Companies Act amendments – Beneficial ownership

Protecting the identity of a legal entity’s ultimate beneficial owner can have a legitimate purpose, yet and unfortunately, this privilege of anonymity has been misused to facilitate, amongst other crimes, fraud, money laundering and tax evasion.  In December 2022 the Companies Act, no. 71 of 2008 (hereinafter ‘the Act’) was amended in efforts to address this misuse. The need for transparency regarding the warm body persons behind the corporate veil has become imperative.

The most significant amendment to the Act requires that companies must, firstly, keep prescribed records on its ultimate beneficial owner(s) and, secondly, disclose these records to the Companies and Intellectual Properties Commission (hereinafter ‘CIPC’).

The Act very broadly defines the concept ‘beneficial owner’ to include any individual who, directly or indirectly, ultimately owns or exercises control of the company in question.*

The amendments to the Act places an obligation on companies to delve into, and to truly know the identity of not only its owners, but also its controllers.

1. Keeping the prescribed records:

Every company must keep records of the ultimate beneficial owner of each shareholder. (Example:  If a Trust is a shareholder, the company must keep certain prescribed records of the beneficiaries, trustees and founder of the Trust as the ‘ultimate beneficial owners’.)

In addition, if the company knows or reasonably believes that shares are held by one shareholder, on behalf of another person, that company must call on its shareholders to disclose such beneficial interests.

Affected companies** have a responsibility to keep a register of these disclosures and maintain a register of such beneficial interests, which must be in line with certain prescribed requirements.

2. Disclosing the prescribed records:

CIPC has a responsibility to keep the prescribed records, and companies, in turn, have a responsibility to disclose to CIPC.

All new companies registered on or after 24 May 2023 must file its share register, showing the ultimate beneficial owners, within 10 days from registration.

All companies that existed before 24 May 2023 are required to file its share register, showing its ultimate beneficial owners, together with its annual return.  Thus, this filling must be done annually.

• • Affected companies** must, in addition to the above, also file its register of beneficial interests, if shareholders hold shares on behalf of other persons.
  • Non-profit companies with members must file a register of its members.

3. Publication of information:

CIPC confirmed that these registers will not be publicly available.  Yet, the Act determines that CIPC must disclose the information to ‘any person as prescribed’.  The prescriptions have not yet been released.  The information will likely be available to institutions such as the FIC, SARS and SAPS.

4. How can RVN help?

This additional record keeping and disclosure obligation may be overwhelming. RVN Compliance Services (Pty) Ltd fortunately has the necessary expertise to guide you through these changing times to ensure that you and your company remain legislatively compliant.

RVN will be in contact with you to discuss the way forward, taking into consideration your unique circumstances and beneficial ownership structure.

* The full definition is: “Beneficial owner”, in respect of a company, means an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company, including through—

1. 1. the holding of beneficial interests in the securities of that company;
   2. the exercise of, or control of the exercise of the voting rights associated with securities of that company;
   3. the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that company;
   4. the holding of beneficial interests in the securities, or the ability to exercise control, including through a chain of ownership or control, of a holding company of that company;
   5. the ability to exercise control, including through a chain of ownership or control, of—

• • • a juristic person other than a holding company of that company;
    • a body of persons corporate or unincorporate;
    • a person acting on behalf of a partnership;
    • a person acting in pursuance of the provisions of a trust agreement; or

1. 6. the ability to otherwise materially influence the management of that company.

** An ‘Affected Company’ means a regulated company as set out in section 117(1)(i) of the Act, and a private company that is controlled by, or a subsidiary of a regulated company as a result of any circumstances contemplated in sections 2(2)(a) or 3(1)(a) of the Act.  In short this basically means public and state-owned companies, and private companies, if the private company’s MOI determines that Chapter 5, Parts B & C, of the Act and the Takeover Regulations applies to the company, or if at least 10% of the private company’s securities were transferred within the preceding 24 months, or if the private company is a subsidiary of an affected company.

While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein.  Our material is for informational purposes and should not be construed as financial advice.