Registered Owner Vs Beneficial Owner and compilation of illustration who is SBO and who is not an SBO by CS Rajesh Lachhwani


This article covers only the main aspects and crux of the beneficial owner. An attempt is made to clear practical issues

NOTE: A SHAREHOLDER WORD IS USED IN THE BELOW ARTICLE AT MANY PLACES WHICH SHALL BE CONSIDED AS MEMBER OF THE COMPANY.

Registered Owner Vs Beneficial Owner

Registered Owner is the person whose name is entered in the Register of Member of the Company, as the owner of the shares. The Registered Owner is authorized to attend & vote at a meeting, to receive dividends and to exercise all the rights of a shareholder in the Company.

Beneficial Owner is the real owner of the shares which are held in the name of registered owner. The Beneficial Owner is the person, who is enjoying all the benefits of being member in a company through another person.  It is on the directions of the beneficial owner these registered owner acts.

EFFECT OF SIGNIFICANT BENEFICIAL OWNER UNDER ICDR AND LODR


ICDR 2018: Disclosure in the prospectus

  • ICDR 2018 has been notified on November 02, 2018
  • In a chapter named Other Regulatory and Statutory Disclosures, A confirmation has to be given that the company, any of its promoters, promoter group or selling shareholders is in compliance with the Companies (Significant Beneficial Ownership) Rules, 2018

SEBI LODR 2018

  • On December 2018, SEBI came out with the Circular that Disclosure has to be made in significant beneficial ownership in the shareholding pattern and the same shall be effective from March 31, 2019
  • Sebi issued modification on March 12, 2019 as the Companies (Significant Beneficial  Owners)  Rules,  2018were  amended  by  Ministry  of  Corporate  Affairs vide the  Companies  (Significant  Beneficial  Owners)  Amendment  Rules,  2019notifiedon February 8, 2019
  • In view of the revised timelines under the amended Rules, the circular came into force with effect from the quarter ended June 30, 2019
  • Further, the circular is applicable to  those  listed  entities  that  are  reporting companies as per Companies (Significant Beneficial Owners) Rules, 2018,as amended from time to time
  • Means a Reporting Company who files BEN-2 form and if is listed has to disclose the same as per the revised annexure of March 12, 2019

IEPF : INVESTOR EDUCATION PROTECTION FUND

  • Company shall give notice, in BEN 4, to any person (whether or person (whether or whether or not a member of not a member of not a member of the company) whom the company knows or has reasonable cause to believe cause to believe to be a significant beneficial owner of the company
  • In case the declaration is not made or it is not satisfactory, then the company to apply within 15 days for restrictions on with regards to transfer o days for restrictions on with regards to the transfer of interest, suspension of all rights attached to such shares to NCLT u/s 90(7).  A person aggrieved by order of such restriction u/s 90(8) may apply for relaxation

REMEMBER THE CURRENT SCENARIO:

  • The Ministry of Corporate Affairs (MCA) on 13 June, 2018 had notified the amendment to section 90 of the Companies Act, 2013 (the Act) through the Companies (Amendment) Act, 2017, and issued the Companies (Significant Beneficial Owners) Rules, 2018 (Rules) outlining the requirements for declaration of significant beneficial owners (SBO) in an Indian company.
  • However, due to numerous representations from stakeholders expressing difficulties in complying with the SBO disclosure, the MCA vide circular dated 10 September, 2018 informed that the reporting Form would be revised, and instead, a new Form would be notified in due course.

In this connection, on 8 February 2019 the MCA issued the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (Amendment Rules), making necessary amendments to the reporting Form and the rules to address certain concerns raised by stakeholders.

  • Before going ahead we must remember some important things of BEN -2

 

CONCEPT OF SBO:

Many times it is not possible that Registered owners and Beneficial owners are same , Say a Company cant come in General meeting though it holds name in the Register of Member, nor can HUF , Partnership firm , or Trust can. Though not all indirect holding is considered as SBO, purpose of BEN 2 is to identify real owner who can exercise power in reporting company.

Following is summary form whom BEN -1 is required:

(i) Where the Member of the Reporting Co is

Body corporate (including foreign entities), other than LLP

Individual who is considered to hold a right or entitlement indirectly in the Reporting Co

-       If he holds Majority Stake[1] (>50%) in such Body Corporate; or

-       If he holds Majority Stake in the Ultimate holding Company of such Body Corporate

(ii) Hindu Undivided Family (HUF)

-       If he is the Karta of that HUF

(iii) Partnership Entity

-       If he is a partner of that partnership entity; or

-       If he holds Majority Stake in the Body corporate which is a partner of the Partnership entity; or

-       If he holds Majority Stake in the Ultimate holding company of the Body corporate which is a partner of the Partnership entity

- Act uses the word only registered partnership firm but unregistered shall also comply with BEN -1 for good governance. The further professional can take either way route.

(iv) Trust

-       If he is the trustee of a discretionary trust or charitable trust; or

-       If he is a beneficiary in case of a specific trust; or

-       If he is the author or settlor in case of a revocable trust

(v) Pooled investment vehicle (PIV) / entity controlled by PIV based in the member state of Financial Action Task Force (FATF) and the regulator of the securities market in such member State is a member of International Organisation of Security Commissions

-       If he is a general partner of that member; or

-       If he is an investment manager of that member; or

-       If he is a Chief Executive Officer where the investment manager of such member is a body corporate or a Partnership entity

(vi) PIV / entity controlled by PIV which does not fulfil requirements in clause (v) above

The provisions of clause (i) to (iv) as the case may be, shall be applicable

ALL FORMS UNDER SBO BEN FORMS:


BEN 2Company to file within 30 days Company to file within 30 days of receipt of BEN 1 to ROC receipt of BEN 1 to ROC  but initial BEN -2 to be filled till 30/09/2019

BEN 3 –Register of SBO Register of SBO

BEN 4 Notice in Mail/Post not through Handwritten to identify SBO and asking for BEN -1 from such individuals who may or may not be a shareholder of the Company but may be SBO

REMEMBER:  Section 90 (4A) Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section.

Onus is on Company to identify the SBO’s and in case of no proper replies shall take the shelter of NCLT.


WHO IS SBO AND WHO IS NOT AN SBO
?

Below are the examples in each case representing the SBO

CASES SBO IS NOT APPLICABLE

→BEN- 2 is not applicable to OPC and Government Companies,

→ No SBO to be made in case when the shares are transferre to IEPF

Illustrations:

In simple language, an individual who is holding indirectly through its direct holding 10% or more of shares or 10% of more of voting right or is entitled more than 10% of dividend or exercises significant influence or control, in any manner other than through direct holdings alone is an SBO

Note: Voting right includes voting of shares which carry voting right apart from Equity. Instead of carring the definition ahead we shall continue with illustrations to identify SBO . For Eg as the preference shares shall come into picture when the dividend is unpaid for two or more years, it will carry a voting right. Similarly future warrents or convertible instruments which are to be converted in future into equity shall not be considered in voting right.

SBO IN CASE OF INDIVIDUAL

 

→ 2 shareholders both individuals

→ Holding Direct Shares

 

 

No SBO

 SBO IN CASE OF COMPANY

→ After the exercise of finding 10% in the Company, the next step is to identify the majority stake in the Company

→ Majority stake is to be identified in case of a company: where Majority Stake menas

 (i) holding more than 50% of the equity share capital in the body corporate; or

(ii) holding more than 50% of the voting rights in the body corporate; or

(iii) having the right to receive or participate in more than 50% of the distributable dividend or any other distribution by the body corporate

Illustration 1 : NOT SBO

 

→ One shareholder is a body corporate

→ ABC Ltd is holding more than 10% of shareholding in reporting company

→ So the Individiual who is holding majority stake in ABC LTD shall be SBO of reporting company

→ Here majority stake is not identified so no SBO

 

But if such 2 individual  who are holding 50% shares and are acting together then SBO is required.( Refer at the ending for attaching optional attachment for point 3(C) )

Illustration 2: SBO

→ Mr. A is SBO – Mr. A is SBO – 10.002%

 

50.01 % of 20% in DFG Limited, means Mr. A is SBO and can exercise his right through a Layer of DFG Limited in Reporting Company with 10.002%

 

 Illustration 2.1

In above case if Indirect holding Mr. B  was holding 80% then to the majority Stake holding is held by Mr. A so Mr, A is SBO

 

 

Illustration 2.2

In above case if Indirect holding Mr. A was holding 80% and there is no majority stakeholder then NO SBO. There is no need to club shareholding mere because of common shareholder,

 

 
 

Illustration 2.3

It may happen that Mr. A holds only 1% and indirectly holds more than 10% which will come into picture only if Mr, A qualifies in majority stakeholder then the Holding can be computed Directly plus indirectly

 

Here Mr. A is SBO as he is majority stakeholder by 60% but also is common shareholder so he exercises his vote directly and indirectly in the Company

 

 Illustration 3: SBO WITH Holding Reporting Company

Mr. A holds 80% in Y Ltd, Y Ltd holds 51% or more in Mr,

Here Y Limited is a holding company of A Ltd but is not a reporting holding company as it has no SBO below.

Now

A Ltd is holding 51% in B Ltd so it’s a Holding Company

B Ltd is holding 51% in C ltd so it’s a Holding company of C

Here A Ltd is Reporting holding company. Top of Form Mr. A is the SBO for A Ltd and considering the holding-subsidiary relationship becomes the SBO for B Ltd & C Ltd and accordingly Mr. A shall file the declaration as SBO, although in order to curb the multiple filing, BEN- 1 i.e. the declaration shall be filed by Mr. A only with A Ltd.

Upon delivering the declaration in A Ltd., itshall file BEN-2 declaring Mr. A as its SBO whereas both B Ltd and C Ltd shallmerely file BEN-2 with the details declaring that A Ltd is the Holding Reporting Company.

In other words Reporting holding companycan be a subsidiary but UHCcannot be subsidiary of any company

 

Form Particulars

B LTD and C LTD will enter CIN of its holding Reporting Company A LTD

There may be many cases in practice, the ultimate beneficiary is to be seen if that comes wih no end there is no SBO , best examples will be cross-holding ending up with no SBO’s.

 LLP is kept out of the preview of Body Corporate

 

Illustration 3.1 There is no Holding Reporting Company, but subsidiary is a reporting Company

 

 


Illustration 4: Ultimate Holding Company (UHC)

ULTIMATE HOLDING COMPANY :

Ultimate Holding Company is nowhere defined in SBO rules, Ultimate holding company means it’s the Ultimate holder and is not a subsidiary of any company , the ultimate holding company comes into picture when the company has one or more subsidiary companies and any one or more subsidiaries company has one or more subsidiary. In other words, An ultimate holding company can have any number of subsidiaries but cannot itself be a subsidiary .In below Example A Ltd is Ultimate holding company and it does not have any other company as its holding company of B Ltd, B ltd is Holding of C Ltd.



Mr. Y will be SBO and will file BEN -1 to C LTD

Illustration 4.1

In target Ultimate Holding Company Mr. A holds 1%. Unlike in below illustration 5 example majority stake is determined in the first layer and the second layer and Explanation III. (i) gets justified. Here Mr. A holds directly 1% and indirectly 10% through XYZ ltd and ABC Ltd in SAI ltd.

NOTE: THE COMPANY CANNOT HAVE MORE THAN 2 LAYERS OF SUBSIDIARIES AS PER 186 AND CRL RULES.

Illustration 5: NO SBO REQUIRED

Before going to below example kindly thing that a General Meeting is called can an individual shareholder who will now be decoded as a SBO exercise the right in the target company in general meeting, if yes upto what extent. A company which has a company below it but does not built Ultimate holding company then the layer is cut. See explanation of Exp III (i) (b)

Mr. R is holding the majority stake in second layer not in the first layer.

Explanation III. (i)where the member of the reporting company is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual,–.

(a) holds majority stake in that member;

or

(b) holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member;

 

 

 

→ The answer to Field C in the above image can clear the picture


→ The holding of an Mr,R is regarded as indirect holding only if he either holds majority in the first layer holding company ie Say he holds Majority stake in ABC LTD , or the ultimate holding company of the first layer holding company.

→ None of the second layer entities (EEE LTD, FFF LTD & GGG LTD) can be regarded as the holding companies of first layer. Hence, the holding of Mr.R at the second layer will not be regarded as indirect holding of Mr R.

 SBO IN CASE OF HUF

 

→ Though through karta HUF only holds 5% but Karta also directly holds shares in an individual capacity

→ Further that a member of HUF shall not be considered for SBO the only karta will be considered

 


SBO IN CASE OF MINOR

The minor share will be clubbed in major’s shareholding, here the relationship of acting together can be established if its has said following Example.

Eg: A Company has ABC HUF where ABC is a Karta, Mr. D is a minor in karta and Mr, D is also Shareholder of the target Company, here acting together can be established as the minor is acting through Major and through Karta of HUF.

However the holding of shares by a Minor through a guardian amounts to Direct holding and will not be considered under the provisions of SBO.

ACTING TOGETHER:

Acting together can be established when in relationships like Joint holders, Minor major or other relations. It does not mean that the board unanimously approves the resolution and the Board comprises of relative are acting together. A board has to run unanimously, acting together has to be proved through intention and confirmed through the practical situations.

Its better to have a declaration when the holders are Husband wife or brothers that they are not acting together to avoid confusions and make the decision of beneficial in the proper manner.

In practical situations relatives do not fall under the category of acting together. But in case they declare that they are acting together then they will be considered as acting together.

Note: As per Explanation V of Rule 2(h) of Companies (Significant Beneficial Owners) Rules,2018, if any individual, or individuals acting through any person or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’.


SBO IN CASE OF PARTNERSHIP FIRMS AND LLPS

Illustration 1

 

In G & Co further has partner as Mr. G and Mr, U which are individuals

 

Both the individual partners will be an SBO

 

In other words all partners will be SBO


Illustration 2

 

 

In G & Co further has partner as Mr. G and Mr  which are individuals

 

In G &Co , ABC Ltd is a company hence it’s a body corporate hence the majority stake concept will come into picture.

 

In case there is no majority stakeholder in ABC Ltd there will be no SBO ( Views may vary)

 

 

 

SBO IN CASE OF TRUST

Trust can be :

DECLARATION UNDER SECTION 89

 

  • It is important note that in case of specific trust, the shares are held in the name of the Trustee.
  • Further the Trustee is duty bound under Section 89 ie MGT 4 and 5 to file a declaration of beneficial ownership in the name of the beneficiaries.
  • So, in case such declaration has been filed, then the beneficiaries will be deemed to be holding rights or entitlements directly and not indirectly

Discretionary Trust

Individual is a Trustee

Charitable Trust

Individual is a Trustee

Specific Trust

Individual is a beneficiary in case of Specific Trust

Revocable Trust

Individual is the author or settler

 SBO in Discretionary Trust:

 

Mr. Amit is a trustee and also individual shareholder in the reporting company

→ the indirect holding and direct holding makes his holding as 10%

→ SO SBO is required


SBO in Non-Discretionary Trust:

→ In non-discretionary beneficial interest by beneficiary is to be ignored

→ Hence the holding of non discretionary trust will be the hoding of beneficial

→ In Non Discretionary Trust say , the beneficiary of that trust shall be SBO of reporting company , here also the indirect holding of Beneficiary is to be clubbed with direct holding who may be common shareholder and if exceeds 10% the SBO is required.SBO REQUIRED FROM MR. A

→ In case holding is less than 10% no SBO shall be there

 

SBO in case of Pooled Investment Vehicle

The SBO shall be the individual in relation to the pooled investment vehicle, who,-

 

Illustration- 1

SBO required by general manager


Illustration- 2

SBO required by majority stake holder in case where the there is no General manager or Investment Manager

 

Further, it shall be noted that

SBO is not applicable to :

 

 

lnvestment Vehicles regulated by Reserve Bank of India (RBI), or Insurance Regulatory and Development Authority of India (IRDA), or Pension Fund Regulatory and Development Authority (PFRDA).

 SECTION 89 ( MGT- 4 , 5 AND 6) : MGT-4 and MGT-5 are to be submitted with the Company within 30 days of acquisition of such shares or beneficial interest and the Company is to file these declarations in form MGT-6 to MCA within 30 days of receipt of above-mentioned declarations. Section 89 talks about holding beneficial interest whereas Section 90 talks about Significant beneficial owner and the reporting are accordingly different.

For individual it is rare that Registered owner and beneficial owner are different, if the same situation is there and if MGT 4,5 and 6 is not filled then BEN-1 and 2 is to be filled.

However, if a person has entered into the Register of Beneficial owner then he is deemed to be a direct shareholder and hence e-Form BEN-2 is not required to be filed.

For Corporate Shareholder, A law mandates 2 and 7 members for PVT ltd and Public LTD respectively, so a wholly owned subsidiary has holding company and other members as beneficiary.  Wholly-owned Subsidiary will be required to file Form BEN-2 by giving CIN of its Holding Reporting Company and by attaching BEN-1 received by it’s Holding Reporting Company. Or If BEN -1 is not attached a declaration to the holding company instructing to file BEN-2 with ROC as per respective Rules. Further In case Holding Company is not filing eForm BEN-2, as it may not have any SBO then subsidiary has to see the concept of majority stakeholder and if nothing is arrived there is no requirement to file the Form as it has no SBO

For Firm, MGT-6 was filed which was filled under Section 89 in which registered owner was an Individual and a firm was beneficial owner. BEN-2 is not required if a person has entered into the Register of Beneficial owner then as he is deemed to be a direct shareholder

 


 
FILLING OF FORM BEN-2

Guarantee Company:

It is applicable on all the Companies except those mentioned in Rule 8 of SBO Rules, and the Company limited by Guarantee is not exempted

  • FCRN

Form is not taking more than 10 digit FCRN then mention upto 10 digits only, in case it is less than 10 digit add sufficient zero’s

  • ONLY SIGNIFICANT INFLUENCE

The SBO may have Significant influence and indirect control and not majority stakeholder, in such case Check form will have an error when number 1 is entered and mandatory ask for Majority Stakeholder details, put zero in “No. of member through which control/significant influence is exercised” and then fields A to D will be disabled and now Section E we can enter details. Its advisable to attach a clarification letter in this regards and file the form that respective in optional attachment along with Screenshot errors. A ticket raised in regards can also be attached in such clarification.

  • TICKET SHALL BE RAISED FOR FOLLOWING ISSUES: (COMMON ISSUES)

→ Portal is generating SBO ID for each PAN per entity , error fetched in form CIN is not associated with this ID

→ Other Registration number is not accepted even after selecting Status of member

→ SBO ID can be used in more than 1 company, if same person is SBO in more than 1 Company but there is a technical error that form BEN-2 is not taking same SBO id for two companies. A ticket may be raised for the same until MCA clarifies on this issue.

  • Purpose of the Form

Filling of Form for Subsidiaries:

 

The SBO of holding reporting company is the SBO of Subsidiary Company

Rule Exempts reporting of Subsidiaries companies but form has to be filled by entering CIN 

No other information is asked in the Form

 Except CIN of holding Reporting Company. Further in attachment  BEN  - 1 of holding reporting company has to be attached.

Situation:

There can a situation when a reporting company is a subsidiary company in which Holding company has 60% shares and other 40% is held by say HUF 40% or other Company 40% . In such case both radio button can be selected to file the particulars

 

 

Number of SBO’s in one form:

 

The reporting company can at a time file 9 SBO details , if there are more a new form has to be filled , It is not advisable to attach 10th SBO onwards as an optional attachment as SBO ID is generated for each SBO. This can happen when say for Eg there are 12 individuals who are family member and has given BEN -1 that they are acting together.

 

CASE OF HUF


In case of HUF when asked fpr registration number just enter Zero and don’t prefill.

Optional Attachments 

 

If number here exceeds 9 then no need to file new form BEN 2, just attach in optional attachment as there is no relevance with creation of SBO ID here

 What is 2 Below ?


If same SBO comes in indirect holding say through HUF and also through same person is SBO through another chain say a majority stakeholder through Company then such option is to be exercised.

DIRECT and INDIRECT HOLDING

In Point Aaggregate of Direct and Indirect holding is to be mentioned

In Point E (m) details of direct holding is to be mentioned.

Clarification to be attached for Point 3(c) in Form BEN -2

An additional attachment is to be attached in the situation like in case of bodies corporate it may happen individual is not holding majority stake but are SBO because of acting together, as there is control or significant influence,


Point no 3(c) 


Just for prescrutiny purpose the Point C can be justified by additional attachment . This does not means he/she holds majority stock they are acting together and each person BEN-1 to be attached. This situation comes when there is control or significant influence but no majority stake


FORM UPLOAD

After upload of the form 10 digit SBO ID will be created. You shall use the same ID if the person is SBO of other Company

AUTHOR DISCLAIMER:

The SBO or BEN-2 is a very innovative and practical facing topic, this article only covers basic aspects, any specific information that has been wrongly presented above can be communicated at the mentioned address. Practical situation may differ from above examples as there may be cross holdings, or structured holdings. Any professional who come across any error or mis represented examples can contact me personally as this is open for discussion.

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