Ownership of shares is not always straightforward—many times, the person whose name appears in the company’s records as a shareholder (registered owner) is different from the person who actually enjoys the benefits of those shares (beneficial owner). To ensure transparency and prevent hidden ownership, the Companies Act, 2013, mandates disclosure of such relationships through MGT-6.
If you’re a company secretary, a compliance officer, or a stakeholder, understanding the implications of beneficial ownership and MGT-6 compliance is crucial. Let’s dive into it.
Who is a Beneficial Owner?
A Beneficial Owner is a person who ultimately enjoys the rights, benefits, or control over shares but is not the one whose name is recorded in the company’s register of members.
For example, if Mr. X holds shares in a company in his name but the actual investor is Mr. Y, then Mr. Y is the beneficial owner, while Mr. X is the registered owner.
Who is a Registered Owner?
A Registered Owner is the person whose name is officially recorded in the company’s register of members as the shareholder. They hold the legal title to the shares but may not necessarily be the actual owner in terms of benefits.
Why Does Beneficial Ownership Matter?
Understanding and declaring beneficial ownership is essential because:
- Prevents Hidden Ownership: Helps avoid undisclosed shareholding and control.
- Ensures Transparency: Regulatory authorities can track actual shareholders.
- Regulatory Compliance: Non-disclosure can lead to penalties under the Companies Act, 2013
- Prevents Money Laundering & Fraud: Stops illegal activities linked to anonymous shareholding.
MGT-6: Declaration of Beneficial Ownership
As per Section 89 of the Companies Act, 2013, if a person holds shares for the benefit of someone else, both the registered owner and the beneficial owner must file declarations to the company and the Registrar of Companies (ROC).
Key Compliance Requirements:
- MGT-4: The beneficial owner must declare their interest in the shares to the company within 30 days of acquiring such ownership.
- MGT-5: The registered owner must file a declaration stating that they hold the shares on behalf of another person.
- MGT-6: The company must file MGT-6 with the ROC within 30 days of receiving MGT-4 and MGT-5, disclosing details of the beneficial ownership.
Who Needs to File MGT-6?
- Every company (except government companies) must file MGT-6 when they receive MGT-4 and MGT-5 from shareholders.
- Applies to both private and public companies.
Common Mistakes to Avoid in MGT-6 Filings
- Non-Filing or Delayed Filing: Missing the 30-day deadline can attract penalties.
- Incorrect Details: Ensure that the PAN, shareholding details, and ownership structure are accurately recorded.
- Ignoring Nominee Shareholding: If shares are held by nominees, the actual owners must still comply with the declaration process.
- Failure to Maintain Records: Companies should keep proper documentation of MGT-4, MGT-5, and MGT-6 for compliance audits.
Consequences of Non-Compliance
Failure to comply with Section 89 and MGT-6 filing can lead to:
- Monetary penalties on both the company and its officers.
- Legal consequences if authorities suspect fraudulent activities.
- Difficulty in corporate transactions like fundraising, audits, or regulatory clearances.
Conclusion
Beneficial ownership and registered ownership are critical concepts under corporate governance. Filing MGT-6 ensures transparency, legal compliance, and protection against fraudulent activities.
Every company should maintain strict records of ownership structures and ensure timely disclosures. Is your company compliant with MGT-6 requirements? If not, now is the time to act!
