Enhancing Corporate Transparency: The Companies (Management and Administration) Second Amendment Rules, 2023

Introduction:

In a bid to foster greater corporate transparency and accountability, the Ministry of Corporate Affairs (MCA) in India recently notified the Companies (Management and Administration) Second Amendment Rules, 2023, on October 27, 2023.

These new rules introduce crucial changes, particularly focusing on Rule 9 of the Companies (Management and Administration) Rules, 2014, which deals with the Declaration of Beneficial Interest in shares of a company. Beneficial ownership, as defined by the rules, pertains to the individual who, despite not having the legal title to shares, reaps the benefits such as dividends.

This article explores the key amendments and their implications for the business landscape.

Understanding the Foundation: Section 89 of the Companies Act, 2013

Before probing into the recent amendments, it's important to establish the context. Section 89 of the Companies Act, 2013, outlines the declaration of beneficial interest in shares. It mandates that individuals holding or acquiring a beneficial interest in shares of a company must declare this fact to the company.

The primary purpose of this provision is to ensure transparency in share ownership structures, making it easier to identify the real beneficiaries. It prevents the concealment of ownership behind layers of nominees or intermediaries, thereby enhancing corporate governance and accountability.

Amendments to Rule 9 of Companies (Management and Administration) Rules, 2014

The latest amendments to Rule 9 signify a notable shift in the regulatory landscape. These changes primarily focus on the appointment of an "Authorized Person" to facilitate the sharing of information regarding beneficial interest in a company's shares with the government.

The Authorized Person's Role

The Authorized Person has a pivotal role to play in maintaining transparency and ensuring regulatory compliance.

Key responsibilities include:

Furnishing Information to the Government: The authorized person is responsible for providing information related to beneficial interest in the company's shares to the government.

Collaboration and Providing Details: They must collaborate and provide any necessary information as required by the Registrar of Companies (ROC) or other official authorities.

Who Can Be Appointed as the Authorized Person?

The amended rules provide flexibility in appointing the Authorized Person:

• Company Secretary: If a company is required to have a mandatory appointment of a company secretary, that individual can be designated as the Authorized Person.
• Key Managerial Personnel (Other Than Company Secretary): In the absence of a company secretary, another key managerial personnel can be appointed as the Authorized Person.?
• Director: If neither company secretary nor key managerial personnel are available, a director of the company can take on the role of the Authorized Person.

Interim Authorization

In the interim period, before the formal appointment or authorization takes place, the individuals mentioned above are automatically considered authorized for the role.

Reporting to Regulators

To maintain compliance with the new rules, the company is obligated to include details of the Authorized Person in its Annual Return. Moreover, any changes in the designation or details of this authorized individual should be promptly communicated to the Registrar of Companies (ROC) using the e-form GNL-2.

Implications and Benefits

The introduction of the Authorized Person requirement is clearly aimed at streamlining the process for regulatory authorities to access essential information regarding beneficial ownership. By designating a central point of contact, this initiative is expected to result in significant time and resource savings for the relevant authorities.

In conclusion, the recent amendments under the Companies (Management and Administration) Second Amendment Rules, 2023, mark a commendable stride toward enhancing corporate governance and transparency in India. These revisions effectively tackle the crucial issue of beneficial ownership, mitigating the potential misuse of corporate structures for unlawful purposes. Consequently, they contribute to fostering a more accountable and responsible business environment.

By fortifying the regulatory framework and advancing transparency, these rules are well-positioned to boost investor confidence and reaffirm India's status as an appealing destination for business and investment.

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