Declaration of Beneficial Interest under Companies Act, 2013

By | January 30, 2015

Overview:
Section 89 of the Companies Act, 2013 and Chapter VII of The Companies (Management and Administration) Rules, 2014 covers the concept of declaration of beneficial interest in any shares (Including Preference Shares).
Purpose for having Beneficial Interest
The concept of declaration of Beneficial Interest in any shares can be used for any of the following purposes by the companies:
To satisfy the requirement of minimum number of members (i.e.) 2 (Two) in case of a private limited company and 7 (Seven) in case of an unlisted public limited company.
To incorporate or to have a wholly owned subsidiary.
Procedure involved in Declaration of Beneficial Interest:
Step -1:
The person or a company (as the case may be), who holds the beneficial interest in any share shall submit the declaration as prescribed by The Companies (Management and Administration) Rules, 2014 in Form MGT 4 along with the covering or request letter to the company in which they hold the beneficial interest within one month from the date of acquisition or change in beneficial interest.
Step-2:
The person or the company (as the case may be), whose name to be entered into the register of members of the company shall submit the declaration as prescribed by The Companies (Management and Administration) Rules, 2014 in Form MGT 5 within one month from the date of acquisition or change in beneficial interest.
Step-3:
On receipt of declaration in Form MGT 4 & 5 by the company, the same shall be placed before the board for approval. The company are also required to intimate the Registrar of companies in e-form MGT 6 (Available in MCA Portal) within one month from the date of receipt of declaration in Form MGT 4 & 5.

Documentation Involved:
Person or company holding Beneficial Interest in Any Shares:
Covering or request Letter intimating the change in acquisition or change in beneficial interest.
Form MGT 5.
Proof of Identity of Beneficial Owner/Registered Owner
Instrument  under which beneficial interest is created/transferred/changed.
Person or Company Name to be registered with the Register of Members:
Form MGT 4
Proof of identity of Beneficial Owner/Registered Owner

Company:
Board Resolution for approval of Form MGT 4 & 5.
Filing of e-form MGT 6 with the ROC.
Updation of Members registers.
(Note to be written in Remarks column as acquisition of beneficial interest or transfer of beneficial interest as the case may be)
Penal Provisions in case of non-compliance of section 89:
In case of person:
An person fails to make a declaration under section 89(1)(,(2) & (3) without any reasonable cause, he shall be punishable with fine which may extend to fifty thousand rupees and where the failure is continuing one, with a further fine of one thousand rupees every day.

In case of Company:
If a company fails to file the return within the stipulated time period, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than five hundred rupees and may extend to one thousand rupees and where the failure is a continuing one, with a further fine of one thousand rupees every day.
Frequently Asked Question:
Whether Section 89 and Rules are applicable for Declaration of interest in case of a preference share?
Yes, the Section and Rules are applicable to any kind of shares and the above said procedure shall be followed.

Whether the procedures specified in this Section and Rules are to be followed in case of companies having dematerialised shares?
Yes, the procedures are same, however the companies are required to intimate about the request received either acquisition or transfer of beneficial interest, as the case may to be to the Depository Participant for the purpose of Updation of register of members.
Similarly the company shall attach the covering letter to the e-form MGT – 6 to be filed with the ROC by specifying that the shares of the company are held in demat and the company cannot fill the distinctive number, which is the mandatory column in the e-form MGT – 6.
Whether the registered members are entitled to participate and vote in general meeting?
Yes, even they have right to appoint proxy.
Can the employees or friends or relatives of the beneficial owner shall hold share as registered members on behalf of the beneficial owner?
Yes.

Unanswered Question under Companies Act, 2013:
Whether Section 185 of the CA, 2013 is applicable in case of lending company director who holds more than 25% of equity shares in the public limited (who got loan from lending company) as a registered shareholder on behalf of a beneficial owner?

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