Significant Beneficial Owners

SIGNIFICANT BENEFICIAL OWNER
DATE: 17.08.2018 CS MANISH TIWARY
1

Preface of the Rules
Recommendation 24 & 25 of Financial Action Task Force (FATF), an inter-
governmental body established in 1989 formed with the objective to set standards
and promote effective implementation of legal, regulatory and operational
measures for combating money laundering, terrorist financing and other related
threats.
Criminals trying to circumvent anti-money laundering (AML) and counter-terrorist
financing (CFT) measures, corporate vehicles are an attractive way to disguise and
convert the proceeds of crime before introducing them into the financial system.
The purpose of the FATF standards on transparency and beneficial ownership is to
prevent the misuse of corporate vehicles for money laundering or terrorist
financing.
2
For any queries reach to Manish Tiwary at
manishtiwary73@gmail.com, +91 98747 86912

..contd 2
 If a company is legally owned by a second company, the beneficial owners are actually
the natural persons who are behind that second company or ultimate holding
company in the chain of ownership and who are controlling it.
 Persons listed in the company incorporation documents as holding controlling
positions within the company, but who are actually acting on behalf of someone else,
cannot be considered beneficial owners because they are ultimately being used by
someone else to exercise effective control over the company.
 Another essential element to the definition of SBO is to identify natural persons on
whose behalf a transaction is being conducted, even where that person does not have
actual or legal ownership or control over the company.
3

Significant Beneficial Owner as per
Companies Act, 2013:
Applicability:
All Indian Companies
4

Exemption
Holding of Companies’ Shares in case of pooled investment vehicles/investment
funds such as
 Mutual Funds;
 Alterative Investment Funds (AIFs);
 Real Estate Investment Trusts (REITs);
 Infrastructure Investment Trusts (InvITs) regulated under SEBI Act.
5

Significant Beneficial Owner (“SBO”)
as per section 90(1) of the Companies Act 2013 read with Companies SBO Rules ‘18, SBO is
every individual, who
acting alone or together,
or through one or more persons or trust:
including a trust and persons resident outside India holds
ultimate beneficial interest of at least 10% in shares of a company or
the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2,
over the company but
whose name is not entered in the register of members of a company as the holder of such shares.
Note: instruments in the form of global depository receipts, compulsorily convertible preference shares or compulsorily convertible
debentures shall be treated as ‘shares’ for the purpose of determining significant beneficial owner.
6

Meaning of Beneficial Interest
7
As per Section 89(10) of the act, 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—
 exercise or cause to be exercised any or all of the rights attached to such share; or
 receive or participate in any dividend or other distribution in respect of such share.

Beneficial Owner and Registered Owner
Beneficial Owner Registered Owner
a person who holds beneficial interest
shares of the Company but whose name
is not entered in the register of members
of a company as the holder of such
shares.
a person who holds beneficial interest
shares of the Company but whose name
is not entered in the register of members
of a company as the holder of such
shares.
8

Comparison between Significant Beneficial
Owner & Beneficial Owner
Sl. No. Significant Beneficial Owner Beneficial Owner (BO)
1. SBO to be only a natural person. BO can be other than natural
person.
2. Beneficial Interest of at least 10%
in the target company need to be
determined
There is no cut-off limit for
determining BO.
3. SBO can be a person singly or
together with other persons or
trust, etc.
BO holds interest individually.
9

Identification of SBO in case member is a
Company or Partnership firm:
In case member is a Company, SBO shall be natural person,
who, whether acting alone or together holds 10% share
of the company or who exercises significant influence or
control in the company through other means
In case member is a partnership firm, the SBO is the natural
person, who, whether acting alone or together holds not less
than 10% of capital or has entitlement of not less than 10% of
profits of the partnership
In case no natural
person is identified,
the SBO shall be the
relevant natural
person who holds the
position of Senior
Managing Official.
10

Senior Managing Official
as per Section 2(59) of the Act “officer” includes any director, manager or key managerial personnel or
person in accordance with whose directions or instructions the Board of Directors or any one or more of
the directors is or are accustomed to act.
as per section 2(53) of the Act "manager" means an individual who, subject to the superintendence,
and direction of the Board of Directors, has the management of the whole, or substantially the whole, of
the affairs of a company, and includes a director or any other person occupying the position of a
by whatever name called, whether under a contract of service or not
Senior Management as per Reg 16(1)(d) of SEBI LODR Regulations 2015, shall mean officers/personnel of
the listed entity who are members of its core management team excluding board of directors and
this shall comprise all members of management one level below the executive directors, including all
functional heads [to be substituted by the following wef 1.04.19 through LODR Amendment Regulations
2018, “CEO/ MD/ WTD/ Manager and shall specifically include company secretary and chief financial
officer’]
11

Certain illustrations to elaborate the
meaning of SBO: ILLUSTRATION I.
12
In this case there would be no SBO as
definition states it to be a natural person
holding beneficial interest of 10% or more
and whose name is not entered in register of
members of the company as holder of such
shares. Here, members of the Company are
identified natural persons having their own
names on the register of members.
A Ltd
Mr. X
(5%)
Mr. Y
(95%)

ILLUSTRATION II.
Here, there would be no SBO as Mr. A
himself holds 95% shares in the Company.
13
A Ltd
X Ltd
(5%)
P Ltd
(50%)
Q Ltd
(50%)Mr. A
(95%)

ILLUSTRATION III.
In this case since X Ltd holds 80% in A Ltd which is more than requisite threshold limit of 10% hence, SBO need to
be determined.
P Ltd holds 95% in X Ltd and Mr. A and Mr. B holds 30% and 70% respectively in P Ltd. Hence, A and B acting
together will be held as SBO.
A holds (30% of 95% of 80%) i.e. 22.8% & B holds (70% of 95% of 80%) i.e. 53.2%
Both of them are jointly holding Ultimate Beneficial Interest in the company.
14
A Ltd
X Ltd
(80%)
P Ltd
(95%)
Mr. A
(30%)
Mr. B
(70%)Q Ltd
(5%)Mr. A
(20%)

ILLUSTRATION IV.
In the above situation, there is
cross chain holding amongst
companies only and no natural
person can be determined
holding ultimate beneficial
interest of more than 10%.
Hence, in such a situation SBO
would be a senior managing
official of the A Ltd.
15
A Ltd
X Ltd
(80%)
P Ltd
(95%)
M Ltd
(30%)
N Ltd
(70%)
Q Ltd
(5%)
Y Ltd
(20%)
M Ltd
(25%)
P Ltd
(65%)
Q Ltd
(35%)
N Ltd
(75%)

16

Significant Beneficial Owners

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