SBO Rules FAQ

Hh
2018
SIGNIFICANT
Registered
Owner
BENEFICIAL OWNER
Complete Concept with FAQ’s
Significant
Beneficial
Owner
Beneficial
Owner
CS DIVESH GOYAL
(SBO)
Beneficial
Compliance
GOYAL DIVESH &
by
Interest Individual ASSOCIATES
Complianc
e by
Company
CS DIVESH GOYAL
Goyal DIVESH & Associates
09/09/2018
DIVESH GOYAL GOYAL DIVESH& ASSOCIATES
Significant Beneficial
Ownership (SBO)
MCA on 15th February, 2018, came out with draft of

Companies (Beneficial Interest and Significant
Beneficial Interest) Rules, 2018
On June 13, 2018, MCA issued the Companies

(Beneficial Interest and Significant Beneficial
Interest) Rules, 2018 (‘Final Rules’) and enforced
section 90 of the Amendment Act
On February 08, 2019, MCA issued the Companies

(Significant Beneficial Owner) Amendment Rules,
2019. These rules shall be in force from date of
Publication of Notice
BACKGROUND:
The Provisions of SBO, in a different form, been part of the Companies Act, 1956, under
section 180(7) (3). The new avatar comes under Section 90 of the Companies Act, 2013,
as amended in 2017.
The issue of the misuse of multi-layered corporate entities has
grabbed attention of various policymakers and regulators.
Regulatory authorities have adopted a step-by-step approach and
Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

2
tried to address this issue by enacting various legislations,
notable among them being:
OBJECTS
To Close the loop on Combating Money Laundering
Transparency
The mandate of the Rules is to “look through” the

entire maze of intermediate entities and identify the
ultimate individual owners of a company.
Identify individual who ultimately holding significant

beneficial ownership.

3
Basic Terms to understand the Concept:
Registered Owner: means a person whose name is entered in the register
of members of a company as the holder of shares in that company but who does not
hold beneficial interest in such shares;
In general words, this person are not an actual owner of shares.
Only his name is entered into register of members.
He is not entitled to dividend, officer for right issue of shares, bonus shares etc.
However, this person having
voting rights in the Company,
Vote on poll,
name shall be entered in registered of member,
entitle to sign proxy form,
shall be count for the quorum etc.
Example:
Mr. A holds shares of XYZ Private Limited. However, Name of Mr. B entered into
registered of members as registered member. In this case Mr. B is registered owner of
Shares of XYZ Pvt Ltd. But the actual Owner is Mr. A.

4
Beneficial Owner: Every individual, who acting alone or together, or
through one or more persons or trust, including a trust and persons resident outside
India, holds beneficial interests, in shares of a company or the right to exercise, or the
actual exercising of significant influence or control.
In general words,
Beneficial owner is actual owner of the shares.
Only his name is not entered in register of members.
He is entitled to all beneficial interest as mentioned below.
Example:
Mr. A holds shares of XYZ Private Limited. However, Name of Mr. B entered into
registered of members as registered member. In this case Mr. A is beneficial owner of
Shares of XYZ Pvt Ltd. But the Mr. B name mentioned in Registered of Members.
Beneficial Interest: 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;
(i) Exercise or cause to be exercised any or all of the rights attached to such share; or
(ii)Receive or participate in any dividend or other distribution in respect of such
share.

5
In general words, beneficial owner is entitled to exercise all the rights of the shares like:
Dividend, right issue, bonus of shares etc.
Significant Beneficial Owner:

Every individual,
who acting alone or together, or

through one or more persons or trust,
Possesses one or more of the following rights or entitlement in such reporting

Company
Hold Directly OR together with Direct Holding
I. Not Less than 10% of Shares ;

II. Not less than 10% of Voting Right in the shares;
III. Has right to receive or participate in not Less Than 10% of the total
distribution of Dividend,
Dividend or any other distribution, in a financial year (through
indirect holding or together with any direct holding)
IV. Has right to exercise, or actually exercises, significant influence or control, in
any manner other than through direct holdings along.
NOTE:
EXPLANATION-1: If an individual does not hold any right or entitlement indirectly under
clause (i), (ii) and (iii) as mentioned above. He shall not be considered to be a significant
beneficial owner.

6
DIRECT HOLDING OF RIGHT AND ENTITLEMENT:
Meaning of Hold ‘Right

Right or Entitlement Directly”
Directly an individual shall be considered to
hold a right or entitlement directly in the reporting company, if he satisfies any of the
following criteria, namely:-
a. The shares in reporting company representing such right or entitlement are held in
the name of Individual;
b. The individual holds or acquires a beneficial interest in the share of the reporting
company under section 89(2), and has made a declaration in this regard to the
reporting company
INDIRECT HOLDING OF RIGHT AND ENTITLEMENT:

Right or Entitlement Indirectly
Indirectly”
irectly an INDIVIDUAL shall be considered to
following criteria, in respect of a member of the reporting company, namely:
A. Body Corporate Member:

Where the member of reporting Company is a body corporate.
corporate
Note:
• Whether incorporated or registered in India Or
• Whether Incorporated or registered in abroad.
• Other than a Limited Liability Partnership and
• the Individual-
a. Hold majority stake in that Member (means such individual hold majority stake
in that body corporate member); or
b. Hold majority stake in the 1ultimate holding Company of that Member
1
Whether incorporated or registered in india or abroad

7
“Majority Stake”
Stake” means;-
means;-
(i) holding more than one-

one-half of the equity share capital in the body corporate; or
(ii) holding more than one-
one-half of the voting rights in the body corporate; or
(iii) having the right to receive or participate in more than one-
one-half of the distributable
dividend or any other distribution by the body corporate.
B. HUF Member:
Where the member of reporting Company is a HUF and individual is Karta of the HUF
C. Partnership Entity Member:

Where the member of reporting Company is a Partnership Entity and the Individual
Note:
No te:
• Firm is member through itself or
• Firm is member through partners.
a. Is a partner; or
b. Holds majority stake in the body corporate which is a partner of the partnership
entity; or
c. Holds majority stake in the ultimate holding company of the body corporate
which is a partner of the partnership entity;
D. Trust Member:
Where the member of reporting Company is a Trust (through trustee) and the Individual
a. Is a trustee in case of a discretionary trust or a charitable trust;

b. Is a beneficiary in case of a specific trust;
c. Is the author or settler in case of a revocable trust.

8
Checks for SBO Disclosures:

1. There should be a Natural Person.
2. Individual having beneficial interest not less than 10% of shares.
3. Individual holding share indirectly or together with direct holding
4. Share capital includes (GDR+CCP’s+CCD’s)
Note: Only direct holding of shares shall not considered as SBO

i. To Which Companies these SBO provisions shall apply?
Provisions of SBO applicable on all the Companies. (Here company means

Reporting Company)
Company
i. Listed Public
ii. Unlisted Public and
iii. Private
ii. The word “alone or together” includes interest of Relatives in shares also?
Computing threshold of 10%, the combined holding of the person along

with the holding of such other persons (like: Body Corporate, Firm, Trust,
HUF) having common interest shall also be considered.

9
iii. Whether a Company/ Trust/ Body Corporate/ Partnership firm can be

Significant Beneficial Owner?
As per Section 90, only a Natural Person (individual) can be Significant

Beneficial Owner. For the purpose of significant beneficial owner, in case of
‘person other than individuals or natural person’, shall be determined as
under:
S. Where Member is Along with Percentage

No.
A. Body Corporate • Whether incorporated or Hold majority stake in
registered in India Or that Member (means such
(Excluded LLP)
• Whether Incorporated or individual hold majority
registered in abroad. stake in that body
• Other than a Limited corporate member); or
Liability Partnership and
• the Individual- Hold majority stake in
the 2 ultimate holding
holding
Company of that
Member
B. TRUST • Is a trustee in case of a discretionary trust or a
Where the member of charitable trust;
reporting Company is • Is a beneficiary in case of a specific trust;
a Trust (through • Is the author or settler

settler in case of a revocable trust
trustee) and the

Individual
2

10
C. PARTNERSHIP Where the member of • Is a Partner; or

reporting Company is a • Holds majority stake in
FIRM / LIMITED
Partnership Entity and the the Body Corporate
LIABILITY
Individual which is a partner of the
PARTNERSHIP Note: partnership entity; or
FIRM • Firm is member through • Holds majority stake in
itself or the Ultimate Holding
• Firm is member through Company Of The Body
partners. Corporate which is a
partner of the
partnership entity;
D. HUF Member Where the member of reporting Company is a HUF and

individual is KARTA of the HUF
iv. If an individual holding interest in shares less than 10% whether SBO rules
shall apply on such person
First Condition for applicability of SBO Rules and section 90 i.e. Natural
person should have at least 10% of interest in ‘Shares’ indirectly or together
with direct holding”.
holding (Indirect shareholding is mandatory)
Example:
Capital Structure of Company ABC limited is as following:
• Equity Share Capital of Rs. 1,000

• CCD’s of Rs. 1,500
• CCPS’ of Rs. 500
TOTAL Rs. 3,0
3,000

11
Mr. A beneficially holds Rs. 260 equity shares in the Company. Whether Mr. A
beneficially required giving disclosure under SBO?
Solution: In the above mentioned exampl; Mr. A holding shares as beneficially. As per
Explanation I:- Individual should hold atleast any no. shares Indirectly.
Explanation II:- A individual shall cosider holding of shares indirectly if, the individual
holds or acquires a beneficial interest in the share of the reporting company.
Conclusion: Therefore, in above mentioned Example Mr. A shall not considered as

Significant Beneficial Owner and no need to file any disclosure of SBO.
v. Meaning of Shares under Section 90 read with relevant rules.

As per Explanation VI of Rule 2 (h) of SBO Rules, For the purpose of
calculation of 10% of beneficial interest in shares, Shares Includes…Instrument
in form of
• Global Depository Receipts,

• Compulsorily Convertible Preference Shares or
• Compulsory convertible debentures.
vi. Whether SBO rules applicable on person resident outside INDIA (Non-
Resident).
The definition of SBO includes non-residents as well. Therefore, the non-

residents shall also be covered by the said provisions.

12
vii. Meaning of Direct Holding?

Right or Entitlement Directly”
Directly an individual shall be considered to
following criteria, namely:-
c. The shares in reporting company representing such right or entitlement are held in
the name of Individual;
d. The individual holds or acquires a beneficial interest in the share of the reporting
company under section 89(2), and has made a declaration in this regard to the
reporting company
viii. Meaning of Indirect Holding?

INDIRECT HOLDING OF RIGHT AND ENTITLEMENT:

Right or Entitlement Indirectly
Indirectly”
irectly an INDIVIDUAL shall be considered to
following criteria, in respect of a member of the reporting company, namely:
A. Body Corporate Member:

Where the member of reporting Company is a body corporate.
corporate
Note:
• Whether incorporated or registered in India Or
• Whether Incorporated or registered in abroad.
• Other than a Limited Liability Partnership and
• the Individual-
c. Hold majority stake in that Member (means such individual hold majority stake
in that body corporate member); or
d. Hold majority stake in the 3ultimate holding Company of that Member
3

13
B. HUF Member:
Where the member of reporting Company is a HUF and individual is Karta of the HUF
C. Partnership Entity Member:

Where the member of reporting Company is a Partnership
Partnership Entity and the Individual
Note:
• Firm is member through itself or
• Firm is member through partners.
d. Is a partner; or
e. Holds majority stake in the body corporate which is a partner of the partnership
entity; or
f. Holds majority stake in the ultimate holding company of the body corporate
which is a partner of the partnership entity;
D. Trust Member:
Where the member of reporting Company is a Trust (through trustee) and the Individual
d. Is a trustee in case of a discretionary trust or a charitable trust;

e. Is a beneficiary in case of a specific trust;
f. Is the author or settler in case of a revocable trust.

14
HYPOTHETICAL
SITUATIONS
A. If an Individual (‘a’) holding shares in any Company (Exp. Mr. A Holding
60% shareholding of ABC Pvt. Ltd. and his name entered into register of
member) Whether provisions of SBO shall be applicable on Mr. A or
Not?
As per meaning “Significant Beneficial Owner: means beneficial owner holding ultimate
beneficial interest not less than 10% and Indirectly or together with direct holding.”
holding
Therefore, One can opine that SBO provision applicable on person who is holding
beneficial interest, indirectly or together with direct holding.
In above mentioned example individual holding shares directly in the company in his
name therefore provision of SBO not applicable on such individual as per Explanation
I.

15
B. If an Individual (‘a’) holding shares in any Company, (Exp. Mr. A Holding 20%
shareholding of ABC Pvt. Ltd. and his name not entered into register of member).
On behalf of Mr. a name of Mr. B entered into register of Members.
Whether provisions of SBO shall be applicable on Mr. A or Not?

C. Mr. A Holding 60% shareholding of ABC Pvt. Ltd. and Not holding any indirect shares.
On behalf of Mr. a name of Mr. B entered into register of Members.
Whether provisions of SBO shall be applicable on Mr. A or Not?


16
D. What is Director Shareholding and Indirect Share holding?

• Mr. X hold 25% shares of XYZ limited in his Name.
• Mr. Y hold 99% shares of ABC Limited and ABC Limited Hold 70% shares in
XYZ Limited in its name.
In the above mentioned case Mr. X hold Directly 25% shares in XYZ
And
Mr. Y holds indirectly 70% shares of XYZ Limited.
E. Mr. X hold beneficial interest in A Ltd, B Ltd, C LTD and D LTD. Should Mr. X
disclose in BEN 1 to all the Companies?
No. Mr. X n o need to file BEN-1 Disclosure of Interest to any Company.

Because he is holding shares directly only.
F. Mr. X holds 80% of P Ltd, which holds 80% of Q Ltd. Can Mr. X claim that I
have complied with my obligation having disclosed to P Ltd, and P Ltd
should have disclosed my indirect holding to Q? Can Mr. X say that he has
no idea about P’s holding of Q?
Mr. X indirectly hold 64% (i.e. 80*80%) shares in Q Limited. Therefore, The
SBO should provide the declaration of its Indirect beneficial interest in all
the companies. It is pertinent to note that the one who has control or
significant influence cannot plead unawareness. Therefore, right upto the
vertical spectrum, Mr. X will have to keep disclosing

17
G. Mr. A (Individual) holds 30% of P Ltd. (Reporting Company) Now, Q Ltd

(Member of Reporting Company) holds 25% of P Ltd, and Mr. A hold 35%
shares in Q Limited. Whether Mr. A needs to filed SBO declaration in BEN-1
As per Explanation III (i) to check for indirect holding, Individual should
hold majority stake in member of reporting Company.
In the above example individual holding 35% stake of Member Company,

Which is less than majority Stake.
Therefore, in above example Mr. A. shall not considered as SBO.
H. Situation
Mr. X Hold 10% share holding of PQR Limited
(Reporting Company)
XYZ Limited hold 5% shareholding of PQR Limited
Mr. X Hold 60% shareholding of XYZ Limited
(Member Company)
a. Whether Mr. X need to Give SBO disclosure to PQR Limited

As per Explanation III (i) to check for indirect holding, Individual should
hold majority stake in member of reporting Company.
As Mr. X Hold 60% shareholding of XYZ (Majority Stake Condition

Complied)
As Indirect holding of Mr. X 3% (5*60%) AND Direct Holding 10%. Therefore
Total Holding (Indirect together with direct holding [3+10]) i.e. 13%

18
Condition of Indirect together with direct holding 10% also complied.
Conclusiton: Mr. X met all the conditions to become SBO. Therefore, its need to file
BEN-1 with PQR Limited.
I. COMPANY:
Ultimate Holding Company (H)
Member Subsidiary Company (S)
Reporting Company (T)
Individual Mr. A
Situation I:
Mr. A Directly holds 0% in Reporting Company (T).
Company S Hold 30% stake in Company T
Company H 60% shares in S.
Mr. A Hold 70% shares in Company H.
Solution: Whether A Need to file SBo with Company T:
Condition First: Mr. A hold Majority Stake (i.e. 70%) in ultimate Holding Company
(i.e. H)
Condition Two: Member of Reporting Company (i.e. T) is Body Corporate (i.e. S)
Condition Three: Individual ultimately indirectly holding 12.6% in reporting

Company (60*70%=42) (30*42%=12.6)
Conclusiton: Mr. A complied with all the condition of Explanation III (i) therefore, need
to file BEN-1 SBO declaration to Reporting Company (i.e. T).

19
Compliance requirement –
SIGNIFICANT BENEFICIAL INTEREST
A.Compliance by Significant Beneficial Owner:
First Disclosure: Every significant beneficial owner (SBO) shall file a declaration in Form
No.BEN
No.BEN-
BEN-1 to company in which he holds the significant beneficial ownership on the date
of commencement of these rules within 90 days from commencement of these rule i.e.
13th June, 2018.
Disclosure on change basis: Every SBO shall file any change in his significant beneficial
ownership within 30 days to the Company. {Section 90(1) read with Rule 3 of SBO
Rules}
Become Significant Beneficial Owner: Every individual, who acquires significant beneficial
ownership in a Company, shall file a declaration in Form No.BEN
No.BEN-
BEN-1to the Company
within 30 days of acquiring such significant beneficial ownership.
B. Compliance by Company:
Registers: Every company shall maintain a register of the interest declared by individual’s
u/s 90(1).
Return: Company shall file a return in Form No.BEN

No.BEN-
BEN-2 with ROC within 30 days from
the date of receipt of declaration in BEN-1. {Section 90(4) read with Rule 3 of SBO Rules}
Registers: The Company shall maintain a register of significant beneficial owner in Form
No. BEN – 3.

20
Note:
Above compliances shall be done by Company after receipt of information from the
Significant Beneficial Owner.
Food for thought………..

I. If Company has not received any such BEN-1 from significant beneficial Owner, then
whether company have to take any actions to obtain such information?
As per provisions of Section 90(5) read with rule 6,7 of (SBN Rules, 2019),
Section 90(5) A company shall give notice, in the prescribed manner, to any person
(whether or not a member of the company) whom the company knows or has
reasonable cause to believe—
(a) To be a significant beneficial owner of the company;
(b) To be having knowledge of the identity of a significant beneficial owner or another

person likely to have such knowledge; or
(c) To have been a significant beneficial owner of the company at any time during the
three years immediately preceding the date on which the notice is issued,
and who is not registered as a significant beneficial owner with the company as required
under this section.
Rule 6: Company shall give notice seeking information in Form No.BEN

No.BEN-
BEN-4.
PROCESS:
STEP: 1 - Reply by Concerned Person:
The person to whom notice has been issue shall revert to the Company within 30 days
of Notice.
STEP: 2- Action by Company

The company shall,—
(a) Where that person fails to give the company the information required by the notice
within the time specified therein; or

21
(b) Where the information given is not satisfactory, {Section 90(7) read with Rule 7 of
SBO Rules}
The Company shall apply to Tribunal within 15 days of the expiry of the period specified in
Notice.
Notice for an order directing that the shares in question be subject to restrictions with
regard to transfer of interest, suspension of all rights attached to the shares and such
other matters as may be prescribed.
COMPLIANCE FOR PROFESSIONAL
I. Auditor/ Person who is signing MGT-7 of Company ‘S’
• Auditors’ while audit the Company have to check whether there is any
body corporate is shareholder of Company ‘S’.
• If Yes, whether BEN-1 is received by the Company.
• If BEN-1 not received, whether Company sent notice to such persons.
• If Notice Sent, reply not received whether Company has taken action in
Tribunal.
In case of non-compliance by the Company, auditor has to report the same in his
Report.

22
II. Directors/ Officer in Default of Company ‘S’:

It is responsibility of the directors as officer in default to do followings:
• They shall check whether there is any beneficial owner of shares of Company.
• Whether there is any Holding Company
• Whether there is any Subsidiary, WOS, associate Company
If Company having any Holding Company has to follow process as mentioned in

Section 90(5) discussed above.
If Company having Subsidiary, Associate Company they have to check whether their
shareholders required to file BEN-1, If yes they will follow with them to file BEN-1
to subsidiary/ associate Company.
CS DIVESH GOYAL
GOYAL DIVESH & ASSOCIATES
MOB: 8130757966
EMAIL ID: CS@CSINDIA.CO.IN
BLOG: WWW.CSDIVESHGOYAL.INFO

23

SBO Rules FAQ

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

SBO Rules FAQ

Caricato da

Copyright:

Formati disponibili

Hh

MCA on 15th February, 2018, came out with draft of

On June 13, 2018, MCA issued the Companies

On February 08, 2019, MCA issued the Companies

The issue of the misuse of multi-layered corporate entities has

grabbed attention of various policymakers and regulators.

Regulatory authorities have adopted a step-by-step approach and

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

tried to address this issue by enacting various legislations,

notable among them being:

The mandate of the Rules is to “look through” the

Identify individual who ultimately holding significant

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

Basic Terms to understand the Concept:

Registered Owner: means a person whose name is entered in the register

hold beneficial interest in such shares;

In general words, this person are not an actual owner of shares.

Only his name is entered into register of members.

However, this person having

voting rights in the Company,

name shall be entered in registered of member,

entitle to sign proxy form,

shall be count for the quorum etc.

registered of members as registered member. In this case Mr. B is registered owner of

Shares of XYZ Pvt Ltd. But the actual Owner is Mr. A.

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

Beneficial Owner: Every individual, who acting alone or together, or

Beneficial owner is actual owner of the shares.

Only his name is not entered in register of members.

He is entitled to all beneficial interest as mentioned below.

registered of members as registered member. In this case Mr. A is beneficial owner of

Beneficial Interest: Beneficial interest in a Share includes,

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

Significant Beneficial Owner:

who acting alone or together, or

Possesses one or more of the following rights or entitlement in such reporting

Hold Directly OR together with Direct Holding

I. Not Less than 10% of Shares ;

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

DIRECT HOLDING OF RIGHT AND ENTITLEMENT:

Meaning of Hold ‘Right

INDIRECT HOLDING OF RIGHT AND ENTITLEMENT:

Meaning of Hold ‘Right

A. Body Corporate Member:

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

(i) holding more than one-

C. Partnership Entity Member:

a. Is a trustee in case of a discretionary trust or a charitable trust;

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

Checks for SBO Disclosures:

Note: Only direct holding of shares shall not considered as SBO

Provisions of SBO applicable on all the Companies. (Here company means

Computing threshold of 10%, the combined holding of the person along

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

iii. Whether a Company/ Trust/ Body Corporate/ Partnership firm can be

As per Section 90, only a Natural Person (individual) can be Significant

S. Where Member is Along with Percentage

Where the member of charitable trust;

reporting Company is • Is a beneficiary in case of a specific trust;

a Trust (through • Is the author or settler

trustee) and the

Email: csdiveshgoyal@gmail.com Whatsapp: 8130757966

C. PARTNERSHIP Where the member of • Is a Partner; or