In a move that would help enhance corporate transparency and regulatory compliance, the Corporate Affairs Ministry (MCA) has overhauled the disclosure requirements for beneficial ownership and their changes.
It has in two separate notifications come up with two new forms detailing the information on ‘Significant Beneficial Ownership’ (SBO) and ‘Beneficial Ownership’ that need to be filed with the Registrar of Companies (RoC).
With the new forms (BEN-2 and MGT-6), companies can easily update or change the SBO details and also change the particulars of the holding reporting company.
This latest MCA move is expected to facilitate regulatory scrutiny of beneficial ownership and their changes. It comes on the heels of RoCs cracking down on large corporations as well as certain global private equity firms (funds) in relation to compliance with the SBO declarations.
Firms penalised
In the just ended June quarter, the RoCs have penalised at least four unlisted companies with foreign shareholding for not taking the steps to identify significant beneficial owners or for failing to report the SBO.
These include penalties on Microsoft-owned LinkedIn, Microsoft chairman Satya Nadella, Leixir Resources and its foreign directors and two Samsung units for violation of beneficial ownership disclosure norms.
MCA has in recent quarters enhanced its scrutiny of SBO related declarations. Many companies that faced RoC penalties had all declared in their annual filings that they did not have any SBO.
India has been tightening its regulatory scrutiny of beneficial ownership. The latest MCA move related to unlisted companies. Market regulator SEBI, which oversees listed companies, has tightened several rules related to beneficial ownership in foreign portfolio investors (FPI) over the past year.
Section 90 of the Companies Act addresses the identification of individuals who hold beneficial interest (above 10%) in a company, requiring companies to disclose SBO details. The primary intent is to identify natural persons having ultimate beneficial ownership in a company. Indirect ownership is mandatory for becoming a SBO.
Vishwas Panjiar, Partner, Nangia Andersen LLP, said “The introduction of these amendments aims to bolster governance and transparency by facilitating the accurate reporting and updating of details related to beneficial owners. It aligns with the government’s efforts to enhance regulatory frameworks that promote accountability and clarity in corporate ownership structures”.
A little confusing
Makarand M Joshi, MMJC and Associates, a corporate compliance firm, said SBO was always expected to be an individual but holding of beneficial interest in shares was never expected always to be an individual. “In this context the new version of form MGT 6 brought in by MCA seems to be a little confusing as now the form MGT 6 mandatorily asks for details of individual person in case of filling up details of beneficial owner. Due to this there would be no difference between beneficial owner and significant beneficial owner,” he said.
Meanwhile, sources also said that many of earlier adjudicating orders of MCA were getting challenged as there was no provision to report changes. Now reporting of SBO changes have been simplified and MCA has devised a new mechanism, they added.
Several foreign owned and controlled entities have been declaring ‘nil’ SBO even though they are 99 per cent owned by a single entity. Their contention was that if the end-beneficiary is a corporate or publicly pooled fund, there is no SBO.
The Rules in contrast say that if the end-entity is a corporate or fund, then whoever is in control of the end-entity —- like its chief executive should be the SBO.
Identifying Beneficial ownership has now become a crucial requirement for international tax transparency and the fight against tax evasion and other financial crimes.