Corporate Affairs Ministry Overhauls Beneficial Ownership Disclosure Norms
In a bid to enhance corporate transparency and regulatory compliance, the Corporate Affairs Ministry has introduced two new forms for disclosing beneficial ownership details of companies in India. The move aims to improve disclosures related to Significant Beneficial Ownership (SBO) and Beneficial Ownership, making it easier for regulators to scrutinize these details.
New Forms to Simplify Reporting
The two new forms, BEN-2 and MGT-6, will be used by companies to update or change SBO details as well as the particulars of holding reporting companies. These latest forms are designed to simplify the reporting of changes in SBO details, a mechanism that was lacking earlier.
Key Features of the New Forms
- BEN-2: This form will be used for updating or changing SBO details.
- MGT-6: This form will be used for particulars of holding reporting companies and individual persons (in case of filling up details of beneficial owner).
Background and Rationale
The new forms come in response to the Registrar of Companies (RoC) cracking down on large corporations and private equity firms for non-compliance with SBO declarations. Several unlisted companies with foreign shareholding have been penalized by the RoCs for not identifying significant beneficial owners or failing to report SBO.
Examples of Non-Compliance
- Microsoft-owned LinkedIn
- Leixir Resources
- Two Samsung units
Importance of Identifying Beneficial Ownership
Identifying beneficial ownership has become crucial for international tax transparency and the fight against tax evasion and other financial crimes. The rules state that whoever controls the end-entity – like its chief executive – should be considered as the SBO.
Expert Analysis
Experts believe that the introduction of these amendments will bolster governance and transparency by facilitating accurate reporting and updating of details related to beneficial owners. However, some experts have raised concerns about the new form MGT-6 mandatorily asking for details of individual persons in case of filling up details of beneficial owner, which may create confusion between beneficial owners and significant beneficial owners.
Conclusion
The Corporate Affairs Ministry’s move to introduce new forms for disclosing beneficial ownership details is a step towards enhancing corporate transparency and regulatory compliance. While some experts welcome the move, others have raised concerns about the potential complexity of the new forms. Ultimately, the success of this initiative will depend on its implementation and the clarity it brings to corporate ownership structures in India.