What is Beneficial Ownership? – MCA’s 2024 MGT-6 Update

In July 2024, the Ministry of Corporate Affairs (MCA) introduced a new update to the rules. They brought in the Companies (Management and Administration) Amendment Rules, 2024, which included a big change — the new Web-Form MGT-6.
Form MGT-6 is used by companies to report any declarations they receive from people who either own shares in their name or truly benefit from those shares (even if the shares are not in their name).
Earlier, this was done through an e-form, but now, a completely new web-based version of MGT-6 has been introduced.

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What is Beneficial Ownership?

Beneficial ownership means the person who truly owns or enjoys the benefits of shares in a company, even if the shares are officially registered in someone else’s name. Section 89 of the Companies Act, 2013, says that if the person who holds the shares and the person who benefits from them are different, then both individuals must inform the company about this arrangement. The company, in turn, must file this information with the Registrar of Companies (RoC) using Form MGT-6.

Key Differences Between Section 89 and Section 90

Section 89:
o Section 89 of the Companies Act, 2013 deals with reporting the true ownership of shares. It requires both the registered owner and the beneficial owner (who may or may not hold shares in their name) to inform the company.
o The beneficial owner could be a natural person or an artificial person, such as a company or trust.
Section 90:
o Section 90 focuses on identifying Significant Beneficial Owners (SBOs), who are individuals with significant control over the company, even if the ownership is held indirectly.
o SBOs under Section 90 are always natural persons, and the company must report their details in Form BEN-1 and Form BEN-2 to the Registrar of Companies (RoC).

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New Changes in the Web-Form MGT-6

The new Web-Form MGT-6 seems to suggest that only a natural person can be a beneficial owner under Section 89, which contradicts the previous understanding where both individuals and legal entities (like companies or trusts) could be considered beneficial owners.
The updated form now requests more personal details, such as:
o PAN (Permanent Account Number)
o Passport number
o Date of birth and nationality for individuals
o Date and place of incorporation for companies

Beneficial Ownership under Section 89 vs. Section 90

Section 89: Can include both natural persons (individuals) and artificial persons (companies or trusts) as beneficial owners, meaning a company could potentially be the beneficial owner.
Section 90: Specifically identifies natural persons who are the ultimate beneficiaries, thereby focusing on human control over a company.

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Changes in Reporting with the New MGT-6

The new Web-Form MGT-6 requires:
o Registered owners to provide details like the father’s/husband’s name or the name of an authorized person.
o Beneficial owners are to provide only limited details (PAN or Passport), and it excludes entities from being listed as beneficial owners.
This change could lead to confusion unless clarified by the government, especially since Section 89 initially allowed both natural and artificial persons to be beneficial owners.

Significant Changes in the New Form MGT-6

Registered Owner Details:
o The form requests details of the registered owner of shares, including either the “Father’s Name/Husband’s Name” or the “Name of the Authorized Person.”
o Identity details options include PAN, Passport, and other registration numbers.
o The form also asks for the “date and place of incorporation” for companies and “date of birth” and “nationality” for individuals.
Beneficial Owner Details:
o The form introduces a new field for the “Beneficial Owner ID” (BO ID).
o It limits identity details to PAN or Passport, excluding other registration numbers.
o Only the father’s/husband’s name is required, with no option for an “authorized person.”

Analysis and Key Takeaways

Practical Challenges: The new Web-Form MGT-6 brings significant changes that create practical challenges for filing forms under Sections 89 and 90 of the Companies Act, 2013.
o The main confusion lies in whether the beneficial owner can still be an artificial person (like a company or trust), which the new form seems to exclude.
Definitions and Parameters:
o Section 89 defines the “beneficial interest” as the right to exercise or cause the exercise of rights attached to a share or to receive dividends.
o The new form’s approach to beneficial ownership seems to focus only on natural persons, which contradicts the broad definition in Section 89.
Need for Clarification from MCA

The Ministry of Corporate Affairs (MCA) should issue clarifications to address these concerns. This will help resolve practical and legal issues, ensuring consistency in reporting and compliance with the updated requirements.

Conclusion

It is crucial for businesses to carefully monitor any further clarifications or amendments from the Ministry of Corporate Affairs (MCA) to ensure compliance with the updated reporting requirements. If you are unsure about how these changes affect your company’s reporting obligations, seeking professional advice can help mitigate risks and ensure smooth operations.

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FAQs

1. What is Beneficial Ownership under Section 89 of the Companies Act, 2013?

Beneficial ownership refers to the individual or entity that ultimately benefits from the ownership of shares, even if those shares are held in the name of another party. Under Section 89, the company must declare both the registered owner and the actual beneficial owner to the Registrar of Companies (RoC).

2. How Does the New Web-Form MGT-6 Change the Reporting Process?

The new Web-Form MGT-6, introduced under the Companies (Management and Administration) Amendment Rules, 2024, replaces the earlier e-form. This form is used by companies to report declarations received from beneficial owners. The key difference is that it appears to limit beneficial owners to natural persons, not legal entities like companies or trusts.

3. Does Section 89 Only Apply to Natural Persons as Beneficial Owners?

No, Section 89 of the Companies Act, 2013 previously allowed both natural persons and legal entities to be listed as beneficial owners. However, the new Web-Form MGT-6 seems to suggest that only natural persons can be considered as beneficial owners, which creates confusion about the applicability of the original law.

4. What is the Difference between Sections 89 and 90 of the Companies Act?

Section 89 deals with the declaration of the actual beneficial ownership of shares, which could include both natural persons and legal entities like companies or trusts.

Section 90 is focused on identifying Significant Beneficial Owners (SBOs), who are natural persons controlling or benefiting from a company, regardless of whether their ownership is directly or indirectly held.

5. What Are the Forms Involved in Reporting Beneficial Ownership?

Under Section 89, companies use Form MGT-6 to report declarations from beneficial owners. The registered owner and the beneficial owner also fill out Forms MGT-4 and MGT-5, respectively, for detailed reporting to the RoC.

6. What Information Is Required in the New Web-Form MGT-6?

The new Web-Form MGT-6 asks for detailed identity information, including:

PAN, Passport, or other identification numbers.

Date of Birth, Nationality, and details like Father’s/Husband’s Name for individuals.

Corporate Identification Number (CIN) for legal entities acting as the registered owner.

7. What Are the Key Concerns Regarding the New Web-Form MGT-6?

There’s confusion about whether the form’s requirement for beneficial ownership by natural persons contradicts the previous provisions of Section 89.

The form significantly expands the data required from beneficial owners, which might indicate a shift toward recognizing only natural persons as beneficial owners under Section 89.

8. What Will Be the Impact on Company Structures with the New Changes?

The shift to recognizing only natural persons as beneficial owners could affect company structures, particularly for foreign-owned subsidiaries or entities with complex ownership arrangements. If only natural persons are allowed to be beneficial owners, this could lead to complications in ownership reporting.

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