India Introduces Stricter Beneficial Ownership Disclosure Rules
What are Beneficial Ownership Rules?
The Ministry of Corporate Affairs has introduced new rules aimed at increasing transparency in India’s corporate sector. The Companies (Management and Administration) Second Amendment Rules, 2023, require companies to disclose beneficial ownership details.
What is Beneficial Ownership?
- Definition: Beneficial ownership refers to the right or entitlement of an individual or entity to exercise control over a company’s shares, regardless of who holds them in name.
- Rights and Entitlements: This can include the right to vote, receive dividends, or participate in decision-making processes.
New Compliance Requirements
As per the amended rules:
- Every company must designate a person responsible for providing information about beneficial owners to regulatory authorities.
- The designated person can be a company secretary, key managerial personnel (KMP), or a director.
- The designated person will be required to inform the Registrar of Companies about any changes in this designation.
Impact on Private Companies
Private companies with a paid-up share capital of INR100 million or more are already required to have a whole-time company secretary. However, smaller private companies may need to appoint a KMP or a director as their designated person for compliance purposes.
Increased Transparency Expected
The new rules aim to:
- Prevent benami transactions
- Ensure that regulatory authorities can identify the actual owners of a company
- Make Indian corporate structures more transparent and help in enforcing tax laws and other regulations
Commentary
Experts believe that these amendments will bring greater accountability in case of defaults and increase compliance with beneficial ownership disclosure requirements. They also expect the new rules to make it easier for regulatory authorities to identify the actual owners of companies, which will ultimately contribute to a more transparent corporate sector in India.