Claude for Legal

Last updated: 14 May 2026

Corporate Transparency and Beneficial Ownership Rules: What Indian SMB Owners Need to Know

What Beneficial Ownership Means and Why India Now Requires Disclosure

In a simple company, shareholders and beneficial owners are the same — the person who owns shares also benefits from them. But in corporate structures, shares can be held through nominee arrangements or intermediate holding companies, separating the legal owner from the person who actually benefits.

India introduced Significant Beneficial Owner (SBO) disclosure requirements in 2018 via an amendment to Section 90 of the Companies Act 2013, aligned with FATF (Financial Action Task Force) recommendations on corporate transparency. The objective is to identify the natural persons who ultimately control or benefit from a company, preventing misuse of corporate structures for money laundering, tax evasion, or concealment of beneficial interest.

For most straightforward Indian SMBs — a Pvt Ltd with 2 founders each holding 50% — this means both founders must declare their SBO status to the company and the company must file this with the MCA.

The Companies Act 2013 Requirements for Significant Beneficial Owners (SBO)

Section 90 of the Companies Act 2013 creates a disclosure framework with obligations on both sides:

• Obligation on SBOs: Any individual who is a Significant Beneficial Owner must declare their interest to the company using Form BEN-1 within 90 days of the rules coming into force, and within 30 days of acquiring SBO status subsequently.
• Obligation on the company: The company must maintain a register of SBOs (BEN Register), file Form BEN-2 with the Registrar of Companies within 30 days of receiving any BEN-1 declaration, and send Form BEN-4 notice to persons it believes may be SBOs who have not yet declared.
• Ongoing obligations: When there is any change in SBO information (e.g., shareholding changes), fresh declarations and filings are required.

What Is an SBO in India: The 10% Threshold Rule Explained

An individual is a Significant Beneficial Owner if they hold, directly or indirectly or together with associated persons, 10% or more of:

• The shares of the company, or
• The voting rights of the company, or
• The right to receive or participate in distributed dividends or other distributions

Or if they exercise significant influence or control over the company in any manner.

The look-through principle: If a company holds shares in another company, you must look through to find the natural persons behind the holding company. A chain of three holding companies ultimately controlled by one individual still results in that individual being the SBO of the bottom company.

For a simple two-founder Pvt Ltd with equal 50-50 shareholding, both founders are SBOs — no look-through is needed because they hold directly and exceed 10%.

Form BEN-1 and BEN-2: Who Files What and When

BEN-2 is filed on the MCA portal by the company's authorised signatory (typically a director) with a digital signature. The form requires the SBO's name, address, PAN, nature of beneficial interest, and the percentage held.

Using Claude to Understand Your Disclosure Obligations

Claude can help you work through whether you are an SBO and what you must file:

• “I hold 30% of Company A directly. Company A holds 40% of Company B. Am I an SBO of Company B?” — Claude will walk through the look-through calculation.
• “Our Pvt Ltd has 3 shareholders — two individuals at 40% each and one corporate entity at 20%. Who are the SBOs?” — Claude identifies which individuals must file BEN-1 and whether the corporate entity triggers a look-through obligation.
• “Generate a checklist of what information I need to prepare Form BEN-1 as an SBO.” — Claude produces a field-by-field preparation list.
• “Draft a cover letter to accompany Form BEN-1 sent to the company.”

Why Small Businesses Are Often Unaware of SBO Requirements

SBO rules came into force via an amendment in 2018 and the associated rules in 2019. Many company secretaries and CAs who registered small Pvt Ltd companies before this period did not proactively inform existing clients. The result: a large number of small companies have never filed BEN-1 or BEN-2, creating latent penalty exposure.

If your company was incorporated before 2019, ask your CA: “Have we filed Form BEN-2 for our SBOs?” If the answer is uncertain, a compliance review is warranted. The MCA has issued amnesty schemes for delayed filings in the past — check whether any current scheme applies.

Penalties for Non-Disclosure: Section 90 of the Companies Act

On the SBO (individual who fails to file BEN-1):

• Fine of ₹50,000 plus ₹1,000 per day for continuing default after notice

On the company (if it fails to file BEN-2 or maintain the BEN Register):

• Fine of ₹10 lakh to ₹50 lakh on the company
• Fine of ₹1 lakh to ₹10 lakh on the officer in default (typically a director)

Additional consequences: The company can apply to a tribunal to restrict the rights attached to shares of a non-compliant SBO — including voting rights and dividend rights.

Practical Checklist: How to Determine If You Need to File

1. Identify all shareholders of your company. List each shareholder and their percentage holding.
2. For individual shareholders: Any individual holding 10% or more is an SBO and must file BEN-1.
3. For corporate shareholders: Look through to identify the natural persons who ultimately hold 10% or more of the combined interest (their holding in the corporate shareholder multiplied by the corporate shareholder's holding in your company).
4. Check indirect holdings: Add direct and indirect holdings together. A person with 5% directly and 8% indirectly through a corporate entity exceeds the 10% threshold.
5. Check if BEN-1 has been received from each SBO. If not, send Form BEN-4 notice requesting the declaration.
6. File BEN-2 on the MCA portal within 30 days of receiving each BEN-1.
7. Maintain the BEN Register at the registered office — it must be available for inspection.

Frequently Asked Questions