Identifying Significant Beneficial Owners Through Layered Ownership: Worked Examples

Identifying a significant beneficial owner is easy when a company's shares are held by a single holding company with one owner. It gets harder when the shares pass through several layers, a mix of companies, LLPs, trusts and funds, sometimes across countries. The Companies (Significant Beneficial Owners) Rules, 2018 set a specific test for each kind of entity. This guide explains them, with worked examples.

The Starting Point

An individual is a significant beneficial owner (SBO) of a company if, acting alone or with others, they hold indirectly, or together with any direct holdings, at least 10% of the company's shares, voting rights or right to receive dividends, or they have the right to exercise, or actually exercise, significant influence or control over it.

The key is indirect holdings. An individual who holds shares only directly, in their own name, is already visible on the register of members and generally isn't treated as an SBO for this purpose. The rules are aimed at ownership through other entities.

The Tests by Type of Member

Where the member is a company

An individual holds indirectly through a company member if they hold a majority stake in that company, or in its ultimate holding company. A majority stake means more than half the equity, voting rights or dividend rights, or the right to appoint or remove a majority of its board.

Where the member is an HUF

The karta of the Hindu undivided family is treated as the individual holding through it.

Where the member is a partnership firm or LLP

An individual holds indirectly if they're a partner, or hold a majority stake in a body corporate that's a partner, or in the ultimate holding company of such a body corporate.

Where the member is a trust

• For a discretionary or charitable trust: the trustee.
• For a specific trust: the beneficiary.
• For a revocable trust: the author or settlor.

Where the member is a pooled investment vehicle

An individual holds indirectly if they're the general partner, the investment manager, or the chief executive of the investment manager, or hold a majority stake in a body corporate that is. Holdings through SEBI-regulated vehicles like mutual funds, alternative investment funds, REITs and InvITs are excluded from the rules.

Worked Examples

Example 1: A simple holding company

Company X in India is 30% owned by Company H. Company H is 70% owned by one individual and 30% by another. The first individual holds a majority stake in H, which holds at least 10% of X, so they're an SBO of X. The second individual doesn't hold a majority stake in H, so isn't an SBO through this route.

Example 2: Two layers

Company X is 25% owned by Company A. Company A is wholly owned by Company B. Company B is 60% owned by one individual. That individual holds a majority stake in B, which is A's ultimate holding company, so they're an SBO of X.

Example 3: An LLP shareholder

Company X is 15% owned by an LLP with three individual partners. Each partner holds indirectly through the LLP, which holds at least 10% of X, so each can be an SBO of X.

Example 4: Direct and indirect combined

A founder holds 6% of Company X directly and controls a holding company that owns another 8%. Together, their direct and indirect holdings come to 14%, which crosses 10%, so the founder is an SBO.

Example 5: No SBO

Company X is wholly owned by a foreign company whose shares are listed and widely held, with no individual holding a majority or controlling stake. Tracing the chain finds no individual who meets the tests, so there may be no SBO. The company should document the analysis and keep the replies it received.

Significant Influence or Control

Even without a 10% holding, an individual is an SBO if they have the right to exercise, or actually exercise, significant influence or control over the company, other than through a direct holding. Control includes the right to appoint a majority of directors or to control management or policy decisions, for example through a shareholders' agreement. Significant influence means the power to participate in, but not control, the company's financial and operating decisions.

How to Get the Information

The company can't always see beyond its own shareholders. The rules require it to send a notice in Form BEN-4 to any member, other than an individual, that holds at least 10% of its shares, voting rights or dividend rights, asking for details of any individual who may be an SBO through it.

Getting Help

Think Filing maps complex and cross-border ownership structures, applies the tests for each type of entity, and documents the conclusion, whether it identifies an SBO or confirms there isn't one.