For foreign companies looking to establish a presence in India, understanding the Significant Beneficial Ownership (SBO) Rules and the company incorporation process in India is an important first step. Once the subsidiary is incorporated, the foreign parent must also consider India’s corporate disclosure and transparency requirements, including the rules relating to beneficial ownership and Significant Beneficial Owners (SBOs).
Under the Companies Act, 2013, the Indian regulatory framework looks beyond the name appearing on the Indian subsidiary’s register of members. Where the shares are held through a foreign parent or another corporate entity, the ultimate natural persons who hold or control the relevant interest may also need to be identified and disclosed.
This makes SBO compliance particularly relevant for foreign-owned Indian subsidiaries, especially where the ownership structure involves multiple entities, holding companies, trusts, investment vehicles or other intermediate entities.
What is Beneficial Ownership?
The Companies Act, 2013 distinguishes between the registered owner of shares and the person who ultimately enjoys the benefits or rights attached to those shares.
Section 89 addresses beneficial interest in shares. Beneficial interest can include, directly or indirectly, through a contract, arrangement or otherwise, the right or entitlement to exercise rights attached to shares or to receive or participate in dividends or other distributions.
For example, an Indian subsidiary may have a foreign company as its registered shareholder. Although the foreign company is the registered member, the ownership structure may ultimately lead to one or more individuals who exercise ownership or control over the foreign parent and, indirectly, over the Indian subsidiary.
This is where the Significant Beneficial Owner framework under Section 90 becomes relevant.
What is a Significant Beneficial Owner (SBO)?
Under Section 90 of the Companies Act, 2013, read with the Companies (Significant Beneficial Owners) Rules, 2018, an SBO is essentially an individual who has significant beneficial ownership or control in an Indian reporting company but whose name is not entered in the company’s register of members as the holder of those shares.
The prescribed threshold under the SBO Rules is generally 10% or more, rather than the 25% threshold appearing in the enabling language of Section 90. The Rules also cover certain forms of significant influence or control.
An individual may qualify as an SBO where the individual, acting alone or together with others, holds the prescribed rights or entitlements indirectly, or through a combination of direct and indirect holdings, subject to the conditions specified under the SBO Rules.
- Holds not less than 10% of the shares;
- Holds not less than 10% of the voting rights;
- Has the right to receive or participate in at least 10% of the distributable dividend or other distribution in a financial year; or
- Has the right to exercise, or actually exercises, significant influence or control through means other than direct shareholding.
Importantly, the SBO is an individual or natural person, not simply the foreign parent company appearing on the Indian subsidiary’s share register.
How Does This Apply to a Foreign Parent?
Consider a simple structure:
Individual A → Foreign Parent Co. → Indian Subsidiary
Suppose Foreign Parent Co. owns 100% of the Indian subsidiary.
Foreign Parent Co. is the registered shareholder of the Indian subsidiary. However, the Indian subsidiary may need to examine the ownership and control structure of Foreign Parent Co. to determine whether an individual qualifies as an SBO.
Where an Indian subsidiary is owned by a foreign corporate shareholder, the identification of an SBO requires examining the indirect ownership rules prescribed under the Companies (Significant Beneficial Owners) Rules, 2018, as amended. In the case of a corporate shareholder, an individual may be considered to hold an indirect interest where that individual holds a majority stake in the corporate shareholder or its ultimate holding company. The applicable SBO assessment must also consider the prescribed thresholds for ownership interests in the Indian reporting company and any rights relating to significant influence or control.
Therefore, foreign parent ownership should not automatically be treated as the end point of the analysis.
The Indian subsidiary should examine the ownership chain to determine the relevant SBOs. Individuals who meet the applicable conditions under the SBO Rules may be required to make the prescribed declaration.
If no natural person can be identified under the applicable ownership or control tests, the Rules provide for identification of the relevant senior managing official in specified circumstances.
Direct and Indirect Ownership Matter
One of the key features of the SBO framework is that the analysis is not restricted to direct shareholding in the Indian company.
The Rules recognise indirect holdings and ownership through corporate entities, trusts and other structures. For a corporate member, the rules specifically contemplate situations where the relevant individual has a majority stake in the member or its ultimate holding company, subject to the prescribed framework.
This is particularly important for multinational groups because the Indian subsidiary may sit several levels below the ultimate parent.
What Does the Indian Subsidiary Need to Do?
The SBO framework places obligations not only on the individual SBO but also on the Indian reporting company.
- Identify potential SBOs
The Indian subsidiary is required to take necessary steps to determine whether an individual qualifies as an SBO.
Where a member other than an individual holds 10% or more of the shares, voting rights, or rights to receive or participate in dividends or other distributions, the reporting company must issue a notice seeking the required information. This is done through Form BEN-4.
This is particularly relevant for an Indian subsidiary whose shares are held by a foreign parent.
- Obtain the SBO declaration
An individual who becomes an SBO or whose SBO particulars change is required to provide the prescribed declaration to the company in Form BEN-1.
Under the applicable rules, the declaration is generally required within 30 days of acquiring significant beneficial ownership or a change in such ownership.
- File Form BEN-2 with the Registrar
Once the Indian company receives the SBO declaration, it is required to file Form BEN-2 with the Registrar of Companies within 30 days of receiving the declaration.
Pursuant to the Companies (Significant Beneficial Owners) Amendment Rules, 2024, the Ministry of Corporate Affairs introduced a revised Form BEN-2 for reporting significant beneficial ownership. The updated form facilitates reporting of SBO particulars, changes in ownership, direct and indirect interests, and details of holding reporting companies.
- Maintain the company’s SBO register
The Indian company is also required to maintain a register of significant beneficial owners and the relevant declarations and changes.
Under Rule 5, the Indian reporting company must maintain its register of significant beneficial owners in Form BEN-3, recording the relevant details and changes in significant beneficial ownership
This forms part of the company’s broader corporate records and supports transparency regarding the individuals who ultimately hold or exercise significant interests in the company.
What Information May Need to Be Traced?
For a foreign-owned Indian subsidiary, the ownership review may require information relating to:
- Name and particulars of the foreign parent;
- Intermediate holding companies;
- Ultimate holding company;
- Shareholding percentages at each level;
- Voting rights;
- Rights to dividends or other distributions;
- Shareholders who exercise control or significant influence;
- Trusts or other ownership vehicles in the structure;
- Relevant natural persons;
- Senior managing official, where the applicable rules require identification on that basis; and
- Changes in ownership or control.
The precise analysis depends on the group’s legal and ownership structure.
What if the Foreign Parent is Widely Held?
Where an Indian subsidiary is owned by a widely held foreign company, identifying an individual who satisfies the prescribed SBO criteria may be more complex. In such cases, the Indian subsidiary should examine the ownership structure, voting rights, shareholder arrangements and any rights relating to significant influence or control.
If no individual meets the applicable SBO criteria after a proper assessment, the company should document the basis for that conclusion and comply with any applicable notice and reporting requirements. The absence of an identifiable individual does not, by itself, eliminate the company’s responsibility to assess SBO applicability.
Exemptions Under the SBO Rules
The SBO Rules contain specific non-applicability provisions.
These include certain holdings by:
- The Investor Education and Protection Fund Authority;
- A holding reporting company, subject to reporting requirements specified in the Rules;
- Central or State Governments and local authorities;
- Certain government-controlled entities;
- SEBI-regulated investment vehicles such as mutual funds, Alternative Investment Funds (AIFs), Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (InvIT); and
- Certain investment vehicles regulated by the Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (IRDAI) or Pension Fund Regulatory and Development Authority (PFRDA).
These exemptions are specific to the circumstances covered by Rule 8. Therefore, a foreign parent should not assume that being a regulated or listed entity in its home jurisdiction automatically removes the Indian subsidiary’s SBO obligations.
The ownership structure should be reviewed against the precise exemption available under Indian law.
Beneficial Ownership vs. SBO: Are They the Same?
The terms are related but should not be used interchangeably.
Beneficial ownership under Section 89 broadly addresses situations where the person recorded as the registered shareholder is different from the person who actually holds the beneficial interest in the shares.
Significant Beneficial Ownership under Section 90 focuses on identifying individuals who meet the prescribed threshold or control/significant influence criteria through direct or indirect interests.
For foreign-owned Indian companies, both provisions may need to be considered depending on the ownership arrangement.
Why SBO Compliance Matters for Foreign Companies Entering India
For multinational groups, SBO compliance is more than a routine MCA filing. It requires the Indian subsidiary to understand the complete ownership and control chain behind its registered shareholder.
This becomes particularly relevant during:
Incorporation of an Indian subsidiary
At the time of establishing an Indian subsidiary, the foreign parent and its ownership structure should be reviewed to determine the information required for beneficial ownership and SBO compliance.
Changes in the global ownership structure
A change in shareholders, acquisition, merger, restructuring or change in control at the foreign parent level can potentially affect the SBO position of the Indian subsidiary.
Corporate restructuring
Multilayer holding structures may make it necessary to reassess the ultimate natural persons behind the Indian company.
Regulatory and compliance reviews
The Indian subsidiary should be able to demonstrate how it determined its SBO position and maintain appropriate supporting documentation.
What Happens if SBO Compliance Is Not Met
Failure to comply with significant beneficial ownership requirements can result in regulatory consequences under the Companies Act, 2013. Where the information requested through Form BEN-4 is not provided or is unsatisfactory, the reporting company is required to seek appropriate directions from the National Company Law Tribunal, in accordance with the applicable provisions.
Depending on the circumstances, restrictions may be imposed on the relevant shares, including voting rights, dividend entitlements and share transfers. Therefore, foreign-owned Indian subsidiaries should ensure that their beneficial ownership assessments, declarations and filings are completed within the applicable timelines.
SBO compliance checklist in India for Foreign Parents
Foreign companies establishing or operating an Indian subsidiary should consider the following:
- Map the ownership structure
Prepare an ownership chart from the Indian subsidiary up to the ultimate natural persons or relevant senior managing official. - Identify indirect interests
Review shareholding, voting rights, dividend rights and control arrangements. - Review shareholder changes
Monitor changes at the foreign parent and intermediate holding-company levels. - Assess the SBO threshold
Check whether any individual meets the applicable 10% threshold or the control/significant influence criteria. - Obtain BEN-1 where applicable
Ensure the relevant individual submits the prescribed declaration within the applicable timeline. - Issue BEN-4 where required
Where the Indian company has a non-individual member meeting the specified threshold, the company should follow the notice requirements under the Rules. - File BEN-2
The Indian company must file the applicable return with the Registrar after receiving the SBO declaration. - Maintain supporting records
Keep ownership charts, corporate documents, declarations and other relevant evidence supporting the SBO assessment. - Reassess after restructuring
A change in the global group structure should trigger a review of the Indian subsidiary’s SBO position.
Conclusion
For a foreign-owned Indian subsidiary, the legal ownership shown on the share register may not tell the complete story. India’s SBO framework requires companies to look through corporate ownership structures in appropriate circumstances and identify the individuals who ultimately hold significant beneficial interests or exercise relevant control or influence.
For foreign parents, this makes ownership mapping, documentation and ongoing monitoring important parts of Indian corporate compliance.
A well-maintained ownership structure chart and timely BEN-1, BEN-4 and BEN-2 compliance can help an Indian subsidiary meet its disclosure obligations and respond effectively to changes in its global ownership structure.
Foreign companies entering India should therefore assess SBO requirements alongside incorporation, FDI, FEMA, tax and other corporate compliance requirements rather than treating beneficial ownership disclosure as a standalone filing.
Frequently Asked Questions (FAQs)
1. What is a Significant Beneficial Owner (SBO) under the Companies Act, 2013?
A Significant Beneficial Owner (SBO) is an individual who holds significant beneficial ownership or exercises prescribed rights, control or significant influence over an Indian reporting company, directly or indirectly, but whose name is not entered in the company’s register of members as the holder of the relevant shares. Under the Companies (Significant Beneficial Owners) Rules, 2018, the applicable threshold is generally 10% for specified ownership interests and rights, subject to the prescribed conditions.
2. Do foreign-owned Indian subsidiaries need to comply with SBO Rules?
Yes. Foreign-owned Indian subsidiaries must assess their applicability under Section 90 of the Companies Act, 2013, and the SBO Rules. They may need to examine the ownership and control structure of their foreign parent and intermediate holding companies to identify individuals who meet the prescribed SBO criteria.
3. How is an SBO identified in a foreign-owned Indian subsidiary?
An SBO is identified by examining the ownership chain, including direct and indirect shareholdings, voting rights, dividend entitlements, and arrangements involving significant influence or control. Where the Indian subsidiary is held by a foreign corporate shareholder, the indirect ownership rules under the SBO Rules must be applied to determine whether any individual qualifies as an SBO.
4. What are Forms BEN-1, BEN-2, BEN-3 and BEN-4 used for?
The four forms serve different purposes under the SBO compliance framework:
- BEN-1: Declaration submitted by an individual who qualifies as an SBO.
- BEN-2: Return filed by the Indian reporting company with the Registrar of Companies (ROC) to report SBO information.
- BEN-3: Register of Significant Beneficial Owners maintained by the Indian company.
- BEN-4: Notice issued by the Indian company to seek information about significant beneficial ownership.
5. What are the timelines for filing SBO declarations and returns in India?
An individual who becomes an SBO or whose SBO particulars change is generally required to submit Form BEN-1 within 30 days of the relevant event. The Indian reporting company must generally file Form BEN-2 within 30 days of receiving the declaration. Companies should verify the applicable statutory requirements and current MCA filing procedures for the specific circumstances.
6. Are foreign listed companies or regulated investment entities exempt from SBO compliance in India?
Not automatically. The SBO Rules provide specific non-applicability provisions for certain entities and investment vehicles under Rule 8. A foreign company’s listing or regulatory status in its home jurisdiction does not, by itself, establish an exemption. The Indian subsidiary should assess whether the particular ownership structure falls within an exemption expressly recognised under Indian law.
7. What are the consequences of non-compliance with SBO Rules in India?
Failure to comply with SBO disclosure requirements may result in penalties under the Companies Act, 2013. If an individual fails to provide the required information or provides unsatisfactory information in response to a BEN-4 notice, the Indian company may need to approach the National Company Law Tribunal (NCLT) for appropriate orders. Depending on the circumstances, restrictions may be imposed on the relevant shares, including voting rights, dividend rights and share transfers. Timely declarations, filings and maintenance of supporting records help mitigate compliance risks.
