When a bank opens or reviews the account of a company, partnership firm, trust or society, it must look past the entity to the individuals who own or control it. RBI's KYC rules call these individuals beneficial owners, and the percentage that makes someone a beneficial owner is not the same for every type of customer. This guide sets out each test, with worked examples, for CAs, compliance teams and business owners who have to answer a bank's beneficial ownership request.
Where the rules now sit
For commercial banks, the rules are in the Reserve Bank of India (Commercial Banks – Know Your Customer) Directions, 2025 (RBI/DOR/2025-26/169, dated 28 November 2025), which the RBI website shows as updated to 18 September 2026. Under paragraph 3, they apply to banking companies, corresponding new banks and the State Bank of India. Small finance banks, payments banks and local area banks are outside this set, so check the KYC directions that apply to the specific regulated entity. The directions came into effect on the day they were placed on the RBI website. Chapter XI of the directions deals with repeal and savings of earlier KYC instructions.
The beneficial owner definition is in paragraph 5(1)(iv). Paragraph 38 then requires the bank, when opening an account for a customer that is not a natural person, to identify the beneficial owners and take all reasonable steps to verify their identity.
The thresholds by type of customer
| Customer | Ownership test | Control test |
|---|---|---|
| Company | More than 10% of shares, capital or profits | Yes: right to appoint a majority of directors or control management or policy decisions |
| Partnership firm | More than 10% of capital or profits | Yes: control through other means |
| Unincorporated association or body of individuals, including a society | More than 15% of property, capital or profits | Fallback to senior managing official |
| Trust | Beneficiaries with 10% or more interest | Author, trustee and any person with ultimate effective control |
Two details decide many files. The company and partnership tests use "more than 10 percent", so exactly 10% does not qualify on ownership alone. The trust test uses "10 percent or more", so a beneficiary with exactly 10% does qualify.
Companies: ownership above 10%, or control
Paragraph 5(1)(iv)(a) defines the beneficial owner of a company as the natural person or persons who, acting alone or together, or through one or more juridical persons, have a controlling ownership interest or exercise control through other means. A controlling ownership interest means ownership of or entitlement to more than 10% of the shares, capital or profits of the company.
Control is defined separately. It includes the right to appoint the majority of the directors or to control the management or policy decisions, including by virtue of shareholding, management rights, shareholders agreements or voting agreements. A person with 6% of the shares and an agreement giving the right to appoint most of the board is a beneficial owner even though the ownership test is not met.
Worked example: tracing a holding company
X Private Limited is owned 12% by Individual A and 88% by B Private Limited. B is owned 55% by Individual P, 37% by Individual Q and 8% by Individual R.
- A: holds 12% directly, which is more than 10%. A is a beneficial owner.
- B: is a company, not a natural person, so the analysis cannot stop at "B Private Limited, 88%". The bank must look through B.
- P: controls B with 55%, and B holds 88% of X. Multiplying through the chain gives P an indirect interest of 48.4% in X, and P also exercises control over X through B. P is a beneficial owner.
- Q: the indirect interest works out to 32.56% (88% of 37%), well above 10%. Q is a beneficial owner.
- R: the indirect interest is 7.04% (88% of 8%). R is not a beneficial owner on ownership, unless an agreement gives R control rights.
The file should record A, P and Q with the calculation, and a note on why R was excluded.
Partnership firms: capital or profits above 10%
Under paragraph 5(1)(iv)(b), the beneficial owner of a partnership firm is the natural person who, acting alone or together, or through one or more juridical persons, has ownership of or entitlement to more than 10% of the capital or profits of the partnership, or who exercises control through other means. Control here includes the right to control the management or policy decisions.
Capital and profit share are separate tests. In a firm where a partner contributes 5% of capital but is entitled to 15% of profits under the deed, that partner is a beneficial owner through the profit entitlement. Review the current partnership deed, any supplementary deed that changes the profit-sharing ratio, and any arrangement that gives a partner management control.
Societies and other bodies of individuals: above 15%
For an unincorporated association or body of individuals, paragraph 5(1)(iv)(c) raises the threshold to more than 15% of the property, capital or profits. The explanation to that clause says the term "body of individuals" includes societies. A member of a society entitled to 12% of its property is below this threshold, even though 12% would make the same person a beneficial owner of a company. Identify the legal form before applying any percentage.
Trusts: several categories at once
For a trust, the directions require identification of the author of the trust, the trustee, the beneficiaries with 10% or more interest in the trust, and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership. A trust file therefore often lists several beneficial owners in different capacities. Paragraph 37 adds that the bank must ensure trustees disclose their status when the account relationship begins or when they carry out transactions.
Example: a family trust has a settlor, two trustees and five beneficiaries holding 40%, 30%, 20%, 6% and 4%. The settlor, both trustees and the three beneficiaries with 40%, 30% and 20% are identified. The beneficiaries with 6% and 4% are below the 10% line, unless one of them exercises effective control.
When no individual crosses the threshold
For companies, partnerships and unincorporated bodies, the directions provide a fallback. Where no natural person is identified under the ownership or control tests, the beneficial owner is the relevant natural person who holds the position of senior managing official. A company with twelve unrelated shareholders holding about 8.33% each, and no shareholder agreement giving anyone control, cannot be recorded as having no beneficial owner. The bank records the natural person holding the position of senior managing official instead.
The listed company exception
Under paragraph 38(1), the bank need not identify and verify the individual shareholders or beneficial owners where the customer or the owner of the controlling interest is:
- an entity listed on a stock exchange in India;
- an entity resident in a jurisdiction notified by the Central Government and listed on a stock exchange there; or
- a subsidiary of such a listed entity.
In the example above, if B were a company listed on a stock exchange in India, the bank would not need to look through B to identify P, Q and R.
Documents a bank will ask for
Paragraphs 33 to 36 list the entity documents. Each list includes the documents relating to beneficial owners and to the persons holding a power of attorney to transact on the entity's behalf.
- Company: certificate of incorporation, memorandum and articles of association, PAN, board resolution and power of attorney, names of the senior management, and the registered office and principal place of business address.
- Partnership firm: registration certificate, partnership deed, PAN, names of all partners, and the office address.
- Trust: registration certificate, trust deed, PAN or Form No. 60, names of the beneficiaries, trustees, settlor and protector, if any, and the registered office address.
- Unincorporated association or body of individuals: resolution of the managing body, PAN or Form No. 60, power of attorney, and evidence of legal existence.
Keeping the information current
Beneficial ownership is not settled once at account opening. Under paragraph 42(4)(i), during periodic updation for legal entity customers, the bank must ensure that the beneficial ownership information it holds is accurate and update it if required. Under paragraph 42(4)(ii), where the KYC information of a legal entity changes, the bank must carry out the KYC process equivalent to onboarding a new legal entity customer. A share transfer, admission or retirement of a partner, a new shareholders agreement or an amendment to a trust deed should therefore be reported to the bank with fresh beneficial ownership details.
Checklist before answering a bank's request
- Identify the legal form: company, partnership, society or other body of individuals, or trust.
- Draw the ownership chain until only natural persons remain, unless the listed entity exception applies.
- Apply the right threshold: more than 10% for companies and firms, more than 15% for bodies of individuals, 10% or more for trust beneficiaries.
- Test control separately, including board appointment rights, voting agreements and management rights.
- Apply the senior managing official fallback where nobody qualifies.
- Keep the calculation, ownership chart and constitutional documents with the file, and update the bank when ownership or control changes.
Updated on 27 September 2026: replaced references to the 2016 Master Direction with the RBI (Commercial Banks – Know Your Customer) Directions, 2025, merged our separate entity-wise checklist, and added paragraph references, a multi-layer tracing example, the trust and fallback examples, entity document lists and the updation rules.
