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India tightens rules on beneficial ownership disclosure

Thursday, 9 May, 2019

A recent amendment to India's Companies (Significant Beneficial Owners) Rules 2018 requires every 'significant beneficial owner' (SBO) of a company to have declared their interest to the company by today (9 May).

The original form of the rules was issued by Ministry of Corporate Affairs in June 2018, requiring both resident and foreign SBOs to declare the nature of their interest to that company, where the 'significant' threshold was set at 10 per cent of the ownership. It also included individuals who have the right to exercise significant influence or control over the reporting company. SBOs were required to report themselves by filing a Form BEN-1 to the relevant company by 11 September 2018. However, these rules were regarded as unclear, and were therefore amended earlier this year.

The amendment came into effect on 8 February, requiring SBOs to notify the relevant companies in which they have an interest within 90 days, in other words, by today.

From now on, every individual who becomes an SBO, or who changes their SBO status, must declare it to the company within 30 days, and the company must report these declarations to the official registrar of companies within 30 days of receiving them.

Failure to disclose can result in fines or even imprisonment for the SBO. Moreover, the relevant company must apply for an order restricting the owner's rights to sell the shares or receive dividends, although the SBO has the right to contest the order.

Despite the clarifying amendments, certain questions and gaps remain in the area of discretionary trusts, says corporate law firm Cyril Amarchand Mangaldas.

First, the rules do not deal with multi-layered hybrid structures with a company as the direct member and a trust as the ultimate holding entity.

Second, they do not determine who the SBO is if a discretionary trust is a member of the reporting company and the trustee of such a trust is not an individual. As a result, uncertainty persists regarding discretionary trusts whose trustee is a private trustee company or professional trustee.