BEN-1234 for SBO compliance (as part of FATF commitment by India)

SBO

Section 90 of Comapnies Act 2013 has been notified with the intent of identifying SBO in a company. The concept of identifying UBO/ SBO is not a new concept. The requirement has already been prescribed by following:

·         SEBI under Guidelines on Identification of Beneficial Ownership;

·         RBI under Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016;

  • Rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005   


 What are the major differences between the scope and applicability of sec 89 and sec 90?

Sec 89 and 90 operate in different, though related, fields. The intent of sec 89 is to identify cases where nominal ownership of shares, as per the register of members, is not backed by beneficial ownership.Sec 89 captures the dichotomy where the legal owner is not the beneficial owner. Whereas section 90 is to recognize natural person responsible for driving the vehicle.

Example :   If the pledgee gets the voting rights and can vote at discretion, the pledgee becomes entitled to beneficial interest. Hence, the pledgee may arguably become beneficial owner lacking legal title for the purpose of sec. 89. However, for the purpose of sec. 90, the pledge and retention of voting rights is only a security interest. It is not ownership interest. Hence, it does not seem to be keeping in line with the spirit of sec. 90 to regard a pledgee as a significant beneficial owner.

SBO Threshold

Threshold limit for the determination of the SBO through the revised SBO Rules, Para 2 (1) (h) of the Rules says:

 “Significant Beneficial Owner in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or, together, or through one or more persons or trust, who possesses one or more of the following rights or entitlements in such company, namely:-

·      Holds indirectly, or together with any direct holdings, not less than ten percent of the shares;

·      Holds indirectly, or together with any direct holdings, not less than ten percent of the voting rights in the shares;

·      Has right to receive or participate in not less than ten percent of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings;

·      Has right to exercise or actually exercises, directly or indirectly, significant influence or control, in any manner other than through direct holdings alone.”

 

Compliance to be ensured by SBOs & Company

1.        What is the timeline for declaration by SBOs?

 Initial Disclosure:

Every individual who is a SBO in a reporting company, is required to file a declaration in Form No. BEN-1 to the reporting company within 90 days from February 8, 2019.

Continual Disclosure:

Every individual, who subsequently becomes a SBO/ or where his significant beneficial ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30 days of acquiring such significant beneficial ownership or any change therein.

 2.        Is there any requirement of intimating the Registrar of Companies regarding the identification of SBOs?

 The declaration of beneficial interest received by the company, is required to be filed in Form No. BEN-2 with the Registrar in respect of such declaration, within a period of thirty days from the date of receipt of declaration by it, by the company.

 3.        Will the company have to keep any record of the SBOs?

 Every company is required to maintain a register of SBOs in Form No. BEN-3.

 Also, this register shall be open to 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.

 4.        How will the company seek information from various persons about SBOs?

 Company is required to give notice seeking information in accordance with Section 90 (5) of the Act, in Form No. BEN-4.

    




BEN-1

Declaration by the significant Beneficial owner within 90 days from the date of the Companies (Significant Beneficial Owners) Amendment Rules, 2019, i.e from 1st july

BEN-2

Return by the reporting company within 30 days of receipt of declaration.

BEN -3

The reporting company is required to maintain register of all significant beneficial owners.

BEN-4

Notice to be given by the reporting company to all the members other than individual seeking information related to the shares held.