Significant Beneficial Ownership Under Section 90 Companies Act: 10% SBO Test, BEN-1, BEN-2, BEN-3, BEN-4, Trusts, LLPs, Restrictions & Penalties 2026

By Adv. Govind Bali | Updated: 21 August 2026

Significant Beneficial Ownership (SBO) under Section 90 of the Companies Act, 2013 is an anti-opacity disclosure regime intended to identify the real individual behind substantial rights, entitlements, influence or control in an Indian reporting company. It is especially important where shares are held through holding companies, foreign entities, LLPs, partnerships, trusts, pooled investment vehicles, nominee structures or layered corporate arrangements.

The most common compliance error is to look only at the name appearing in the register of members. Section 90 and the Companies (Significant Beneficial Owners) Rules, 2018 require the reporting company to look through the ownership chain and identify the relevant individual, where the statutory and prescribed tests are satisfied.

Quick legal position

Issue	Current position
Primary law	Section 90 Companies Act, 2013 + Companies (Significant Beneficial Owners) Rules, 2018
Prescribed threshold	Not less than 10% under Rule 2(1)(h), subject to the indirect-holding requirement
Individual declaration	Form BEN-1
Company filing with ROC	Form BEN-2 within 30 days of receipt of BEN-1
Company register	Form BEN-3
Information notice	Form BEN-4
Response to BEN-4	Within 30 days
NCLT application	Within 15 days after expiry of response period where no satisfactory information is given
Possible restrictions	Transfer, voting, dividend/distribution and other rights attached to the shares
Penalty on SBO for non-declaration	₹50,000 + ₹1,000 per continuing day, capped at ₹2 lakh
Penalty on company	₹1 lakh + ₹500 per continuing day, capped at ₹5 lakh

Why Section 90 says 25% but the working threshold is 10%

Section 90(1) refers to beneficial interests of not less than 25% or such other percentage as may be prescribed. The SBO Rules prescribe a 10% threshold. Therefore, for current compliance analysis, the prescribed 10% test under Rule 2(1)(h) is the operative threshold.

However, the 10% number cannot be applied mechanically. The Rules distinguish between direct and indirect rights and, for the ownership/voting/dividend limbs, require an indirect component before an individual is treated as an SBO.

Who is a Significant Beneficial Owner?

Rule 2(1)(h) defines an SBO as an individual who, acting alone or together, or through one or more persons or trusts, possesses one or more of the following rights or entitlements in the reporting company:

indirectly, or together with direct holdings, holds not less than 10% of the shares;
indirectly, or together with direct holdings, holds not less than 10% of voting rights in the shares;
through indirect holdings alone or together with direct holdings, has the right to receive or participate in not less than 10% of total distributable dividend or other distribution in a financial year;
has the right to exercise, or actually exercises, significant influence or control in a manner other than through direct holdings alone.

The indirect-holding requirement: a crucial point

Explanation I to Rule 2(1)(h) states that where an individual has no indirect right or entitlement under the share, voting or distribution limbs, that individual is not treated as an SBO merely because of direct holding under those limbs.

Example: if an individual directly holds 12% shares in his own name and has no indirect entitlement through another member or structure, the SBO Rules do not automatically treat that person as an SBO under the 10% ownership limb merely because the direct percentage exceeds 10%. Other disclosure regimes may still apply, but the Section 90 SBO test must be applied according to the Rules.

What counts as direct holding?

An individual is treated as holding a right or entitlement directly where:

the relevant shares are registered in the individual’s own name; or
the individual holds or acquires beneficial interest in the shares under Section 89(2) and has made the prescribed declaration.

Section 89 and Section 90 are therefore related but distinct. Section 89 addresses registered and beneficial interest in particular shares; Section 90 looks through structures to identify the significant beneficial owner.

How to identify indirect holding

The Rules prescribe different look-through tests depending on the nature of the member appearing in the reporting company’s ownership chain.

1. Member is a body corporate other than LLP

An individual is treated as indirectly holding the relevant right or entitlement where the individual:

holds a majority stake in that member; or
holds a majority stake in the ultimate holding company of that member.

“Majority stake” means more than one-half of equity share capital, voting rights, or entitlement to more than one-half of distributable dividend or other distribution.

2. Member is an HUF

Where the member is a Hindu Undivided Family through its karta, the individual karta is treated as holding the indirect entitlement for SBO analysis.

3. Member is a partnership firm or LLP

Where the member is a partnership entity, an individual may be treated as indirectly holding the entitlement if the individual:

is a partner; or
holds a majority stake in a body corporate which is a partner of that partnership entity; or
holds a majority stake in the ultimate holding company of such body corporate partner.

This provision is important for Indian and cross-border structures in which an LLP or partnership sits between the Indian reporting company and the ultimate individual.

4. Member is a trust

Where the member is a trust acting through a trustee, the Rules identify different individuals depending on the trust structure:

discretionary or charitable trust: the trustee;
specific trust: the beneficiary;
revocable trust: the author or settlor.

The precise trust deed and the nature of the trust must therefore be examined before concluding who is reportable.

5. Member is a pooled investment vehicle

For qualifying pooled investment vehicles based in a FATF member jurisdiction whose securities-market regulator is an IOSCO member, the Rules look to specified individuals such as the general partner, investment manager, or in the prescribed situation the chief executive officer of the investment manager.

If the pooled vehicle is based in a jurisdiction not satisfying the prescribed FATF/IOSCO criteria, the ordinary body-corporate, partnership or trust look-through rules apply instead.

Foreign holding companies are not automatically exempt

The SBO framework expressly contemplates persons resident outside India and foreign entities in the ownership chain. A reporting company cannot close the analysis merely because its immediate or ultimate parent is incorporated abroad.

The correct exercise is to trace the structure through the prescribed majority-stake, partnership, trust or pooled-investment tests and determine whether an identifiable individual falls within Rule 2(1)(h).

What does “acting together” mean?

Individuals may be deemed to act together where, through any person or trust, they act with a common intent or purpose of exercising rights, entitlements, control or significant influence over the reporting company pursuant to an agreement or understanding, whether formal or informal.

Therefore, SBO analysis is not restricted to formal shareholder agreements. Voting arrangements, control understandings, coordinated investment structures and side arrangements may become relevant depending on the evidence.

What is “significant influence”?

For the SBO Rules, significant influence means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company, without amounting to control or joint control of those policies.

This limb is important because an individual may have comparatively modest economic ownership yet exercise material policy influence through contractual, governance or structural rights.

What instruments are treated as shares?

For SBO purposes, the Rules treat the following instruments as shares:

global depository receipts;
compulsorily convertible preference shares;
compulsorily convertible debentures.

Convertible instruments should therefore be included in the cap-table and rights analysis rather than examined only after conversion.

Duty of the reporting company under Rule 2A and Section 90(4A)

The company itself has an affirmative duty to identify its SBOs. Section 90(4A) requires every company to take necessary steps to identify any individual who is an SBO and require that individual to comply.

Rule 2A goes further. Where a non-individual member holds not less than 10% of the company’s:

shares;
voting rights; or
right to receive or participate in dividend or other distribution,

the reporting company must issue a notice seeking information in Form BEN-4.

The practical lesson is important: the company cannot simply say, “no one gave us BEN-1, therefore there is no SBO.” The statutory duty is investigative and proactive.

Form BEN-1: declaration by the individual SBO

An individual who becomes an SBO, or whose significant beneficial ownership changes, must make a declaration to the reporting company in Form BEN-1 within 30 days of acquiring the SBO interest or the change.

The original transition period under the 2019 amendment is now historical. Current compliance should focus on the ongoing 30-day acquisition/change requirement.

Form BEN-2: return filed by the company

When the company receives a declaration under Rule 3, it must file a return in Form BEN-2 with the Registrar within 30 days of receipt, together with prescribed fees.

BEN-2 is therefore the company’s ROC-facing disclosure; BEN-1 is the individual’s declaration to the company.

Form BEN-3: statutory register

The company must maintain its register of significant beneficial owners in Form BEN-3. The register records the prescribed particulars and changes in SBO status.

The register is open to inspection by members during business hours for the minimum period prescribed by the Rules. The company may prescribe an inspection fee, but it cannot exceed ₹50 for each inspection.

Form BEN-4: information notice

BEN-4 is the company’s statutory information-seeking notice under Section 90(5) and the SBO Rules. It may be issued to a person whom the company knows or has reasonable cause to believe:

is an SBO;
knows the identity of an SBO or another person likely to know it; or
was an SBO during the three years immediately preceding the notice and has not been registered as required.

The recipient must provide the required information within a period not exceeding 30 days.

What happens if BEN-4 is ignored or the response is unsatisfactory?

Under Section 90(7), where the recipient fails to provide the information within the permitted period, or the response is not satisfactory, the company must apply to the NCLT within 15 days after expiry of the response period.

The company may seek restrictions over the shares in question.

What restrictions can NCLT impose?

The Tribunal may impose restrictions including:

restriction on transfer of the interest attached to the shares;
suspension of voting rights;
suspension of the right to receive dividend or other distribution;
other restrictions on rights attached to the shares.

Section 90(8) contemplates the Tribunal making the order, after hearing the parties, within 60 days of receipt of the application or such other prescribed period.

Can restrictions be lifted?

The company or an aggrieved person may apply to the Tribunal for relaxation or lifting of restrictions within one year from the date of the restriction order.

If no such application is made within one year, Section 90(9) provides for transfer of the shares, without the restrictions, to the authority constituted under Section 125(5), subject to the statutory framework.

Exempt holdings under Rule 8

The SBO Rules do not apply, to the extent prescribed, where the relevant holding is by specified classes including:

the IEPF Authority constituted under Section 125(5);
the reporting company’s holding reporting company, subject to BEN-2 disclosure of that holding reporting company;
the Central Government, State Government or local authority;
specified government-controlled reporting companies, bodies corporate or entities;
SEBI-registered investment vehicles such as mutual funds, AIFs, REITs and InvITs;
investment vehicles regulated by RBI, IRDAI or PFRDA.

Exemptions should be applied narrowly to the precise holding covered by Rule 8. A complex structure does not become exempt merely because one entity somewhere in the chain is regulated.

Section 89 vs Section 90: do not confuse them

Section 89	Section 90
Deals with registered owner and beneficial interest in shares	Deals with significant beneficial ownership and ultimate individual identification
Forms MGT-4, MGT-5 and MGT-6 are relevant	Forms BEN-1, BEN-2, BEN-3 and BEN-4 are relevant
Focuses on mismatch between registered and beneficial ownership	Looks through ownership/control structures using prescribed SBO tests
Can apply even where percentage is small	Uses prescribed SBO thresholds and influence/control tests

Does SBO disclosure make the individual the legal shareholder?

No. SBO status is a disclosure and transparency concept; it does not automatically replace the registered legal owner.

This distinction was emphasised by the Bombay High Court in Mayank J. Shah v. Raju V. Shah on 18 May 2026. The Court observed that the SBO framework identifies who must be disclosed as the significant beneficial owner but does not, merely by that disclosure, supplant the actual registered partner/legal owner.

This is an important proposition in shareholder, partnership, trust and arbitration disputes where parties sometimes attempt to convert a regulatory disclosure concept into a declaration of legal title.

Qatar Holding v. Byju’s Investments: the 10% test in litigation

In Qatar Holding LLC v. Byju’s Investments Pte. Ltd., the Karnataka High Court reproduced and considered the Rule 2(1)(h) SBO framework while examining beneficial ownership arguments. The decision illustrates how the statutory 10% and indirect-holding concepts can become relevant outside routine ROC compliance, including commercial disputes involving layered investment structures.

MCA enforcement: Leixir Resources order

MCA’s adjudication order concerning Leixir Resources Private Limited is an important compliance warning. The company had taken the position that no individual qualified as SBO in its foreign investment structure and had not issued the mandatory BEN-4 notice. The adjudicating authority held the company and officers liable for failure to take necessary steps under Section 90(4A) and failure to issue the prescribed notice.

The order imposed the statutory maximum penalty of ₹2 lakh on the identified SBO for the declaration default, ₹5 lakh on the company for the Section 90(4A) default, and penalties on officers. It also directed filing of BEN-2 after due process.

The broader lesson is that management should document the ownership-tracing exercise and issue BEN-4 where Rule 2A(2) is triggered rather than relying only on informal assurances from investors.

Penalty for failure by the SBO

Under Section 90(10), a person who fails to make the required declaration is liable to:

penalty of ₹50,000; and
for continuing failure, ₹1,000 for each day after the first;
subject to a maximum of ₹2 lakh.

Penalty for failure by the company

Under Section 90(11), where the company fails to maintain the register, file required information, take necessary steps to identify the SBO, or improperly denies inspection, the company is liable to:

₹1 lakh; plus
₹500 for each continuing day after the first;
subject to a maximum of ₹5 lakh.

Every officer in default is separately liable to ₹25,000 plus ₹200 per continuing day, subject to a maximum of ₹1 lakh.

False information can trigger Section 447 fraud consequences

Section 90(12) is significantly more serious than an ordinary filing penalty. A person who wilfully furnishes false or incorrect information, or suppresses material information in the declaration, is liable to action under Section 447.

Therefore, BEN-1/BEN-2 compliance should not be treated as a routine checkbox filing where the underlying ownership chain is uncertain.

Practical SBO tracing methodology

For a company with layered ownership, a defensible analysis should ordinarily follow these steps:

prepare the current registered-member cap table;
identify every non-individual member at or above the Rule 2A 10% trigger;
issue BEN-4 where required;
trace each body corporate to its ultimate holding company and majority-stake individual, if any;
trace LLPs and partnerships through partners and body-corporate partners;
review trust deeds and identify the trustee, beneficiary or settlor according to the trust type;
review pooled investment vehicle status and FATF/IOSCO conditions;
separately test voting rights, distributions, significant influence and control;
review side letters, shareholder agreements and voting arrangements for “acting together”;
record why a person is or is not an SBO;
obtain BEN-1 where the test is met;
file BEN-2 and update BEN-3.

Documents companies should obtain

latest organisational and ownership chart;
register of members and cap table;
constitutional documents of holding entities;
shareholder agreements and voting agreements;
LLP/partnership agreements;
trust deed and amendments;
ultimate holding company documents;
fund / pooled investment vehicle constitutional documents;
details of general partner, investment manager and relevant CEO;
beneficial-interest declarations under Section 89;
copies of BEN-1/BEN-2/BEN-4 and BEN-3 entries;
board records documenting the company’s Section 90(4A) exercise.

Common compliance mistakes

assuming the immediate shareholder is the ultimate owner;
treating 10% direct shareholding alone as automatically creating SBO status;
ignoring voting, dividend, influence and control rights;
failing to issue BEN-4 to a non-individual 10% member;
accepting an investor’s “no SBO” email without documenting the statutory look-through;
ignoring foreign entities and trusts;
failing to update BEN-3 after a change;
filing BEN-2 late after receiving BEN-1;
confusing MGT-4/MGT-5/MGT-6 with BEN forms;
assuming an exemption applies to the entire ownership chain.

SBO due diligence in M&A and investment transactions

SBO compliance should be treated as a core corporate-due-diligence item. A buyer or investor should test:

whether the target identified all non-individual 10% members;
whether BEN-4 notices were issued;
whether BEN-1 and BEN-2 match the current cap table;
whether BEN-3 is complete;
whether there are unreported trusts, nominees or side arrangements;
whether any pending Section 90(7) restriction proceedings exist;
whether past defaults may attract penalties or Section 447 exposure.

Frequently asked questions

Is every 10% shareholder an SBO?

No. For the share/voting/distribution limbs, the Rules require an indirect entitlement component. A direct-only holding does not by itself satisfy the SBO definition under those limbs.

Can a foreign citizen be an SBO of an Indian company?

Yes. Section 90 expressly contemplates persons resident outside India. The test is based on prescribed rights, entitlements, influence or control, not Indian residence.

Who is the SBO where an LLP holds the Indian company?

The partnership-entity look-through test applies. A partner may be treated as indirectly holding the entitlement, and further look-through may be required where a body corporate is a partner.

Who is reported where a trust holds shares?

It depends on the trust: trustee for discretionary/charitable trust, beneficiary for specific trust, and author/settlor for revocable trust, subject to the complete facts and rights structure.

What is BEN-4?

BEN-4 is the statutory notice through which the reporting company seeks information concerning an SBO or a person likely to know the SBO’s identity.

How long does a person have to answer BEN-4?

Up to 30 days from the date of the notice.

Can NCLT freeze voting rights?

Yes. On a proper Section 90(7) application, the Tribunal may impose restrictions including suspension of voting and dividend rights and restrictions on transfer.

Does SBO status mean the person becomes the registered shareholder?

No. The Bombay High Court’s 2026 decision in Mayank J. Shah v. Raju V. Shah reinforces that SBO disclosure identifies beneficial ownership for the statutory disclosure regime; it does not automatically displace legal title.

Primary legal sources

This article is intended as a legal information resource. SBO analysis is fact-sensitive and should be undertaken against the current ownership chain, constitutional documents, trust/partnership instruments and contractual control rights.

Fastrack Legal Solutions