The roots of SBO take us back in Companies Act, 2013 wherein concept of Lifting the corporate veil is available.
Lifting of Corporate Veil:Company is a separate identity once incorporated from its members but if the entity is used for wrong doinings or illegal activities then the veil is to be uplift and to find out who are the persons behind the veil. Lifting of Corporate veil means to bring the individual person in front of the stage from the backstage and in front of the people.
Sameway through SBO Compliance lawmakers want to know the Real Owners.
Law makers are of the view that many companies are just to open for routing money and for illegal activities and the shareholding is not held by the original owners but the beneficial owners.
The shares are registered in the name of the owner is known as Registered Owner.
Individual is holding shares on behalf of the Owner is called as Beneficial Owner.
Important definitions pertaining to SBO
Control : Control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
Majority Stake means:-
holding more than one-half of the equity share capital in the body corporate; or
holding more than one-half of the voting rights in the body corporate; or
having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate;
Reporting Company:- means a company as defined in clause (20) of section 2 of the Act, required to comply with the requirements of section 90 of the Act;
Clause 20(2) Company means a company incorporated under this act or any previous company law
Significant Beneficial Owner:- in relation to 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:
Explanation I - For the purpose of this clause, if an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant beneficial owner.
Explanation II - For the purpose of this clause, 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 sub-section (2) of section 89, and has made a declaration in this regard to the reporting company.
Explanation III - For the purpose of this clause, an individual shall be considered to hold a right or entitlement indirectly in the reporting company, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely: -
(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;
(ii) where the member of the reporting company is a Hindu Undivided Family (HUF) (through karta), and the individual is the karta of the HUF;
(iii) where the member of the reporting company is a partnership entity (through itself or a partner), 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) where the member of the reporting company is a trust (through trustee), 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) 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,-
(A) is a general partner; or
(B) is an investment manager; or
(C) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.
Explanation IV-Where the member of a reporting company is,
(i) a pooled investment vehicle; or
(ii) an entity controlled by the pooled investment vehicle,
based in a jurisdiction which does not fulfill the requirements referred to in clause (v) of Explanation III, the provisions of clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation III, as the case may be, shall apply.
Explanation V - For the purpose of this clause, 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'.
Explanation VI - For the purposes of this clause, the instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible debentures shall be treated as 'shares'.
(i) "significant influence" means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies]
Duty of the reporting Company:- Reporting company shall take steps to find out if there is any individual who is SBO as defined in relation to the reporting company and if so identify him and cause such individual to make declaration in Form BEN-1.
Every Individual who becomes significant SBO or his significant beneficial undergoes change shall file a declaration in Form No BEN-1 to the reporting company within 30 days of acquiring such Significant Beneficial Ownership therein.
Return of significant beneficial owners in shares:- Upon receipt of declaration under rule 3, the reporting company shall file a return in form BEN-2 with the registrar in respect of such declaration within a period of thirty days from the date of receipt of such declaration by it along with fees as prescribed in Companies (Registration Offices and Fees ) Rules, 2014.
Application to the Tribunal:
The reporting Company shall apply to the tribunal –
Where the person fails to give information required by the notice in the form no BEN-4 within the specified time therein; or
Where the information given is not satisfactory;
For order directing that the shares in question be subject to restrictions, including-
restrictions on the transfer of interest attached to the shares in question;
Suspensions of the right to receive dividend or any other distribution in relation to the shares in question;
Suspension of voting rights in relation to the shares in question;
Any other restriction on all or any of the rights attached with the shares in question;
Note: If BEN-4 is triggered and the reply is not received within 30 days then company will required to go to NCLT. Instead Company should try informal route like email or other electronic means before triggering BEN-4.
Non- Applicability:- These rules shall not be made applicable to the extent the share of the reporting company is held by:-
The authority constituted under sub-section(5) of section 125 of the Act;
Its holding reporting company
The Central Government, State Government or any local authority
Reporting company, body corporate or entity controlled by Central Government or State Governments or partly by one or more state governments ;
Securities and Exchange Board of India registered investment vehicles such as mutual funds, alternative investment funds, Real Estate Investment trusts, Infrastructure Investment Trust regulated by the Securities and Exchange Board of India.
Investment Vehicles regulated by RBI or Insurance and Regulatory Development Authority of India, or Pension Fund Development authority
Register : Register is to be maintained in Form BEN-3. If the Company fails to maintain the register fails to do so or inspection as provided therein, the company and every officer of the company who is in default shall be liable.
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