holds certain rights in the reporting company. These rights include holding not less than 10% of shares, voting rights, and the right to receive a minimum of 10% of distributable dividends in a financial year.

1. Direct Holding:

    - An individual holding shares in their name, recorded in the Register of Members.

    - Beneficial Owners making a declaration in Form MGT-5, treated as members of the company.

2. Indirect Holding:

    - Criteria for indirect holding based on the type of member in the reporting company:

        a. Body Corporate

        b. Hindu Undivided Family (HUF)

        c. Partnership Entity

        d. Trust

        e. Pooled Investment Vehicle or Entity Controlled by it

 

II. Procedural Requirements for SBO Compliance:

To ensure compliance with SBO regulations, reporting companies must follow a set of procedures outlined in the Companies (Significant Beneficial Owners) Rules. The key steps include:

 

1. Identification of SBO:

    - Companies must identify individuals qualifying as SBOs and request them to file a declaration in Form BEN-1 within 90 days of the commencement of the Companies (Significant Beneficial Owners) Second Amendment Rules, 2019.

 

2. Filing of Forms:

    - SBOs are required to file Form BEN-1 within 30 days of becoming an SBO or any subsequent changes.

    - Upon receipt of the declaration, reporting companies file Form BEN-2 with the Registrar within 30 days along with the necessary fees.

 

3. Maintenance of Register:

    - Reporting companies are obligated to maintain a register of significant beneficial owners (SBO) in Form BEN-3.

 

4. Issuing Notices (Form BEN-4):

    - Companies are required to issue notices in Form BEN-4 to individuals believed to be SBOs or possess information about SBOs. This includes those who have been SBOs in the past three years.

 

III. Application to the Tribunal (NCLT):

In cases where individuals fail to provide required information within 30 days or if the information is unsatisfactory, reporting companies can make an application to the National Company Law Tribunal (NCLT). The NCLT may issue orders within 60 days, directing restrictions on the transfer of shares, suspension of rights, or other restrictions.

 

- Appeals and Restrictions:

    - Parties aggrieved by the NCLT order can apply for relaxation or lifting of restrictions within one year from the date of the order.

 

- Transfer to IEPF Account:

    - If no application is filed within one year, the shares will be transferred without restrictions to the Government's IEPF Account.

 

IV. NON-APPLICABILITY OF SBO RULES:

The SBO Rules apply to various types of companies, including Small, Private, Public, and Listed companies, with certain exemptions:

1. Shares held by the IEPF authority, holding reporting companies, Central or State Governments, local authorities, or entities controlled by them.

2. Securities and Exchange Board of India (SEBI) registered Investment Vehicles.

3. Investment Vehicles regulated by RBI, IRDAI, or Pension Fund Regulatory and Development Authority.

 

Conclusion:

In conclusion, adherence to the provisions of Section 90 and the corresponding rules is imperative for both individuals becoming SBOs and reporting companies. The robust framework aims to promote transparency, prevent misuse of corporate structures, and strengthen corporate governance in India. Companies must embrace these regulations as a means of fostering accountability and trust within the corporate ecosystem.

 

Key Information at a Glance:

Aspect	Details
Definition of SBO	An individual holding 10% or more of shares, voting rights, or entitlement to 10% of distributable dividends in a reporting company.
Direct Holding	- Shares in own name. - Declaration in Form MGT-5.
Indirect Holding	- Holding Majority Stake in Body Corporate. - Holding Majority Stake in Ultimate Holding Company. - Other criteria based on the member type.
Procedural Requirements for SBO	1. Identification of SBOs. 2. Filing of Forms BEN-1 and BEN-2. 3. Maintenance of Register BEN-3.
Notice Issuance (Form BEN-4)	Issued to individuals believed to be SBOs or possessing information about SBOs.
Application to NCLT	- Failure to provide information. - Unsatisfactory information.
NCLT Orders	- Restrictions on share transfer. - Suspension of rights. - Other restrictions.
Appeals and Restrictions	Parties can appeal for relaxation or lifting of restrictions within one year.
Transfer to IEPF Account	Shares transferred without restrictions to the Government's IEPF Account if no appeal within one year.
Non-Applicability of SBO Rules	Exemptions for certain entities, including IEPF authority, government bodies, and SEBI-registered Investment Vehicles.

 

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc

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