In the evolving landscape of corporate governance, ensuring transparency in ownership is critical. One of the key regulatory frameworks promoting ownership disclosure is Significant Beneficial Ownership (SBO) under the Companies Act, 2013. The SBO framework aims to uncover the real individuals behind complex ownership structures and prevent misuse of companies for unlawful activities such as money laundering and tax evasion.
In this guide by Lal Ghai & Associates, we break down the SBO meaning, legal provisions, compliance requirements, and the importance of SBO filings for companies in India.
What is Significant Beneficial Ownership (SBO)?
Significant Beneficial Ownership refers to an individual who ultimately owns, controls, or has significant influence over a company—either directly or indirectly—even if their name doesn’t appear in the company’s register of members.
This regulation is designed to promote ownership transparency and ensure that companies disclose true ownership to the Ministry of Corporate Affairs (MCA).
Legal Definition and Threshold under Companies Act, 2013
According to Section 90 of the Companies Act, 2013 and SBO Rules, an SBO is an individual who:
- Holds 10% or more of shares, voting rights, or distributable dividends (directly or indirectly)
- Exercises significant influence or control in the company
- Is a trustee, beneficiary, or settlor in a trust that holds stake
- Is a Karta of HUF owning shares in the company
Note: The threshold was reduced from 25% to 10% in 2019, expanding the scope of SBO identification.
Forms and Compliance Requirements
To ensure SBO compliance, both individuals and companies have statutory obligations:
🔸 Obligations of the SBO (Individual):
- File Form BEN-1 to declare their beneficial interest to the company within 30 days of acquiring such ownership.
🔸 Obligations of the Company:
- Maintain a register of SBOs in Form BEN-3
- File Form BEN-2 with the Registrar of Companies (RoC) within 30 days of receiving BEN-1
- Issue notice in Form BEN-4 if an individual is suspected to be an SBO and has not declared it
Penalties for Non-Compliance
As per Section 90(10) and 90(11) of the Act:
- Individuals may face fines between ₹1 lakh to ₹10 lakhs or imprisonment up to 1 year
- Companies & Officers can be fined up to ₹5 lakhs with a daily fine of ₹1,000 for continued default
- The government may restrict share transfers or dividends until compliance is complete
Importance of SBO Compliance
Promotes Ownership Transparency
Reveals hidden shareholding structures and discourages benami ownership.
Aligns with AML & FATF Guidelines
Supports India’s compliance with Anti-Money Laundering (AML) norms and Financial Action Task Force (FATF) recommendations.
Boosts Investor Confidence
Transparent ownership builds trust among investors, lenders, and regulators.
Common Challenges in SBO Filing
- Layered Ownership: Complex cross-holdings and foreign structures can delay identification
- Lack of Awareness: Many companies are unaware of BEN form deadlines
- Interpretation Issues: Terms like “control” and “significant influence” are sometimes vague
Practical Tips for SBO Compliance
- Analyze shareholding patterns regularly
- Collect BEN-1 declarations from all suspected SBOs
- Maintain and update BEN-3 register properly
- File BEN-2 within 30 days to avoid penalties
- Consult a professional for complex structures and foreign holdings
Conclusion
The Significant Beneficial Ownership Rules are a crucial tool in improving corporate transparency and accountability. As enforcement becomes stricter, timely and accurate SBO disclosure is vital for every Indian company.
At Lal Ghai & Associates, we assist startups, MSMEs, and corporates with end-to-end SBO compliance services—from ownership tracing to filing BEN forms with the RoC.
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