Government Amends Significant Beneficial Ownership in Companies

The government has brought a more clear regulatory structure for the companies where they need provide the details of the significant beneficial ownership in a more elaborate manner failing which strict actions can be taken against the concerned business entity.

Significant Beneficial Owner is an individual or a group of individual who controls the management/daily affairs of the company and has a keen interest in the business.  

The Significant Beneficial Owner rules as per The Companies Act, 2013 have witnessed few changes. The Government of India has thought of bringing clarity in the entire structure and help in identifying entities which can be controlled even outside the country.

The Ministry of Corporate Affairs have issued amendments which include providing clear definitions to determine the ownership of an individual or entity as special beneficial ownership. Companies with a corporate background, needs to provide clear details pertaining to the beneficial ownership of an individual.

#mcaamendments The Ministry of Corporate Affairs recently notified Companies (Significant Beneficial Owners) Amendment Rules, 2019 on 08.02.2019.#sborules2019

— NSK Corp Advisors (@NSK_Newswire) February 12, 2019

One of the officials from the Ministry of Corporate Affairs said that these changes will cover ‘all sorts of control’ that can be exercised by the Companies in India. The principle of proportional calculation is done away making the identification of significant beneficial owners under various circumstances clear now.

Significant influence can be exercised through voting, control over key management decisions and access to dividends. The Ministry of Corporate Affairs have also canceled the registration of lakhs of companies who are into any business activity from a long time.

Initially, Section 90 of The Companies Act, 2013 states the rules of Significant Beneficial Owners where every company must –

• Maintain a register with all the details of the individual and the nature of interest.
• The register can be inspected by any member of the Company. (if the case be)

However; now if any significant beneficial owner of the company fails to declare information regarding his ownership then the concerned person could be subjected to fine/penalty, imprisonment or both.

In case the individually deliberately provides wrong/incorrect information then it will be considered as fraudulent activity. Similarly, companies will also face strict legal action if they fail to maintain the information register.

The companies can approach National Company Law Tribunal in case the significant beneficial owner does not respond. Deloitte, a leading professional services network has voiced out its opinion saying that these changes will bring transparency in the shareholding structure.

The government will be able to identify unnamed financial transactions thus preventing money laundering activities.