(02^nd December 2023)

SHORT SUMMARY:

The author will cover “Everything about Beneficial Interest in Shares of Company " in this column.

The provisions of Beneficial Interest provided in Section 89 of Companies Act, 2013 read with rule 9 of the Companies (Management and Administration) Rules, 2014.

In accordance with the said rules, Companies have to file certain returns for the Beneficial Interest with ROC.

Provisions of Companies Act 2013:

·      Section 89- Declaration in respect of beneficial interest in any share.

·      Rule 9- Declaration in respect of beneficial interest in any shares.

In this rule, two types of interests are identified. One is legal interest vested with the registered owner of the shares, who is also referred to as the ‘registered or ostensible owner’. Another is a beneficial interest vested with the beneficial owner.

A. Basic Terms to understand the Concept:

I.   Registered Owner: means a person whose name is entered in the register of member as the holder of share in that Company but who does not hold beneficial interest in such shares;

In general words,

ü  this person are not an actual owner of shares.

ü  Only his name is entered into register of member.

However, this person having:

ü  voting rights in the Company,

ü  Vote on poll,

ü  name shall be entered in registered of member,

ü  entitle to sign proxy form,

ü  shall be count for the quorum etc.

Short Example:

Mr. A holds shares of XYZ Private Limited. However, Name of Mr. B entered into registered of members as registered member. In this case Mr. B is registered owner of Shares of XYZ Pvt Ltd. But the actual Owner is Mr. A.

II.   Beneficial Owner: Every person who holds or acquires a beneficial interest in contribution of a Limited Liability Partnership, but his name is not registered in the register of partners.

In general words,

ü  Beneficial partner is actual owner of the contribution.

ü  Only his name is not entered in the register of partner.

ü  He is entitled to all beneficial interest on such contribution.

Short Example:

Mr. A holds shares of XYZ Private Limited. However, Name of Mr. B entered into registered of members as registered member. In this case Mr. A is beneficial owner of Shares of XYZ Pvt Ltd. But the Mr. B name mentioned in Registered of Members.

III.   Beneficial Interest: A beneficial interest is the right to receive benefits on contribution held by another party. Beneficial interest is often referred to in matters concerning trusts, whereby one has a vested interest in the trust’s assets. A beneficial interest is “that right which a person has in a contract made with another (third party)”.

Example: Mr. D desires to hold complete ownership of GDA Pvt Ltd, but due to the mandatory minimum number of members, he cannot do so alone. Thus, he may present Mr. P as a representative to fulfill the minimum requirement of at least two member. Mr. P’s name would be listed on the register of member, although he would indirectly serve as the Companies owner (beneficial owner) and controller.

In this scenario, Mr. P serves as the registered owner, while Mr. D serves as the beneficial owner, with GDA Pvt Ltd serving as the Company.

Provisions under Act: Section 89 requires making of declaration in cases where the registered owner and the beneficial owner of shares in a Company are two different persons.

B.  Mandatory Compliances:

I.   Declaration by Registered Owner: As per Rule 9(1), Where the name of a person is entered in the register of member of a Company as the holder of shares in that Company but who does not hold the beneficial interest fully or partly in such shares, such person is required to make, a declaration in Form MGT-4 within 30 days from the date of entry in the register to the member. Such declaration shall specify the name and other particulars of the person who actually holds any beneficial interest in such shares.

II.   Declaration by Beneficial Owner: As per Rule 9(2), Every person who holds or acquires a beneficial interest in shares of a Company but his name is not registered in the register of member shall file with Company, a declaration disclosing such interest in Form MGT-5 within a period of thirty days after acquiring such beneficial interest in the shares of the Company specifying the nature of his interest, particulars of the member in whose name the contribution stand registered in the books of the Company.

III.   Return to be filed by Company: As per Rule 9(3), Where any declaration under this rule is made to a Company, the Company must make a note of such declaration in the register of member and shall file, within 30 days from the date of receipt of declaration by it, a return in form MGT-6 with the Registrar in respect of such declaration with such fees.

C.  Declaration of changes in beneficial ownership

As per the proviso of rule 9(1 & 2), Where any change occurs in the beneficial interest in such shares, the registered owner and the beneficial owner shall, within a period of 30 days from the date of such change, make a declaration to the company in Form MGT-4 and MGT-5.

The company shall make a note of such declaration in the register concerned and shall file, within 30 days from the date of receipt of declaration by it, a return in the Form MGT-6 with the Registrar with requisite fees. This provision covers both the, change in holder of beneficial interest and the change in registered owner in register of members.

D.  Designation of a Person as Beneficial Owner Officer: Every Company shall designate a person under these rules “who shall be responsible for furnishing, and extending co-operation for providing, information to the Registrar or any other authorized officer with respect to beneficial interest in shares of the company.”

Who can be Designated for such Post:

    i.        Company Secretary, if there is any requirement to appoint CS as per provisions of the Act; or

   ii.        A Key managerial Person, If there is no CS; or

 iii.        Every Director, if there is no CS and KMP

How to Designate?

Company can pass a resolution in Board Meeting for designation of such person/ persons under these rules.

How to inform the same to ROC?:

As per sub-Rule 7, Every company shall inform the details of the designated person in Annual return i.e. MGT 7 required to be filed after implementation of these rules.

What is the process to change Designated Person?:

As per sub-Rule 8, If the company changes the designated person at any time, it shall intimate the same to the Registrar in e-form GNL-2 specified under the Companies (Registration Offices and Fees) Rules, 2014.

Exemption to certain trust: Nothing contained in this rule shall apply in relation to a trust which is created, to set up a Mutual Fund or Venture Capital Fund or such other fund as may be approved by SEBI. It implies that these entities need not file the declarations as envisaged under the section.

QUICK BITES:

Que 1: Who will be considered as designated person until company doesn’t designate any person under these rules? (DG)

Ans 1: Until a person is designated as referred under sub-rule (4), the following persons shall be deemed to have been designated person.

     i.        company secretary, if there is a requirement of appointment of such company secretary under the Act and the rules made thereunder; or

   ii.        every Managing Director or Manager, in case a company secretary has not been appointed; or

  iii.        every director, if there is no company secretary or a Managing Director or Manager.

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). 

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. 

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