We’re here to simplify Section 90 of the Companies Act 2013. It’s key to corporate governance in India. This section deals with finding out who really owns shares in a company. It has changed a lot over time.
Understanding significant beneficial ownership is vital. The Companies (Significant Beneficial Owners) Rules, 2018, and its updates, highlight the need for share ownership disclosure. We’ll look at how these rules affect companies and shareholders. And what they must do to follow Section 90 of the Companies Act 2013.
We aim to fully explain Section 90 and its effects on companies and shareholders. We’ll cover recent changes, like the Companies (Amendment) Act, 2017, and the Companies (Significant Beneficial Owners) Rules, 2018. By the end, you’ll know all about significant beneficial ownership and its impact on your business.
Key Takeaways
- Section 90 of the Companies Act 2013 is related to the investigation of significant beneficial ownership of shares in a company.
- The section was replaced with a new provision through the Companies (Amendment) Act, 2017.
- Significant beneficial ownership is defined as an individual owning or controlling more than 10% of the total shares or voting rights.
- Companies must maintain a register of significant beneficial owners, as detailed in Form BEN-3.
- Failure to comply with Section 90 can result in penalties, including a fine of ₹50,000 and an additional ₹1,000 per day for ongoing violations.
- Exemptions from Section 90 include government companies and shares held by entities such as regulatory authorities and organizations controlled by the government.
Understanding Section 90 of Companies Act 2013 and Its Purpose
We will explore what significant beneficial ownership means and why it matters. The Companies Act 2013, Section 90, is all about finding out who really owns a company’s shares. It makes companies keep a list of who really owns the shares, not just who’s listed on paper.
To be considered a Significant Beneficial Owner (SBO), someone needs to own at least 10% of a company’s shares. This rule is about who really controls a company, not just who owns it. For example, if one person owns 50% and another owns 40%, but a company owns 10%, only the first two might be SBOs.
The law aims to make things clearer and cut down on shell companies. The Ministry of Corporate Affairs wants to see a big drop in shell companies by 2025. Section 90 is a key part of this plan. New rules and forms, like Form No. BEN 1, have been added to help with this.
Definition and Scope of Significant Beneficial Ownership
A ‘significant beneficial owner’ is anyone with 10% or more of a company’s shares or voting rights. This rule applies to companies, partnerships, and other types of businesses. It’s about finding out who really has control, even if they don’t own 10%.
Key Objectives Behind the Legislation
The main aim of Section 90 is to find out who really runs a company, even if they don’t own 10%. This is to stop money laundering and make business dealings clear.
Recent Amendments and Updates
Companies have until June 13, 2018, to start following the rules on SBOs. If they don’t, they could face big fines. The fines can be up to ₹10,000, and another ₹1,000 for each day they keep not following the rules.
Declaration Requirements for Beneficial Ownership
We will cover the main points about declaring beneficial ownership, as stated in section 90 of the Companies Act 2013. It’s important for companies to know who owns them. They must identify and report these owners.
Here are the key steps:
- Find out who owns at least 25% of the company’s shares.
- Tell the Registrar about these owners.
- Keep a record of who owns what.
Companies must also file updates with the Registrar on time. Not doing so can result in fines. These fines can be up to ₹2,00,000.
A new form, Web-Form MGT 6, was introduced on July 15, 2024. It only accepts natural persons as beneficial owners. The form asks for more details, like ‘Father’s Name/Husband’s Name’ or ‘Name of the authorized person’ for registered owners. It also limits identity options to PAN and Passport for beneficial owners.
| Form | Purpose | Required Details |
|---|---|---|
| Form MGT 4 | For registered owners | Particulars such as date of birth, spouse’s name, and passport number for foreign nationals |
| Form MGT 5 | For beneficial owners | Particulars such as date of birth, spouse’s name, and passport number for foreign nationals |
| Web-Form MGT 6 | For significant beneficial owners | Expanded details, including ‘Father’s Name/Husband’s Name’ or ‘Name of the authorized person’ for registered owners |
Filing Process and Documentation
The filing process and needed documents for Section 90 are key. They ensure companies in India are transparent and honest about who owns them. We’ll cover the main steps and papers needed.
Companies must send the right forms and documentation to the Registrar of Companies on time. They need to file forms like BEN-1, BEN-2, BEN-3, and BEN-4. These follow the Section 90 rules.
Here are the main papers and forms for Section 90 compliance:
- Form No. MGT-4: Declaration of beneficial ownership
- Form No. MGT-5: Declaration of beneficial ownership in shares held by others
- Form No. MGT-6: Return of beneficial ownership
It’s vital to file on time and correctly to avoid fines. The documentation for Section 90 must be right and complete. Companies should keep all filings and submissions in order.
Legal Obligations of Companies and Shareholders
Section 90 outlines specific legal obligations for companies and shareholders. They must keep records and report on who really owns the company. We’ll look at why following these rules is important and what happens if they don’t.
Companies must have a list of who really owns the company and let shareholders see it. They also need to send this information to the Registrar. If they don’t do this, they could face fines or even jail time.
Here are the main points about what companies and shareholders must do under section 90:
- Companies must keep a list of who really owns the company.
- Companies must send this information to the Registrar.
- Shareholders can ask to see this list.
It’s vital for companies and shareholders to know their legal obligations under section 90. This way, they can avoid fines and other penalties. We’ll keep looking at how section 90 affects companies and shareholders next.
| Category | Requirement | Penalty for Non-Compliance |
|---|---|---|
| Maintenance of Register | Companies must maintain a register of significant beneficial owners | Fine of up to Rs 50 lakhs |
| Filing of Return | Companies must file a return of significant beneficial owners with the Registrar | Fine of up to Rs 10 lakhs |
| Inspection of Register | Shareholders have the right to inspect the register of significant beneficial owners | Fine of up to Rs 1 lakh |
Penalties and Consequences of Non-Compliance
It’s important to know the penalties for not following section 90 of the Companies Act 2013. Not following the rules can cause big problems, like fines and legal trouble for companies.
The Companies Act 2013 says there can be fines from ₹10 lakhs to ₹1 crore. Directors and Officers in Default can face up to 3 years in jail or fines from ₹25,000 to ₹25 lakhs. This is if they did something wrong on purpose.
Monetary Penalties Under the Act
Here are some fines for not following the rules:
- Section 8 non-compliance fine: ₹10 lakhs minimum, extending to ₹1 crore
- Imprisonment for directors and every Officer in Default (OID): Up to 3 years or fine ranging from ₹25,000 to ₹25 lakhs, or both if fraudulent conduct is proved
- Default in filing subscription payment declaration: Penalty of ₹50,000 for the company, ₹1,000 per day for OID, capped at ₹100,000
Impact on Business Operations
Not following section 90 can really hurt a business. It can cause money losses, harm the company’s image, and lead to legal issues. Companies need to follow section 90’s rules to avoid these problems.
| Penalty | Amount |
|---|---|
| Section 8 non-compliance fine | ₹10 lakhs minimum, extending to ₹1 crore |
| Imprisonment for directors and every Officer in Default (OID) | Up to 3 years or fine ranging from ₹25,000 to ₹25 lakhs, or both if fraudulent conduct is proved |
Conclusion
Section 90 of the Companies Act 2013 is key to making companies in India more open and responsible. It requires companies to share who really owns them. This helps everyone know who is behind a company.
Following Section 90 is not just a rule; it’s smart for businesses. By sharing who owns them, companies can gain trust and avoid risks. Not doing this can lead to big fines and harm their business.
It’s important for companies and their owners to keep up with Section 90’s rules. They need to check their ownership, file on time, and talk to the government. This way, they can handle the rules well and help India’s business world be more open and strong.
FAQ
What is Section 90 of the Companies Act 2013?
Section 90 of the Companies Act 2013 deals with significant beneficial ownership in companies. It aims to make corporate dealings more transparent and accountable.
What is the definition and scope of significant beneficial ownership?
Significant beneficial ownership means the person(s) who really own or control a company. This includes both direct and indirect control. The goal is to identify and disclose these owners.
What are the key objectives behind the legislation of Section 90?
Section 90’s main goals are to increase transparency, stop money laundering, and fight against shell companies for illegal activities. It also ensures that a company’s true owners are known and accountable.
What are the recent amendments and updates to Section 90?
The Companies (Significant Beneficial Owners) Rules, 2018, and the Companies (Significant Beneficial Owners) Amendment Rules, 2019, have brought new forms and rules. These aim to better implement Section 90.
What are the declaration requirements for beneficial ownership?
Companies must identify their significant beneficial owners and report them accurately and on time. This includes keeping a register of these owners and meeting disclosure needs.
What is the filing process and documentation required for Section 90 compliance?
To comply, companies must file forms like BEN-1, BEN-2, BEN-3, and BEN-4 with the Registrar on time. It’s important to have accurate and verified documents.
What are the legal obligations of companies and shareholders under Section 90?
Companies must keep records of significant beneficial owners. Shareholders must give the necessary information and help with compliance efforts.
What are the penalties and consequences of non-compliance with Section 90?
Not following Section 90 can lead to fines for the company and its officers. It can also cause legal problems that affect business operations.