In today's world, transparency in business ownership is no longer optional—it is essential and moreover mandatory. The increase in economic crimes such as money laundering, tax evasion, and misuse of corporate structures has prompted regulators around the globe to tighten disclosure norms. Amongst such norms is the requirement to identify the real individuals obscured by complex layers of intermediaries, who ultimately own or control companies. Such individuals are known as the beneficial owners. While India has made remarkable progress towards ensuring the disclosure of beneficial ownership of entities, such compliance is still challenging, more so for entities having foreign investment.
A key pillar of India's beneficial ownership disclosure regime is the Companies Act, 2013 ("Companies Act"), and the Companies (Significant Beneficial Ownership) Rules, 2018 ("SBO Rules"), which stipulate that any individual possessing at least 10% of beneficial interest either directly or indirectly must disclose such interest. Consequently, entities are obligated to register such beneficial owners and ensure that the relevant forms are filed with the registrar of companies and the Reserve Bank of India ("RBI"), in applicable cases. The SBO Rules are designed to enhance the standards of corporate governance and the transparency of ownership of the Indian companies.
Also supporting this framework of disclosure is the Prevention of Money Laundering Act, 2002 ("PMLA") which places a duty on banks and other financial institutions and intermediaries to identify the beneficial owners when they are conducting their due diligence. The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 ("PMLA Rules") sets the threshold for identifying the beneficial owners of the specified types of legal persons: 10% for companies and trusts, and 15% for partnerships and unincorporated associations. The PMLA Rules ensure that individuals that the benefit from various activities undertaken by such legal persons, such as activities that involve high-risk or cross-border transactions are clearly identifiable.
In cases involving foreign investments, the RBI and the regulations established under the Foreign Exchange Management Act, 1999 ("FEMA") are instrumental in the enforcement of disclosure obligations concerning beneficial owners, particularly where foreign direct investment and offshore structures are involved. The RBI's KYC norms impose an obligation on banks and authorized dealers to make reasonable efforts to ascertain the identity of the individual behind foreign investments in India.
Other than the RBI, the Securities and Exchange Commission of India ("SEBI"), has established its own requirements under the disclosure regimes. In August 2023, SEBI released new rules regarding disclosure for Foreign Portfolio Investors ("FPIs") with the intention of simplifying complex structures which could be abused using the FPI route. The new framework which took effect on November 1, 2023, requires detailed disclosures of ownership, control, and economic interest on large foreign investments designed to trace to the ultimate natural persons who are behind the investments.
Under this updated regime, FPIs were given until January 29, 2024, to realign any investments that breached SEBI's thresholds as of October 31, 2023. If they failed to do so, they were required to provide full disclosure on a look-through basis, tracing ownership all the way down to the natural person level, by March 11, 2024. Failing to meet these requirements could result in deregistration, followed by mandatory liquidation of holdings within six months. This marks a significant shift, as previous disclosure norms under the PMLA allowed many FPIs to conceal beneficial ownership by ensuring each underlying entity remained just below the prescribed threshold—effectively keeping individuals with substantial control hidden.
SEBI's rationale for such tighter norms is rooted in market integrity. The regulator observed that while no single individual may breach beneficial ownership thresholds, in aggregate, the individual could hold considerable control or economic interest through multiple investment vehicles. This loophole had the potential to undermine minimum public shareholding norms, takeover regulations, and allow fund flows from jurisdictions requiring government approval. The new regulations are meant to peel back these layers and prevent such circumventions.
As of March 24, 2025, FPIs with either 50% or more of their Indian equity Assets under Management ("AUM") in a single corporate group or those with over ₹50,000 crore equity AUM in Indian markets will need to adhere to mandatory disclosure of beneficial ownership irrespective of holding percentage. However, there are some exceptions. FPIs, sovereign wealth funds, government-backed public mutual funds, retail funds, Exchange Traded Funds (ETFs), other pooled investment entities, and those FPIs legally mandated to not divest instantly may be eligible for lesser disclosure requirements subject to specific terms. An SOP was also issued by SEBI for custodians and FPIs to ease the compliance navigation issue.
Despite these clear guidelines, challenges remain. Some FPIs are unsure whether they qualify for exemptions, especially when they are "registered" with their home regulator but not explicitly "regulated" by it. There is also confusion over requirements like submitting an offering memorandum when home regulators may not require one. While these issues add short-term friction and increase compliance burdens, SEBI's move is widely expected to bring long-term benefits in terms of market transparency and investor confidence.
A common area of confusion in all of this is the distinction between Ultimate Beneficial Ownership ("UBO") and Significant Beneficial Ownership ("SBO"). While the terms are often used interchangeably, they serve different regulatory purposes in India. UBO is the broader concept, primarily linked to anti-money laundering and financial crime prevention. It focuses on identifying the natural persons behind any kind of legal entity, regardless of the entity type or sector. SBO, on the other hand, is specific to the Companies Act and applies only to Indian-incorporated companies. While all SBOs are UBOs, not every UBO qualifies as an SBO under the current legal framework. Understanding this distinction is critical for organizations trying to comply with the right rules at the right time.
In reality, UBO and SBO compliance involves rigorous documentation, ownership mapping, and timely regulatory filings. Companies and financial institutions must track changes in beneficial ownership, update internal records, and, in some cases, use compliance software to manage risk assessments and generate audit trails. The task becomes even more complex in structures involving offshore trusts, nominee shareholders, or multiple jurisdictional entities.
A major obstacle is the lack of transparency in offshore jurisdictions, where nominee arrangements and layered holding companies can mask real ownership. Inconsistent global information-sharing standards and varying definitions of control and influence only complicate matters. Enforcement, while improving, still has a long way to go. Although the Companies Act prescribes penalties for SBO non-compliance, and PMLA allows for enforcement by the Enforcement Directorate (ED), many cases still go unchecked.
In conclusion, UBO and SBO disclosures are no longer a regulatory formality — they are essential tools. SEBI's enhanced norms for FPIs mark a significant leap in closing long-standing loopholes and curbing regulatory arbitrage. While compliance may be complex and, at times, costly, the broader goal is to create a more transparent, trustworthy, and globally credible market environment.
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