New Significant Beneficial Ownership Norms

Challenges surrounding significant beneficial ownerships in often complex and multi-layered ownership structures of corporate entities have been hard to fix for the Department of Corporate Affairs, Government of India (DCA) thus far.

- 

The real individual owners have been difficult to identify in the maze of multiple entities in the holding structures, making them practically untraceable. Each time a structure is unlocked, the DCA has been trying to clarify and close the loop aggressively in order to identify the real individual owners. In a step in that direction, the DCA has again recently amended the applicable law to add more clarity to significant beneficial ownerships in order to further strengthen transparency and compliance in this space.

The Ministry of Corporate Affairs has issued the Companies (Significant Beneficial Owners) Rules, 2018 (“New SBO Rules”) dated 8th February 2019 under Section 90 of the Companies Act, 2013 (“Act”) and has provided for mandatory disclosure compliance from the date of notification.

This paper seeks to highlight the salient aspects of these New SBO Rules as follows:

The New SBO Rules provide a new definition of ‘significant beneficial ownership’ to mean such an individual, who, acting alone or together, or through one or more persons or trusts:

(i) holds indirectly, or together with any direct holdings, not less than 10% of the shares/voting rights in the shares in an Indian company; or

(ii) has right to receive or participate in not less than 10% of distributable dividend through indirect holdings alone or together with any direct holdings; or

(iii) has right to exercise or actually exercises significant influence or control in any manner other than direct holdings alone.

Further, even the term ‘Significant Influence’ has been defined to mean the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not in control or joint control of those policies.