Significant Beneficial Ownership Disclosure-who needs to comply?

Introduction: 

Section 90 of Companies Act, 2013 (the Act) is amended by the Companies (Amendment) Act, 2017 as the “Register of significant beneficial owners in a company”. The amended section and rules made thereunder are effective from 13^th June, 2018.

Pursuant to the provisions of this section, individuals who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India holding beneficial interest of not less than 10% shares of a company or right to exercise or the actual exercising of significant influence or control, are required to give declaration to the Company specifying the nature of interest (referred as “significant beneficial owner”). Once the declaration is received by the Company from significant beneficial owner, the Company is required to file return a return of significant beneficial owners of the company with Registrar of Companies.

Which individuals are required to give declaration?

Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India who fulfills either of the following conditions are required to give declaration u/s 90(1) of the Act

·         holding beneficial interest of not less than 10%  shares of a company OR

·         having rights to exercise of significant influence or control OR

·         actual exercising of significant influence or control

Let’s understand the meaning of these terms:

Definition of Beneficial Interest:

Beneficial Interest is defined u/s 89(10) of the Act as: “Beneficial Interest” in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to—

·         exercise or cause to be exercised any or all of the rights attached to such share; or 

·         receive or participate in any dividend or other distribution in respect of such share

Definition of Control:

Control is defined u/s 2(27) of the Act as "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.

Definition of Significant Influence:

Significant influence is not defined in the Act. However, explanation is provided in the definition of associate company u/s 2(6) of the Act for the purpose of that clause. It states that the expression "significant influence" means control of at least twenty per cent (20%) of total voting power, or control of or participation in business decisions under an agreement  

Concluding Remarks:

It is imperative to note that the definition of beneficial interest and control are inclusive definitions. Unless the individual who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India fits in either of the criteria viz.,  

·         holding beneficial interest of not less than 10%  shares of a company OR

·         having rights to exercise of significant influence or control OR

·         actual exercising of significant influence or control

are not required to give declaration u/s 90(1) of the Act. If the individual fits in either of criteria as mentioned above, whether the individual is significant beneficial owner or not is subjective in nature.