The application of the rules extends to companies which have shareholders, with the exception of natural and natural persons whose shareholders hold an economic interest in the company within the prescribed limits. However, the application of those rules does not extend to the holding of units in the case of pooled investment vehicles or investment funds such as AIFs (alternative investment funds), real estate investment trusts, investment funds, infrastructure investment funds. In a company, the beneficial owner is the natural person(s) acting alone or through one or more legal entities, holding/holding a majority stake or exercising control by other means. Here, the majority stake involves the person(s) who own/have/have more than 25% of the shares or capital or profits of the company. In this context, `control` means the right to appoint a majority of directors or to control management or political decisions, including on the basis of their holding or management rights, shareholder agreements or voting rights. The Securities and Exchange Commission (SEC) recognizes this and has regulated this practice. In private companies, a beneficial owner may not want their name to be known as a registered shareholder for a number of reasons. As long as tax and other laws are respected, this practice is not illegal in itself. Both definitions considered that it was necessary for a natural person to have an economic interest in the company in order to be considered a substantial beneficial owner.

The concept of economic interest has been defined in accordance with Article 89(10) as the right of a person, alone or with another person, indirectly or directly, through a contract or agreement, to exercise all or part of the rights attached to the shares; or to receive or participate in a dividend or distribution in respect of shares held. Currently, there are two separate definitions for determining a significant beneficial owner. The first, under section 90 of the Act, would classify a person who holds at least 25 (twenty-five) per cent of the economic interest in the corporation as a significant beneficial owner. Such a person may hold an economic interest, alone or together, either through one or more persons with one or more persons, including a person residing outside India, or through a trust with such a trust, including a trust outside India. Supervised entities (ROEs), such as banks, are required to follow certain customer identification procedures when executing a transaction, either by establishing an account-based relationship or otherwise, and to monitor their transactions. This is intended to comply with the rules and regulations relating to the Anti-Money Laundering Act 2002 and the Anti-Money Laundering (Record Keeping) Regulations 2005. In the case of a corporation or partnership or a non-legal association or partnership, the beneficial owner is identified by the regulated companies, which are explained below. The rules specify that an economic interest would include a right to a claim held alone or jointly with another person, directly or indirectly under a contract or agreement.

The right to claim would include the right to exercise all or part of the rights attached to these shares and to receive or participate in dividends or other distributions. The beneficial owners would be the persons who hold an economic participation. As is well known, the International Consortium of Investigative Journalists published what it called the “Panama Papers” in early 2016. These documents, taken from the archives of the law firm Mossack Fonseca & Co., show in detail the beneficial ownership of several thousand offshore companies. In the event that the Client is an association or body of natural persons without legal capacity, the beneficial owners are the natural persons acting alone or through one or more legal entities, holding/having a majority stake in the property or otherwise exercising control. Here, the dominant interest involves the person(s) who own/have/hold more than 15% of the property, capital or profits of the non-legal association or partnership. But Body of Individuals (BOI) refers to a conglomerate of individuals who engage in an activity for the purpose of earning income. Consequently, the organ of individuals would be composed only of natural persons and not of legal entities allied to it. The second definition of substantial beneficial ownership was established in Rule 2(e) of the Rules of Procedure, which assigns the categorisation of a substantial beneficial owner to an individual.

However, a significant variance under the rules of section 90(1) is that the threshold for a person classified as a significant beneficial owner is 10 (ten) percent, as opposed to the threshold of 25 (twenty-five) percent prescribed by law. In addition, the definition in the Rules of Procedure provides for an additional condition that the name of such a person holding an economic holding is not entered in the register of members. Recent amendments to section 90 of the Companies Act, 2013 are intended to determine the identity of the person behind the curtain who holds significant ownership of the Corporation and who essentially controls the management and day-to-day business of the Corporation. The Department of Corporate Affairs notified the Corporations (Significant Beneficial Ownership) Rules, 2018 (“Rules”) on June 13, 2018. These rules were issued in the exercise of the powers conferred by section 90 of the Companies Act, 2013 (Act), which was notified on June 6, 2018. In most countries, real estate registers display the names of owners. In some cases, a beneficial owner may not want their name to appear on public records. In such cases, it is common for trustees or other companies to act as legal owners instead of the beneficial owner. Beneficial ownership is distinct from legal ownership. In most cases, the legal and beneficial owners are one and the same thing, but there are cases, legitimate and sometimes less legitimate, where the beneficial owner of an asset wants to remain anonymous. A beneficial owner is a person who enjoys the benefits of ownership, even if ownership of a form of property has a different name. For example, if the shares of a mutual fund are held by a custodian bank or if securities are held by a broker in street names, the true owner is the beneficial owner, even if the bank or broker holds the security for security or convenience reasons.

Despite the contradiction in the threshold for determining the relevant beneficial ownership of an enterprise, the threshold set out in the rules would be considered the applicable threshold. .