A startup's cap table shows a company — call it HoldCo — owning 40% of its shares. The founders treat that as a tidy corporate shareholder and think no further. But HoldCo is itself 60% owned by one individual, so trace it through and that person indirectly controls about 24% of the startup. She is a Significant Beneficial Owner, she has to declare it, and the startup has to report her. Naming HoldCo on the form instead of the human is the error regulators are fining companies for.
A natural person holding 10% or more of a company's shares, voting rights or distributable dividend — directly plus indirectly — or exercising control, is a Significant Beneficial Owner who must be declared in BEN-1 and reported by the company in BEN-2 within 30 days.
The bottom line
Who is an SBO: a natural person who, directly plus indirectly, holds 10% or more of shares, voting rights or distributable dividend, or exercises significant influence or control. Only individuals qualify.
The filings: the individual files BEN-1 with the company, and the company files BEN-2 with the Registrar within 30 days of receiving it.
Miss it: up to ₹10 lakh on the SBO, up to ₹5 lakh on the company, and the company can ask the NCLT to freeze the shares — no dividend, no vote, no transfer.
What the rule is for
An SBO is the ultimate natural person who owns or controls a company from behind other entities — companies, trusts, LLPs, partnerships. Where shares are held through layers, the register of members shows the layer rather than the human. Section 90 and the Companies (Significant Beneficial Owners) Rules, 2018 force the human into the light.
The framework comes from FATF anti-money-laundering standards: every jurisdiction must know who truly controls its companies, so that corporate structures cannot be used for laundering, round-tripping and benami holdings.
The 10% test
Under Rule 2(1)(h), an individual is an SBO if, acting alone or together or through others or trusts, they have any one of the following in the reporting company:
- 10% or more of the shares, indirectly or together with direct holdings;
- 10% or more of the voting rights, indirectly or with direct holdings;
- the right to 10% or more of the distributable dividend through indirect holdings, alone or with direct ones; or
- significant influence or control, exercised in any way other than through a direct holding alone.
Two points carry most of the weight. Only natural persons can be SBOs, so you trace through every corporate and trust layer until you reach a human being. And the threshold was cut from 25% to 10% in 2019, which pulled a great many ordinary holding structures into scope that had been outside it.
Indirect holding is the operative idea here. A purely direct holding is dealt with under Section 89, through beneficial interest declarations, rather than in this regime.
Who files what
Section 90(4), with Rules 3, 4 and 5, splits the duty between the individual and the company. Getting that split backwards is a classic error.
| Form | Filed by | To whom | When |
|---|---|---|---|
| BEN-1 | The individual SBO | The company | Within 30 days of becoming an SBO (or any change) |
| BEN-2 | The company | The ROC | Within 30 days of receiving BEN-1 |
| BEN-3 | The company | (internal register) | Maintained on an ongoing basis |
| BEN-4 | The company | A suspected SBO | When the company believes someone is an undisclosed SBO |
The company never files BEN-2 out of nowhere under Section 90(4) — the trigger is receiving a BEN-1. And BEN-2 is event-based rather than annual: there is no yearly filing, only one each time ownership is declared or changes. The 2024 amendment, from 15 July 2024, replaced the form with a V3 version that also handles changes, cessation and replacement of SBOs, with an Excel upload option for complex structures.
When a suspected owner will not declare
A company cannot simply wait for BEN-1 to arrive. Where it knows, or has reasonable cause to believe, that a person is an SBO — or knows who would know — Section 90(5) requires it to issue a BEN-4 notice asking them to confirm.
If the response is unsatisfactory or absent, the company applies to the NCLT within 15 days under Section 90(7) for an order restricting the shares, which can freeze dividends, voting and transfer until the disclosure is made.
That is the enforcement mechanism, and it is a real one: non-disclosure can lock a shareholder out of their own shares.
Who is exempt
Rule 8 disapplies the obligation where the shares in the reporting company are held by:
- the company's holding reporting company, though the holding company's own details must still be filed;
- the Central or State Government, or a government-controlled entity;
- SEBI-regulated investment vehicles — mutual funds, AIFs, REITs and InvITs; and
- investment vehicles regulated by the RBI, IRDAI or PFRDA.
Since the LLP (Significant Beneficial Owners) Rules, 2023, the same logic extends to LLPs, with a parallel set of LLP BEN forms.
What non-compliance costs
On the individual who fails to file BEN-1, Section 90(10) provides up to ₹1,00,000 plus ₹500 for each day of continuing default, to a maximum of ₹10,00,000 — and the company can have the shares frozen by the NCLT.
On the company that fails to file BEN-2, Section 90(11) provides ₹1,00,000 plus ₹500 a day up to ₹5,00,000, with every officer in default liable to ₹25,000 plus ₹200 a day, up to ₹5,00,000.
These are not theoretical. In one adjudicated matter a company that filed BEN-2 about 163 days late drew a penalty of roughly ₹1.8 lakh on the company and around ₹57,000 on each of two directors. The clock that mattered ran from receipt of the BEN-1, not from when the ownership arose.
A worked example
An operating company, OpCo, has a shareholder, HoldCo, holding 40%. HoldCo is 60% owned by Ms R. Her indirect holding in OpCo is 60% of 40%, which is 24% — comfortably above the 10% line.
Ms R is an SBO of OpCo. She files BEN-1 with OpCo within 30 days, and OpCo files BEN-2 with the Registrar within 30 days of receiving it, naming Ms R as the SBO and disclosing HoldCo as the intermediate holder.
If OpCo instead lists HoldCo as the beneficial owner, the return is wrong. Only the natural person belongs in that field.
Common mistakes
- Naming the company rather than the person. Only individuals are SBOs.
- Starting the 30-day clock from the wrong date. BEN-2 runs from receipt of BEN-1, not from when the ownership was acquired.
- Waiting passively for a BEN-1. If you suspect an undisclosed SBO, you must issue BEN-4. Silence is not compliance.
- Forgetting changes and cessations, each of which needs a fresh declaration and filing.
- Applying the old 25% threshold. It has been 10% since 2019.
A working routine
- Map the full ownership chain, every corporate, trust and LLP layer above the register of members.
- For each layer, compute each individual's indirect plus direct holding in the reporting company.
- Flag anyone at 10% or more of shares, voting or dividend, or with significant influence or control.
- Collect BEN-1 from each SBO, and issue BEN-4 to any suspected undisclosed owner.
- File BEN-2 within 30 days of receiving each BEN-1.
- Maintain the BEN-3 register and update it on every change or cessation.
Frequently asked questions
Can a company be a Significant Beneficial Owner? No. Only a natural person. A corporate shareholder is an intermediate holder, and you trace through it to the individual.
Is BEN-2 an annual filing? No. It is event-based, filed within 30 days of receiving a BEN-1, and again on any change or cessation.
What is the threshold? Ten per cent of shares, voting rights or distributable dividend, indirect plus direct, or significant influence or control. It was reduced from 25% in 2019.
What is the difference between Section 89 and Section 90? Section 89 covers declarations where the registered holder and the beneficial owner differ. Section 90 covers the ultimate individual owner reached through layered holdings.
What happens if an SBO refuses to declare? The company issues BEN-4 and, failing a satisfactory response, applies to the NCLT to restrict the shares, freezing dividend, voting and transfer rights.
Does this apply to LLPs? Yes, since the LLP (Significant Beneficial Owners) Rules, 2023, with a parallel set of forms.
Primary sources
- Section 90, Companies Act, 2013, including 90(4), 90(5), 90(7), 90(10) and 90(11)
- Companies (Significant Beneficial Owners) Rules, 2018, and the Amendment Rules, 2024 dated 15 July 2024
- Section 89 on beneficial interest declarations
- LLP (Significant Beneficial Owners) Rules, 2023