Category Archives: Chapter VII – CA2013

MANAGEMENT AND ADMINISTRATION

Form BEN-1


Form BEN  – 1 is a declaration by the beneficial owner who holds or acquires significant beneficial ownership in shares [Pursuant to section 90(1) of the Companies Act, 2013 and rule 2A and rule 3. Many readers requested its actual and understandable copy. I place it hereunder:

Form No. BEN-1

Declaration by the beneficial owner who holds or acquires significant beneficial ownership in shares [Pursuant to section 90(1) of the Companies Act, 2013 and rule 2A and rule 3]

 

To,

Name of the company: ____________________

Registered office address:_______________

 

1. Purpose of filing the form (choose anyone)

  • For the declaration of Significant Beneficial Ownership under Section 90:
  • For Change in Significant Beneficial Ownership under Section 90 :

ID of the Significant Beneficial Owner: (To be allotted by MCA after filing form BEN – 2 first time by reporting company, same will be used for subsequent filings, therefore leave for the first time filling)

  1. Particulars of the holder of the significant beneficial interest:
Name of the Significant Beneficial Owner (Given name and last Name)  
Address and Email id  
Date of Birth/Age  
Father’s/ Mother’s/Spouse’s name  
Occupation  
Nationality  
Passport No. (in case of foreign national)  

 

  1. Nature of indirect holding or exercise of the right in the reporting company through a member of the reporting company (where more than one repeat this para 3 of the Form)

Through Member 1

(a) Type of Member (Company/ LLP/Any other Body Corporate/HUF/ Partnership Firm/Discretionary Trust/Charitable trust/Specific Trust/Revocable Trust /Pooled Investment vehicle (PIV) / Entity controlled by PIV):

(b) Corporate Identity Number (CIN) or Limited Liability Partnership Identification Number (LLPIN) or any other registration number allotted by the regulator established under the Act:

(c) Name of the Member:

(d) Address:

(e) Nature of indirect holding or exercise of the right in the reporting company:

* By virtue of shares

* By virtue of voting rights in shares

* By virtue of rights on distributable dividend or any other distribution

* By virtue of the exercise of control (attach a copy of the agreement)

* By virtue of the exercise of significant influence (attach a copy of the agreement)

(f) Status of significant beneficial owner in the member of the reporting company (choose anyone):

* Individual in case of a company or any other body corporate

* Partner in case of partnership firm or LLP

* Karta in case of HUF

* Trustee in case of a discretionary trust or charitable trust

* Beneficiary in case of a specific trust

* Author or settlor in case of a revocable trust

* General Partner, Investment Manager or CEO in case of pooled investment vehicle or entity controlled by a pooled investment vehicle

(g) In case the member is a partnership firm or LLP, specify whether significant beneficial owner:

* is a partner holds

* majority stake in the body corporate partner

* holds the majority stake in the ultimate holding company of the body corporate partner

(h) In case the member is a company or any other body corporate, specify whether the significant beneficial owner holds:

* majority stake in such company or body corporate

* majority stake in the ultimate holding company of such company or body corporate

(i) Whether Significant Beneficial Owner has any direct holding or right in the reporting company:

* Yes                                                                                    * No

If yes, enter details below:

*By virtue of shares                        %

* By virtue of voting rights in shares                        %

* By virtue of rights on distributable dividend or any other distribution                   %

* By virtue of the exercise of control (attach a copy of the agreement)

* By virtue of the exercise of significant influence (attach a copy of the agreement)

<<Through Member 2

Repeat Para 3 again for member 2 and so on till all member though whom the significant beneficial owner has significant beneficial ownership exhausted>>

 

Date:

Place:

Signature of the holder of the significant beneficial interest

Attachments:

1.
2.
3. etc etc

 

Please note, where the Significant Beneficial Owner is aware and cooperating, she will fill and submit the form BEN – 1 by her own. Otherwise, the secretarial department of the reporting company shall dig layers of its all non-individual members and calculate holdings of all individuals behind these non-individual members.

Please also note, to get the true result, please do not ignore any individual behind any non-individual member because Significant beneficial owner may be hidden behind more one or even 100 non-individual members. MCA has given 10% holding limit to help reporting companies and save their time. Sometimes, we need to be thankful to MCA.

CS Aishwarya Mohan Gahrana

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REPORTING COMPANY AND REPORTED OWNERS


On public demand, I am summarizing provisions relating to reporting company and the reported significant beneficial owners.[1]

Reporting Company under Rule 2(f) of SBO Rules, 2018 may be any company as defined under Section 2(20). According to Section 90(4), every company under shall report and file the return. For the practical purpose the return to the Registrar in respect of declaration under section 90Form BEN – 2 does not allow to fill the form if the company has no Significant Beneficial Owner.

Take Away 1: No return if no SBO. Read further to identify SBO.

The reporting company shall in all cases where its member (other than an individual), holds not less than ten per cent of its (a) shares, or (b) voting rights, or (c) right to receive or participate in the dividend or any other distribution payable in a financial year, give notice to such member, seeking information in accordance with subsection (5) of section 90, in Form BEN – 4. [Rule 2A]

Take Away 2: Identify Share not held by an individual (human) as a registered member or owner of beneficial interest. [Do not forget humans though, keep record]

Take Away 3: Send notice to every registered member or owner of beneficial Interest identified in Taka Away 2 having 10% of (a) shares, or (b) voting rights, or (c) right to receive or participate in the dividend or any other distribution payable.

Shares and share capital respectively includes Equity share with or without differential voting and/or other rights and Preference shares.

Voting right means the right of a member of a company to vote in any meeting of the company or by means of postal ballot. Generally, Preference share carries voting power in certain resolutions but where the dividend in respect of a class of preference shares has not been paid for a period of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed before the company.

Right to receive dividend may be held by someone who is not a registered member.

Take Away 4: check your dividend distribution in the last two years to preference shareholders.

Take Away 5: calculated beneficial owners and the right to receive dividend or profit participation carefully.

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. [Section 89(10)]

Take Away 6: Beneficial Interest is a wider term than a day to day understanding.

Every individual, who acting alone or together, or through one or more persons or trust, holds beneficial interests of not less than percentage as prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control over the company (herein referred to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest and other particulars. [Section 90(1)]

Take Away 7: Stay focused on Section 90(1)

If an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant beneficial owner. [Explanation I to Rule 2(h)]

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:

(i) the shares in the reporting company representing such right or entitlement are held in the name of the individual;

(ii) the individual holds or acquires a beneficial interest in the share of the reporting company under sub-section (2) of section 89, and has made a declaration in this regard to the reporting company.

Take Away 8: individual members and other Individuals with ANY indirect holding or interests need to be identified.

The reporting company may have partial relief form reporting in respect of certain shares held by –

  1. Investor Education and Protection Fund;
  2. A reporting holding company reporting its own SBOs in Form BEN – 2;
  3. Central, State and Local Government (NOTE: Under Indian Constitution of India);
  4. A government company, government body corporate or government entity controlled by Central, State or Local government;
  5. SEBI Registered investment vehicles like MFs, AIFs, REITs, InVITs, (See footnote)[2]; and
  6. RBI, IRDA, PFRDA Registered investment vehicles. [Rule 8]

Take Away 9: Ignore Shares mentioned in Rule 8. Please seek information or send a notice in case of doubt.

To identify an SBO behind a Body Corporate Member; whether company, other bodies corporate, whether Indian or foreign, the reporting company shall identify the individual who

 (a) holds the majority stake in that body corporate member; or

(b) holds the majority stake in the ultimate holding body corporate  (whether incorporated or registered in India or abroad) of that member.

Take Away 10A: Go up to the steps of holdings body corporate till you find individual members. However, just for the purpose of reporting, identify the holder of a majority stake.

To identify an SBO behind a Hindu Undivided Family (HUF) identify the karta. Sometime the registered member may have shares in his name but the Hindu Undivided Family (HUF) is actual beneficial owner (through karta). The Karta shall be SBO.

Take Away 10C: Identify Karta in HUF.

To identify an SBO behind partnership entity – Limited Liability Partnership or Partnership Firm whether registered or not, the member of the reporting company is a partnership entity (through itself or a partner), and the SBO individual,-

(a) is a partner; or

(b) holds the majority stake in the body corporate which is a partner of the partnership entity; or

(c) holds the majority stake in the ultimate holding company of the body corporate which is a partner of the partnership entity.

Take Away 10C: In LLP and Partnership, identify the individual partners or SBO as per Take Away 10A where a partner is a body corporate.

To identify an SBO behind the trust, where the member of the reporting company is a trust (through the trustee), and the SBO 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 settlor in case of a revocable trust.

Take Away 10D: In a trust, SBO individual may differ on a case to case basis.

To identify an SBO behind (a) Pooled Investment Vehicle; or (b) an entity controlled by the pooled investment vehicle, the SBO individual in relation to the pooled investment vehicle,-

(A) is a general partner; or

(B) is an investment manager; or

(C) is a Chief Executive Officer where the investment manager of such pooled vehicle is a body corporate or a partnership entity.

Take Away 10E: In pooled investment Vehicle, identify the decision-maker.

If any individual, or individuals acting through any person or trust, act with a common intent or purpose of exercising any rights or entitlements, or exercising control or significant influence, over a reporting company, pursuant to an agreement or understanding, formal or informal, such individual, or individuals, acting through any person or trust, as the case may be, shall be deemed to be ‘acting together’

Take Away 11: Identity individuals acting together.

Significant Influence means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies.

Take Away 12: Significant Influence may be taken care of.

“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, possesses one or more of the following rights or entitlements in such reporting company, namely:-

(i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares;

(ii) holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares;

(iii) 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;

(iv) has the right to exercise, or actually exercises, significant influence or control, in any manner other than through direct-holdings alone:

Take Away 13: After identifying all individual beneficial owners on all routes, you may find one individual in more than one place or a few individuals acting together.

If an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or (iii), he shall not be considered to be a significant beneficial owner.

Take Away 14: ignore all individuals holding rights or entitlements in the reporting company directly.  

Take Away 15: List out individuals with indirect holdings or individuals having both direct and indirect holdings.

Now, compile the data in the required format. While compiling data, we may face many practical realities.

Special Take Away 1: One individual may have less beneficial ownership from in a single non-individual member but the combined effect of his all beneficial ownership may make him a significant owner.

Special Take Away 2: It is a reporting company which is in a better position to identify SBO then SBO himself, particularly where SBO using multiple member entities in the reporting companies.

Special Learning Point: Beneficial Interests and Beneficial ownership are two different ownership or interest aspect. Do not mingle them.

CS Aishwarya Mohan Gahrana

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[1] Please refer all of these posts for details:

[2] Mutual Funds (MFs), Alternative Investment Funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) and such other SEBI registered investment vehicles

THE FORM BEN – 2


Form BEN – 2 seems to be a comic strip name for kids but for Indian companies and company secretaries, it seems to be a just another nightmare of corporate governance. On 1st July 2019 BEN – 2 finally arrived. This BEN – 2 is an updated version introduced by the Companies (Significant Beneficial Owners) Second Amendment Rules 2019 with effect from the date of publication of the notification in the Official Gazette. In this post we discuss the Form BEN – 2 briefly. Continue reading

Seeking information of Significant Beneficial Ownership


The law stated in this post is valid from 8th February 2019. The earlier post on the subject here was valid from 14th June 2018 till 7th February 2019.

Section 90 of the Companies Act 2013 substituted by a new set of law by the Companies Amendment Act, 2017 with effect from 13th June 2018. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has already been notified with effect from 13th June 2018 and 14th June 2018. However, the Companies Amendment Ordinance, 2018 as well as The Companies Amendment Act, 2019 amended Section 90 with effect from 2nd November 2018.  Thereafter, the Companies (Significant Beneficial Owners) Amendment Rules, 2019 amended the Companies (Significant Beneficial Owners) Rules, 2018 with effect from 8th February 2019. Earlier, we discussed Significant Beneficial Interest, declaration, register and return related here and here.  In this post, we will discuss the declaration, register and return of Significant Beneficial Ownership.

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Declaration by Significant Beneficial Owner


The law stated in this post is valid from 8th February 2019. The earlier post on the subject here was valid from 14th June 2018 till 7th February 2019.

Section 90 of the Companies Act 2013 substituted by a new set of law by the Companies Amendment Act, 2017 with effect from 13th June 2018. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has already been notified with effect from 13th June 2018 and 14th June 2018. However, the Companies Amendment Ordinance, 2018 as well as The Companies Amendment Act, 2019 amended Section 90 with effect from 2nd November 2018.  Thereafter, the Companies (Significant Beneficial Owners) Amendment Rules, 2019 amended the Companies (Significant Beneficial Owners) Rules, 2018 with effect from 8th February 2019. In last post here, we discussed what constitutes Significant Beneficial Ownership under the amended law.  In this post, we will discuss the declaration, register and return of Significant Beneficial Ownership.

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SIGNIFICANT BENEFICIAL OWNER


The law stated in this post is valid from 8th February 2019. The earlier post on the subject here was valid from 14th June 2018 till 7th February 2019.

Note: Earlier Section 90 {Invesigation of Beneficial Ownership} as applicable form 1st April 2014 to 13 June 2018 was discussed here.

Section 90 of the Companies Act 2013 substituted by a new set of law. It is a drastic change to understand and need urgent attention for all companies. Amended Section 90 and rules made thereunder has been notified with effect from 13th June 2018 and 14th June 2018. However, the Companies Amendment Ordinance, 2018 as well as The Companies Amendment Act, 2019 amended Section 90 with effect from 2nd November 2018.  Thereafter, the Companies (Significant Beneficial Owners) Amendment Rules, 2019 amended the Companies (Significant Beneficial Owners) Rules, 2018 with effect from 8th February 2019.

In this post, we will discuss what constitutes Significant Beneficial Ownership under the amended law.

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Curious case of Rule 20 of Management and Administration Rules


This blog post has a poll on a question – Whether Explanations to Rule 20, placed just after sub – Rule (2) are still part of Rule 20? Read and take part in the poll.

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