The South African Companies Act is the primary legislation governing companies in South Africa. The purpose of the Companies Act is to regulate the formation, governance, and operation of companies within the country. It lays down the legal framework for establishing, managing, and dissolving companies. The Act serves multiple purposes including, but not limited to, company formation, corporate governance, shareholders’ rights, corporate restructuring, insolvency, investor protection, regulatory compliance, business conduct, ethics, enforcement and disclosure and financial reporting.
Key amendments to the Companies Act
The recent amendments to the Companies Act aim to regulate the disclosure by companies of those who are ultimately (directly or indirectly) in control of the company. These key amendments are as follows:
- A broader obligation on companies to keep a record of persons with beneficial interests in their securities and the ultimate owners/controllers.
- Records must be filed with the CIPC and be made publicly available (subject to limitations based on proposed regulations).
- Expansion of grounds for disqualification of persons from being directors.
What is beneficial ownership, and why is it important?
The concept of beneficial ownership promotes transparency and accountability within a company or organisation. In essence, beneficial ownership refers to identifying the natural person(s) who ultimately own or control a company. This includes individuals who exercise ultimate effective control over a legal entity or arrangement. When it comes to companies, a beneficial owner encompasses any individual with a shareholding of 5% or more in any legal entity, or someone who wields effective control over the entity.
To define beneficial ownership in the context of legal persons, it encompasses individuals who, directly or indirectly, ultimately own or exercise effective control over a company. This could be through holding beneficial interests in the company’s securities, exercising or controlling the voting rights associated with the securities, appointing or removing members of the board of directors, holding beneficial interests in the securities or controlling a holding company of the company, exercising control over juristic persons, bodies of persons corporate or unincorporate, persons acting on behalf of a partnership, or persons acting in accordance with the provisions of a trust agreement. Moreover, beneficial ownership extends to individuals who can significantly influence the management of the company in any meaningful way.
The establishment and recognition of beneficial ownership are crucial in combating illicit activities such as money laundering, fraud, and other financial crimes. By knowing the true owners and controllers of a company, authorities can more effectively track and prevent the misuse of corporate structures for illegal purposes. Additionally, beneficial ownership information enables regulators and law enforcement agencies to swiftly respond to any potential threats to the financial system and enhance the overall integrity of the business environment. Ultimately, having transparent and reliable information on beneficial ownership helps foster trust and confidence in the corporate sector and contributes to a more secure and sustainable global economy.
How will beneficial ownership be recorded?
As it stands, the CIPC only has information about legal owners and does not record any shareholder information. Companies are now required to disclose information regarding their shareholding, i.e. beneficial ownership to the CIPC. Failure to register such information will amount to non-compliance with the Companies Act, which could result in penalties etc.
Filing of a Beneficial Interest Register for Companies which are affected companies as per Regulation 30A
An affected company is defined as follows:
“Affected company” means a regulated company as set out in section 117(1)(i) and a private company that is controlled by a subsidiary or a regulated company as a result of any circumstances contemplated in section 2(2)(a) or 3(1)(a).
An affected company must file its Beneficial Interest register as prescribed in the regulations. The register must conform with the prescribed requirements.
Filing of a Securities Register for Companies which are not affected companies as per Regulation 32
A company which does not qualify as an affected company must file their securities register which should include beneficial interest holders of the securities of that company if they are held by one person for or on behalf of another. A securities register of a company which is not an affected company must also include information of its Beneficial Owners – Regulation 32(3)(b).
Entities which are not required to file a register of its Beneficial Owners / Beneficial Interest Holders
Affected Companies listed on a local stock exchange if such information is already kept at such stock exchange or any institution with the authority of collecting and keeping such records. This will also apply to related entities (i.e.) a subsidiary or an entity controlled by the affected company in question.
When will this be implemented?
Entities incorporated on and after the 24th of May 2023 will be required to file the records of their beneficial owner within 10 days after such incorporation. Entities incorporated before the 24th of May 2023 will have to file their Securities Register or Beneficial Interest Register (whichever is applicable to the entity in line with whether it’s an Affected or Not an Affected entity) as part of its Annual Returns filing process from 24 May 2023, which is the date of publication of the final Amended Companies Regulations. Failure to comply with the provisions relating to the beneficial ownership register requirements / beneficial interest register requirements is an offence in terms of the Companies Act, a compliance notice may be issued in case of non-compliance and an administrative penalty may be imposed.
Filing of Beneficial Ownership Information is available on www.cipc.co.za under e-Services, and additional information on how to file, frequently asked questions is also published on the CIPC website mentioned above.