Significant Beneficial Ownership: MCA Releases Amended Rules
On 8 February 2019, the Ministry of Corporate Affairs (MCA) released the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (New SBO Rules) to revise and amend the Companies (Significant Beneficial Owners), 2018 (Old SBO Rules). The New SBO Rules have once again kick-started the process of requiring significant beneficial owners to start the reporting procedures. On certain aspects, the New SBO Rules have brought in clarity to the significant beneficial owner disclosure regime.
Every individual, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in a reporting company shall be deemed to be a significant beneficial owner (SBO):
In addition, the New SBO Rules also lay down comprehensive criteria for the determination of an individual’s indirect holdings in the reporting company for the purpose of determining whether or not an individual is an SBO. For example, if the member of the reporting company is a company, the SBO is the individual who holds majority stake in that member or holds majority stake in the ultimate holding company of that member.
In case no declaration is filed by the SBOs to the reporting company or where the information provided by the SBOs is deemed unsatisfactory by the reporting company, the reporting company is entitled to apply to the NCLT for imposing restrictions on the shares held by the SBOs.
The following persons are exempt from making disclosures under the New SBO Rules:
The New SBO Rules, in our view, have resolved certain ambiguities that existed under the Old SBO Rules – however, certain issues still remain uncertain and are open to interpretation. The MCA has taken into consideration the views and suggestions of various stakeholders one of which is the simplification of the forms. Having said that, the New SBO Rules have also brought in some major changes to the SBO disclosure regime especially in the method for calculating an individual’s indirect holdings in a reporting company, and that the compliance on the company has increased to a certain extent. The immediate next step for affected shareholders is to analyse their holdings in companies and evaluate whether they will qualify as SBOs under the New SBO Rules. Particularly for listed companies, the SEBI requirement to disclose their SBOs will become effective this quarter. This will also require further engagement and deliberation with SEBI.
- Sameer Sah (Partner) and Varun Narayan (Associate)
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