Companies now have new reporting obligations for “beneficial ownership”
Recent announcements on the amendments to the Companies Act 71 of 2008 regarding beneficial ownership were made by the Companies and Intellectual Property Commission (CIPC). Part of the revisions requires that corporations file and update Beneficial Ownership information as and when necessary, giving the CIPC the authority to do so.
A compliance notice and/or an administrative fine may be issued for failure to comply with the provisions pertaining to the requirements for the beneficial ownership register and/or the beneficial interest register under the Companies Act.
Disclosures Of Beneficial Ownership Are Necessary
A recent announcement on the promulgation of amendments to the Companies Act 71 of 2008 regarding beneficial ownership was made by the Companies and Intellectual Property Commission (CIPC) in South Africa. The revisions grant the CIPC, in part, the authority to demand that businesses submit and update beneficial ownership information as needed.
Failure to comply with the registration requirements for beneficial ownership and beneficial interest breaches the Companies Act and may result in the issuance of a compliance notice and the imposition of an administrative penalty.
Background
The CIPC emphasizes the need to report beneficial ownership information in the Regulations. The requirement’s goal is to guarantee that (i) the identity of registered entities’ ultimate beneficial owners is known, and (ii) the use of corporate vehicles to facilitate money laundering and terrorism funding is limited and mitigated.
A registry of beneficial ownership for companies and close corporations must be kept current by the CIPC. Any beneficial ownership information pertaining to an entity must be submitted by applicable companies and close corporations.
It is expected that additional amendments to the Companies Act would be enacted in due time to reflect the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022.
Whom Does Is Apply To?
A person must provide (file) the necessary information with the CIPC if they have more than 5% beneficial ownership of a company or close corporation.
Timing
After the final Amended Companies Regulations are published on May 24, 2023, all entities formed before that date must submit their Securities Register or Beneficial Interest Register (depending on whether they are considered “Affected” or “Not Affected” entities as defined) as part of the annual returns filing process.
What Is The Definition Of A Beneficial Owner?
A beneficial owner is an individual or natural person who, directly or indirectly, eventually owns 5% or more of a firm or exerts effective control over it.
Beneficial ownership/effective control types
- Having a beneficial stake in a company’s securities.
- Controlling voting rights or controlling the use of voting rights linked with a company’s stocks.
- Exercising the power to appoint/remove members of a company’s board of directors or having influence over the exercise of that right.
- Possessing beneficial interests in a holding company’s securities through a subsidiary or being able to manage a holding company through a subsidiary, especially through a chain of ownership.
Being able to exercise control through a chain of ownership and being one of the people listed below :
- A legal person who is not a subsidiary of that company.
- A group of people, either corporate or unincorporated (for example, the body corporate of an estate — a nonprofit company).
- A person representing a partnership.
- An individual representing a partnership.
- A person operating in accordance with a trust or agreement (e.g., trustees, trust beneficiaries, beneficiaries of an agreement).
Having the capability to significantly impact the company’s management, also known as effective control.
Operating as a state-owned enterprise (SOC), unless given an exemption by the Minister according to section 9(2) of the Companies Act.
Filing Purposes Of Documents
- The individual submitting on behalf of an entity must adhere to certain filing standards.
- A certified copy of an ID or passport is necessary.
- Each year, every company is required to submit a copy of its Securities Register to the Commission. The register holds details about the company’s shareholders (the legal owners).
- Affected businesses must create and keep a record of beneficial interests in securities (in issue), disclose the scope of such interests, and ensure the register is updated if any changes occur.
- Any complex ownership structures, including juristic persons, trusts, and so on, must be disclosed on the beneficial ownership disclosure form.
Affected Versus Unaffected Businesses
A private company that is under the management of or a subsidiary of a regulated company are both considered “affected companies” under the definition of “affected company” in section 117(1)(i) of the Companies Act.
Affected companies are required to submit their Beneficial Interest Registers in accordance with the requirements. The register must comply with the established specifications.
A company that is not an “affected company,” as that term is defined, is required to file its Securities Register, which should list any individuals who have a beneficial interest in the company securities if one person owns those securities on behalf of another. A company’s Securities Register that is not one of the affected companies must also contain the specified information about the company’s beneficial owners.
Entities Exempt From Filing A Record Of Their Beneficial Owners And Beneficial Interest Holders
Affected companies that are listed on a local stock exchange are exempt from the requirements to submit a register of beneficial owners or beneficial interest holders, provided the relevant data is already stored at the stock exchange or another organization with the authority to compile and maintain such records. (This also applies to related entities (for example a subsidiary or an entity managed by the affected company).
Nonprofit Companies Filing Requirements
It will be necessary for nonprofit membership organizations to submit a register including information about their members. A nonprofit company’s effective controllers must be listed in the filing in accordance with the definition of “beneficial owner.”
Updating Changes To Beneficial Ownership
A company must update its Beneficial Ownership Register within ten days of any change in beneficial ownership.
