The concept of Significant Beneficial Owner (SBO).
Shareholders are the persons who actually lay the foundation stone for a company. Once the promoter brings his business idea into reality and forms a company, it is financially supported. Shareholders contribute to the company’s capital in exchange for the returns earned on the money in dividends. Indian company law grants certain powers that can be exercised exclusively by the shareholders. At the same time, there are specific duties towards the company, which a shareholder is expected to perform.
It is not always necessary that a shareholder is only a remotely active person in its affairs. There are also people like the company’s directors, company’s promoters, and their relatives who despite being closely involved in the company’s daily experiences, hold a significant amount of the company’s shares. Therefore, the shareholder group of a company consists of both insiders and outsiders of a company. Apart from the insiders, there are also particular High Net Worth Individuals (HNIs) who hold a company's shares in bulk.
To differentiate between the persons having a bulk shareholding in a company and the rest of the shareholders, India's company law has laid down various provisions that need to be complied by those persons with a substantial shareholding and by the companies whose shares are so subscribed.
To clarify this concept, we shall further break it down and understand each of them in a detailed yet simple manner. Hereon, we shall be discussing the following points.
1) Who is a Significant Beneficial Owner (SBO)?
A significant beneficial owner is an individual who,
by himself or through one or more persons or trust.
2) What has been provided in the company law for a significant beneficial owner?
- Every individual who holds at least 25% of beneficial interest or any other prescribed percentage in the company’s shares shall disclose to the company in the form of a declaration in the prescribed format and within the prescribed period. Any changes in the interest shall also be timely communicated.
- Every company on the receipt of declaration as stated above shall maintain a register of such individuals in the prescribed form and manner.
- The members of that company shall be allowed to inspect the register on working days during business hours for at least 2 hours and on payment of fees which shall not be more than ?50 per inspection.
- It is the duty of every company to file a compiled return of significant beneficial owners with the Registrar of Companies (ROC) in the prescribed form and within the prescribed period.
- Every company shall send a notice to such an individual who is a significant beneficial owner or to such person knowing about a significant beneficial owner of that company, requiring them to submit the details of their own in the manner as prescribed by law.
- Persons to whom the aforesaid notice is issued shall provide the required information within 30 days of receiving such notice.
3) What if the concerned individual fails to submit the information asked by the company?
- The company shall make an application to the NCLT within 15 days of the expiry of the period mentioned in the notice, seeking an order whereby restrictions are imposed on the transfer of shares or rights attached to the shares held by such individual.
- The NCLT shall pass an order of restriction on transfer of shares and the interest attached within 60 days of the receipt of the above application from the company after providing an opportunity of being heard to the defaulting individual.
- If the NCLT’s order aggrieves the company or the concerned individual, they can apply to lifting such restrictions within 1 year from the earlier order of NCLT.
- If such an application is not filed within 1 year, then the shares shall be transferred to the Investor Education and Protection Fund after lifting the restrictions imposed.
4) The list of forms required to be filed as per company law:
(i) BEN-1: Declaration of significant beneficial ownership by the concerned individuals with the company.
(ii) BEN-2: Return consisting of the list of significant beneficial owners to be filed by the company with the ROC.
(iii) BEN-3: Register of significant beneficial owners to be maintained by the company.
(iv) BEN-4: Issuance of notice to the concerned individuals for declaration of significant beneficial ownership.
5) Consequence for non-compliance with the above provisions:
- If a required person fails to file the declaration of his significant beneficial ownership then he shall be liable to a penalty of a minimum of 50,000/- to a maximum of 2 lakhs and 1000/- per day in case of continuing default.
- If a company fails to maintain the register of SBO or fails to file the return with the ROC or denies inspection of the record then,
(i) the company shall be liable for a minimum penalty of 1 lakh to a maximum sentence of 5 lakhs and 500 per day in case of continuing default.
(ii) every officer of the company in default shall be liable for a penalty of 25,000/- to a maximum penalty of 1 lakh and 200 per day in case of continuing default.
Conclusion:
By keeping track of the individuals having a significant interest in the company’s shares enables the Government, through the data available with ROC, to closely monitor the transactions entered into by such individuals, especially to identify the practices like insider trading or speculative trading in the company’s shares. As the other members can also check the shareholding details of such individuals, they can know whether their voting powers carry any value in the company and if they are exploited at the hands of such significant shareholders. They can also take legal action to protect their interests in the company.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.
