India has amended its beneficial ownership legislative framework, introducing several new reporting obligations under the Companies Act.
From now on, every individual who becomes a 'significant beneficial owner' (SBO) of a company, or who changes their SBO status, must declare it to the company within 30 days, and the company must report these declarations to the official registrar of companies within 30 days of receiving them.
Failure to disclose can result in fines or even imprisonment for the SBO. Moreover, the relevant company must apply for an order restricting the owner's rights to sell the shares or receive dividends, although the SBO has the right to contest the order.
The original form of the rules was issued by Ministry of Corporate Affairs in June 2018, requiring both resident and foreign SBOs to declare the nature of their interest to that company, where the 'significant' threshold was set at 10% of the ownership. It also included individuals who have the right to exercise significant influence or control over the reporting company.
The definition of a significant beneficial owner (SBO) of a company has been clarified and detailed under the amended rules and includes every individual, who:
- indirectly or together with any direct holdings (i) holds at least 10% of the shares, including global depository receipts, compulsorily convertible preference shares and compulsorily convertible debentures, or voting rights in the shares of the company, or (ii) has the right to participate in at least 10% of the total dividend and other distributions in a financial year; or
- has the right to exercise, or exercises significant influence (the power to participate in, but not control, the financial and operating policy decisions of the relevant company) or control over the company in any manner other than through its direct shareholding alone in the company.
The amended rules place the onus on companies to take necessary steps to identify individuals who are SBO and have them complete a form - BEN-1 - in the format prescribed by the MCA. To this end, each company must also notify its non-individual members who hold at least 10% of its shares, voting rights or the right to receive or participate in the dividend and other distributions in a financial year, and request information about its ultimate individual members or right holders who may qualify as SBO of the company.
The amended rules provide exceptions from making declarations in respect of shares held by certain categories of persons, including, but not limited to Securities Exchange Board of India registered investment vehicles such as mutual funds, alternative investment funds, real estate investment trusts, or central, state or local government authorities.
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