A statutory auditor checking significant beneficial ownership compliance confirms that the company identified every individual who, acting alone or together, ultimately holds a prescribed threshold of shares, voting rights, or the right to receive dividends or exercise significant influence, through direct or indirect holdings including layered chains of bodies corporate, partnerships and trusts, that it issued notice in Form BEN-4 to members believed to hold on behalf of an undisclosed SBO, that declarations received in Form BEN-1 were filed with the Registrar in Form BEN-2, and that a register of significant beneficial owners is maintained in Form BEN-3; this requires tracing the actual ownership chain rather than accepting the register as filed, and the exact threshold percentage and the rules for indirect holding should be confirmed against the current SBO rules.
Why layered structures are the real test
A significant beneficial owner is rarely a direct shareholder; the rule is specifically aimed at ownership exercised through a chain of intermediate holding entities, trusts or partnership structures, where no single entity in the chain crosses the threshold on its own but the ultimate individual controlling the chain does. Testing this means tracing the full ownership chain up to a natural person at each level, not stopping at the immediate corporate shareholder on the register of members.
Testing approach
- 01Map the full shareholding chain above every member holding above the thresholdFor every member, corporate or otherwise, holding above the prescribed percentage, trace ownership upward through each intermediate entity until a natural person, or confirmation that no individual crosses the threshold, is reached.
- 02Apply the indirect holding rules correctly at each layerThe rules prescribe specific tests for when a holding at one level is treated as held by a person at a higher level, differing for a body corporate, a partnership firm, a trust, and a pooled investment vehicle; a mechanical straight-through percentage multiplication across layers is not always the correct test and should be checked against the current rule for each entity type in the chain.
- 03Confirm BEN-4 notices were issued where ownership is unclearWhere the company has reasonable cause to believe a member is not the actual beneficial owner, or where it cannot otherwise determine SBO status, confirm a BEN-4 notice was issued and a response tracked, rather than the company relying solely on voluntary BEN-1 declarations.
- 04Reconcile BEN-2 filings to the BEN-1 declarations actually receivedEvery declaration received should result in a timely BEN-2 filing with the Registrar within the prescribed period; check for declarations received but not filed, and for filings made without a supporting declaration on file.
- 05Confirm the BEN-3 register is current and matches the filed positionThe register should reflect the same individuals and holdings as the BEN-2 filings; a register that lags behind filings, or shows different individuals, indicates the maintenance process is not being kept current through the year.
A group structure that routes a promoter's holding through a family trust or an offshore holding entity is a common reason SBO identification is skipped entirely, on the assumption that the ultimate individual is 'obviously' the promoter and does not need formal tracing; the rule requires the formal chain and declaration regardless of how apparent the ultimate ownership seems.
Regulatory requirement
The exact threshold percentage, the indirect holding tests for each entity type, and the prescribed forms and timelines for BEN-1 through BEN-4 are set out in the Companies Act and the Significant Beneficial Owners Rules as currently in force. Confirm all of these against current source material before concluding on compliance.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Related parties & disclosuresIdentifying related parties: the audit starting pointA client declaration is a starting point for the related-party list, not evidence of it. How to build and cross-check the list independently.
- Related parties & disclosuresUndisclosed related parties: red flags to test forThe counterparties that most need scrutiny are the ones nobody flagged as related. Here is what actually surfaces them.
- Related parties & disclosuresCommon-control entities: why they raise audit riskA promoter running several unlisted entities under common control creates a structure where money, not just transactions, can move without much friction. That is the risk to test for.
- CARO & Companies ActSecretarial compliance checklist for a statutory auditorBoard meeting frequency, statutory registers and ROC filing timeliness, read as evidence of compliance culture rather than a secretarial checklist in its own right.
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