The introduction of Significant Beneficial Owner (SBO) provisions in the Companies Act represents a pivotal development in India’s efforts to enhance corporate transparency and combat financial malfeasance. These provisions, aligned with global standards, target tax evasion, money laundering, and other illicit activities often hidden within complex corporate structures. By requiring companies to identify and disclose those with significant influence, the SBO provisions enhance accountability in corporate governance. This strengthens India’s legal framework, encourages responsible business practices, and protects the interests of the corporate sector, shareholders, and the broader economy. SBO identification is crucial because owning shares legally does not always mean the person benefits from them. The legal owner might not be the actual person in control, as someone else could be managing the company behind the scenes, either directly or indirectly.
Defining the ‘Significant Beneficial Owner’ (SBO)
A ‘Significant Beneficial Owner’ (SBO) is an individual who, independently or in concert with others, possesses rights or entitlements in a reporting company. These rights include direct or indirect holdings of at least 10% of the shares, voting rights, participation in distributable dividends, or the ability to exercise significant influence or control over the financial and operational policies of the company.
Indirect holdings are taken into account when determining SBO status. For instance, if a reporting company member is a corporate entity, and an individual holds a majority stake in that entity or its ultimate holding company, their ownership is considered an indirect holding. In the context of Hindu Undivided Families (HUFs), the Karta (head) is deemed to hold indirect interests. Similarly, indirect holdings can also arise through Partnerships, Limited Liability Partnerships (LLPs), and trusts, depending on the involvement of individuals as partners, trustees, beneficiaries, authors, or settlers.
Overview of the Provisions under Section 90 of the Companies Act, 2013
Section 90 of the Companies Act, 2013, specifically deals with the concept of Significant Beneficial Ownership. The key provisions include:
- Declaration of Beneficial Interests: Individuals or groups, including trusts and persons resident outside India, holding beneficial interests of at least 10% in a company’s shares or exercising significant influence or control over the company must declare their interests. The declaration must be made within a specified timeframe, detailing the nature of their interest and other relevant information.
- Maintenance of Registers: Every company is required to maintain a register of the interests declared by individuals. This register should include the individual’s name, date of birth, address, and ownership details in the company, among other prescribed particulars. The register must be available for inspection by any member of the company upon payment of a prescribed fee.
- Filing Returns with the Registrar of Companies (ROC): Companies must file a return of significant beneficial owners, including any changes, with the ROC. The return should contain the names, addresses, and other required details, submitted within a specified time, form, and manner. The company is also responsible for identifying individuals who qualify as significant beneficial owners and ensuring their compliance with the regulations.
- Notice to Non-Compliant Individuals: If the company knows or reasonably believes that a person is a significant beneficial owner or has been so in the past three years, it must issue a notice to that person in the prescribed manner.
- Tribunal’s Authority: Should a person fail to provide the required information within the specified time or provide unsatisfactory information, the company can apply to the Tribunal for an order imposing restriction on the shares in question, such as transfer restrictions or suspension of rights. The Tribunal can issue such orders within 60 days of the application or within the prescribed timeframe. Aggrieved parties may apply for relaxation or lifting of the restrictions within one year of the Tribunal’s order.
- Penalties for Non-Compliance: Failure to declare as a significant beneficial owner may result in penalties of up to fifty thousand rupees, with additional penalties for continuing failure. Companies and their officers who fail to maintain the register or provide required information may also face penalties. Willful suppression or falsification of information can lead to legal action under Section 447.
Procedure for Disclosing SBOs
- The reporting company must determine if any individual qualifies as an SBO. To do so, the company issues a notice in Form BEN-4 to any member (other than an individual) who holds 10% or more shares, voting rights, or dividend entitlements, requesting information about SBOs.
- Individuals identified as SBOs are required to submit a declaration in Form BEN-1 to the reporting company within 30 days of acquiring such status or any changes thereafter.
- Upon receiving the SBO declaration, the reporting company must file a return in Form BEN-2 with the Registrar of Companies within 30 days, providing details of the SBO.
- The reporting company is also required to maintain a register of SBOs in Form BEN-3. This register must be available for inspection during specified business hours, and members may review it upon payment of a nominal fee.
In conclusion, the regulations on identifying and disclosing SBOs mark a crucial move toward enhancing transparency in corporate structures. By targeting the ultimate beneficiaries, these regulations make it more difficult for individuals to conceal their interests behind complex ownership arrangements or nominee shareholders.
These provisions c enhance corporate governance by providing shareholders and stakeholders with greater clarity on who holds influence within an organization, thereby promoting accountability and responsible decision-making. The SBO regulations also act as a deterrent to fraudulent activities, aligning with global efforts to combat money laundering and foster transparency.
In summary, the concept of a Significant Beneficial Owner and the related regulations play a crucial role in improving corporate transparency, deterring illicit activities, and encouraging responsible business practices. By piercing the corporate veil, these regulations reveal the individuals who hold significant control or influence over reporting companies, ultimately creating a more accountable and transparent corporate environment that protects the interests of investors, stakeholders, and the economy at large.