December 19, 2023 at 07:28 AM
The legal concept of beneficial ownership is where specific property rights in equity belong to a person even though the legal title of the property belongs to another person.
Financial Action Task Force (FATF) an inter-governmental body established in 1989 by more than 35 member countries including India to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system has issued detailed guidelines in connection with beneficial ownership.
As per FATF, beneficial ownership is the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.
In terms of Rule 2(1)(h) of the SBO Rules, the term ‘Significant Beneficial Owner’ (SBO) is defined as an individual who—
a) acting alone or together
b) through one or more persons or trust
possess one or more of the following rights or entitlements in the Reporting Company (i.e., the company in respect of which SBO declaration is required to be filed)—
i. holds indirectly or together with direct holdings not less than 10% of the shares of the Reporting Company; or
ii. holds indirectly or together with direct holdings not less than 10% of the voting rights in the shares of the Reporting Company
iii. has a right to participate or receive not less than 10% of the total distributable dividend or any other distribution in a financial year through indirect holdings alone or together with any direct holdings; or
iv. has a right to exercise or exercise significant influence or control, in any manner other than through direct holding alone.
In simple terms, SBO is an individual who either alone or together with other individuals or trust, exercises rights or entitlements in the Reporting Company by way of holding 10% shares or 10% voting rights or the right to receive 10% or more dividends, both indirect and direct holdings or right taken together or such individual exercise significant influence or control, indirectly or along with direct holding in the Reporting Company.
A registered Owner is a person whose name is entered in the Register of Members of the Company, as the owner of the shares. The Registered Owner is authorized to attend & vote at a meeting, receive dividends, and exercise all the rights of a shareholder in the Company.
A beneficial owner is the true or real owner of the shares which are held in the name of the registered owner. The Beneficial Owner is the person, who enjoys all the benefits of being a shareholder in a company through another person. It is on the directions of the beneficial owner this registered owner acts.
For example in a lot of companies peons, drivers, etc., in an organization are being appointed as shareholders and directors of the company while the funds are invested and control is exercised by the true owners. These true owners are the persons who avail of the benefits arising from these shares through illegal payments.
In wake of suggestions of the Companies Law Committee and other developments, the Ministry of Corporate Affairs (MCA) has revamped the existing section 90 of the Companies Act 2013 and introduced altogether a new provision for reporting significant beneficial ownership in respect of companies registered in India.
As per Section 90 of the Companies Act 2013, every significant beneficial owner is required to disclose the nature of his interest and other particulars within the prescribed period to the Company, which in turn will inform the same to the Registrar of Companies. In the said connection, MCA has issued Companies (Significant Beneficial Owners) Rules, 2018 (“SBO”), which deals with the identification and reporting in connection with SBO.
· Every company shall maintain a register of the interest declared by individuals under sub-section (1) and changes therein which shall include the name of the individual, his date of birth, address, and details of ownership in the company.
· The register shall be open for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee as may be specified by the company but not exceeding fifty rupees for each inspection.