New Delhi: As part of its drive to lift the corporate veil and target benami entities, the government has decided to dematerialise shares of unlisted corporates, starting with 80,000-90,000 public companies. Separately, holdings above 10 per cent in a company are also being classified as “significant beneficial ownership” with mandatory disclosures.
The ministry of corporate affairs (MCA) is expected to announce the plan for dematerialisation of shares over the next few weeks as it wants to ensure that the real ownership is revealed through the exercise, besides making it easier to track the shareholders, sources told TOI. At the end of March 2017, there were close to 11.7 lakh active companies in India, but the requirement for dematerialisation of shares is currently in place only for around 8,000 listed entities. Recognising that immediate dematerialisation of shares for all companies is not possible, the initial focus will be on public companies — a move that is expected to impact at least 5.5-6 crore shareholders of such unlisted companies.
Parallelly, MCA is readying rules to provide for significant beneficial ownership aimed at tracking the real beneficiaries of shares as often benami holdings are found in shell companies. The new section that was inserted in the Companies Act is also part of the global fight against money laundering and came at the behest of Parisbased Financial Action Task Force with countries such as the UK already incorporating the provisions.
The law provides for maintaining of a register of “beneficial owners”. While the Companies Act had said that the threshold for classification will be at least 25 per cent or another level that is prescribed, MCA is expected to set the limit at 10 per cent, increasing the ambit of the provisions to cover a larger base of shareholders, who may be warehousing the shares for someone else.
“There are cases where the real owner is someone else as the shares have been paid for through funding to another person. Similarly, I may be holding shares but I can have a back-to-back arrangement on voting. With the new rules, all these issues will be sorted out,” said a source.
The move will also have significant implications for foreign investors, especially in tightly-regulated sectors where 100 per cent FDI is still not per mitted.
The law provides for mandatory disclosure within a stipulated period and once the rules are notified there will be a rush of filings as shares in most companies are not widely held. A failure to disclose beneficial ownership can result in a fine of up to Rs 50,000 with a daily penalty of Rs 1,000, if the failure to comply with the rules continues. The Companies Act also allows the Centre to investigate cases of beneficial ownership.
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