Substance and Significance of Beneficial Ownership Provisions

This article focuses on the substantive provisions relating to the declaration of beneficial ownership in a company.

Sections 89 and 90 of the Companies Act, 2013 (Act) deal with ascertaining the beneficial owner of the shares held in a company and disclosures in relation thereto. Both sections are applicable to all companies.

Beneficial Ownership Provisions

Section 89 deals with the declaration with respect to a beneficial interest in any share. Section 89 of the Act requires a person to make disclosure where his name is entered in the register of company members as the holder of shares but who does not hold a beneficial interest in such shares. Such a person is required to give disclosure in the prescribed format to the company, specifying the name and other particulars of the person who holds the beneficial interest in such shares.

The said section also requires a person who is the beneficial owner but not the legal owner to make a declaration to the company. The declaration in the prescribed form should specify the nature of interest held by the beneficial owner, the particulars of a person who is a legal owner, etc.

It is to be noted that both the legal owner and beneficial owner must declare to the company in a prescribed format.

Sub-section (10) of Section 89 of the Act defines beneficial owner in an inclusive manner that beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to:

• exercise or cause to be exercised any or all the rights attached to such share; or
• receive or participate in any dividend or other distribution with respect to such share.

Thus, the above definition envisages two persons, one who is a legal owner of the share and another who has the right or entitlement to deal with such share through any contract, arrangement or otherwise.