All about Significant Beneficial Owners (SBO) rules, 2019 – BEN 1, BEN 2

If you are already crying about too much compliance for the year ending 2019, then we would advise you to add another one in the list which could be a real pain in the head, the return for Significant Beneficial Ownership return.

Significant Beneficial ownership is basically a declaration given by the individual who has a significant control or influence in the company. Since, it is bit technical, let us understand the rules about it.

The amended significant beneficial ownership rules are notified by the government; let us understand more about them.
 

Applicability of SBO Rules 2019

The significant ownership concepts comes from the section 90 of the Companies Act 2013 and rules made thereunder. As per the section 90, this rule is applicable to all the companies except for some types of companies (government company, local authority, registered funds etc)
 

Meaning of Significant Beneficial owner

In a very simple term, Individual who possesses one or more of the following rights or entitlements in a company will be regarded as a significant beneficial owner.

• Holds indirectly, or together with any direct holdings, not less than ten per cent of the shares.
• Holds indirectly, or together with any direct holdings, not less than ten per cent of the voting rights in the shares.
• Has right to receive or participate in not less than ten per cent 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, significant influence or control, in any manner other than through direct holdings alone.

If you one of your shareholders falls under any of the above category, then you becomes the reporting entity who is required to file a return with the ROC.

In simple words, if any individual holds 10% or more through any corporate entity, then it shall be called beneficial ownership.
 

Duty of a reporting company

To comply with the requirement of section 90 and rules made there under, company should follow the following procedure;

• Indentify the individual who has significant beneficial ownership in the company.
• Send them notice in BEN 4 form.
• Ask them to disclose details in BEN 1 form

All individuals (who are covered above) shall file the BEN 1 form with the company mandatorily even for the changes during the year.
 

Maintain Register in BEN 3

Apart from the above compliance and procedure, the reporting company also needs to prepare the register for significant beneficial ownership in the form BEN – 3.
 

Return to file by the company

Once all the individuals have reported in BEN 1 form, the company shall file a return in FORM BEN – 2 with the registrar within thirty days from the receipt of such declaration from the individuals.
 

Application to the tribunal

If the individual fails to file the form with the company, then company shall apply to the tribunal. The company shall apply to the tribunal in the following cases;

• Person fails to file BEN 1 form with the company
• Or information given is not proper

After getting the information, the tribunal may order;

• Restrictions on the transfer of interest attached to the shares in question;
• Suspension of the right to receive dividend or any other distribution in relation to the shares in question;
• Suspension of voting rights in relation to the shares in question;
• Any other restriction on all or any of the rights attached with the shares in question.
   

Summary of form and their details with due dates

Penalty under SBO Rules 2019

If the company or the individual couldn’t comply with the above rules and regulations, then they shall be liable for the following penalties;

Company with all individual shareholding

If your company does not have any corporate entity, then BEN 1 is not required to be filed.
 

Conclusion

On a daily basis, the compliances are getting difficult and stringent; hence, it is advised to hire an expert to avoid any default.