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Disclosure of Significant Beneficial Ownership in Listed Entities

Finsec Law Advisors

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Vide circular dated December 07, 2018, in the interest of transparency to the investors in the securities market, SEBI has now mandated the disclosure of significant beneficial owners by listed entities (“Circular”).

In June 2018, the Ministry of Corporate Affairs had notified the Companies (Significant Beneficial Owners) Rules, 2018 (“SBO Rules”) which specified disclosure requirements regarding Significant Beneficial Owners (“SBO”). While defining SBO, the SBO Rules refer to Section 89 and 90 of the Companies Act, 2013 and state that, SBO of a company is an individual, who either alone or with other persons, holds beneficial interest of not less than 10% of the shares of the company or who exercises significant influence or control over the company, but whose name is not entered in the register of members of the company as a holder of shares. Beneficial interest in a share includes, directly or indirectly, exercising rights attached to the share or receive any dividend in respect of such share.

In consonance with the disclosure requirements specified in the SBO Rules, the Circular now mandates all listed entities to disclose details pertaining to SBOs in the format specified in the Circular.

The SBO Rules were brought into force to bring in transparency and accountability, and effectively disallow the use of a web of entities to mask the ultimate beneficial ownership of a company. As the corporate veil is essentially pierced, these disclosures will assist authorities in financial investigations. While this may be beneficial from the perspective of transparency, imposing this requirement on the listed companies will invariably add to their compliance burden.