Beneficial-ownership disclosures required

The Companies and Intellectual Property Commission (CIPC) in South Africa recently announced the promulgation of amendments to the Companies Act 71 of 2008, in relation to beneficial ownership. The amendments, in part, authorize the CIPC to require companies to file and update beneficial ownership information, as and when applicable.

Failure to comply with the registration requirements relating to the beneficial ownership and beneficial interest violates the Companies Act, which may lead to a compliance notice being issued and an administrative penalty being imposed.

Background

In the Regulations, the CIPC explains the requirement to submit beneficial ownership information. The purpose of the requirement is to ensure that (i) the identity of ultimate beneficial owners of registered entities is known and (ii) abuse of corporate vehicles as a means of facilitating money laundering and terrorism financing is reduced and mitigated.

The CIPC is required to maintain a register of beneficial ownership for companies and close corporations. Applicable companies and close corporations must submit any beneficial ownership information relating to their entity.

It is anticipated that further changes to the Companies Act giving effect to the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 will also be made in due course.

To whom does it apply?

Anyone with more than 5% beneficial ownership of a company or close corporation must submit (file) the requisite information with the CIPC.

Timing

Entities incorporated before 24 May 2023 will have to file their Securities Register or Beneficial Interest Register (whichever applies to the entity in line with whether it is an "Affected" or "Not an Affected" entity as defined) as part of its Annual Returns filing process from 24 May 2023 — which is the publication date of the final Amended Companies Regulations.

Who is a beneficial owner?

An individual/natural person who, directly or indirectly, ultimately owns 5% and more of a company or exercises effective control of a company is considered a beneficial owner.

Types of beneficial ownership/effective control

• Holding a beneficial interest in the securities of a company
• Having control over voting rights or control over the exercise of voting rights associated with securities of a company
• Exercising the right to appoint/remove members of a company's board of directors or having control over the exercise of the right to appoint/remove board members
• Holding beneficial interests in the securities of a holding company (through a subsidiary) or having the ability to exercise control (including through a chain of ownership) of a holding company through its subsidiary
• Being one of the following persons, able to exercise control through a chain of ownership:
• A juristic person other than a holding company of that company
• A body of persons corporate or unincorporate (i.e., body corporate of an estate — nonprofit company)
• A person acting on behalf of a partnership
• A person acting in pursuance of a trust or agreement (i.e., trustees, beneficiaries of trusts, beneficiaries of an agreement)
• Being able to otherwise materially influence the management of that company — i.e., effective control
• Being a state-owned company (SOC), unless exempted by the Minister under section 9(2) of the Companies Act

Documents filing purposes

1. The filing requirements are imposed on the person filing on behalf of an entity.
2. A copy of a certified ID/passport is required.
3. Every company must annually file a copy of its Securities Register with the Commission; the Securities Register contains all the information relating to shareholders of a company (legal owners).
4. Affected companies are required to establish and maintain a register of beneficial interest in securities (in issue), report the extent of the beneficial interest and ensure the register is updated with any changes.
5. The beneficial ownership disclosure form must indicate any complex ownership structures, inclusive of juristic persons, trusts, etc.

The threshold of 5% of ownership and/or control will apply for all entities required to file beneficial ownership information.

Affected vs. non-affected companies

An "affected company" is a regulated company as set out in section 117 (1) (i) of the Companies Act and a private company that is controlled by or is a subsidiary of a regulated company.

An affected company must file its Beneficial Interest Register as prescribed in the regulations. The register must conform with the prescribed requirements.

A company that does not qualify as an "affected company," as defined, must file its Securities Register, which should include beneficial interest holders of the securities of that company if they are held by one person on behalf of another. A Securities Register of a company that is not an affected company must also include prescribed information of its beneficial owners.

Entities not required to file a register of its beneficial owners/beneficial interest holders

Affected companies listed on a local stock exchange are not required to file a register of beneficial owners or beneficial interest holders if this information is already kept at the stock exchange or at any institution with the authority to collect and keep such records. (This will also apply to related entities (i.e., a subsidiary or an entity controlled by the affected company in question)).

Filing requirements for nonprofit companies

Nonprofit membership organizations will be required to file a register providing details about their members. In line with the definition of "beneficial owner," persons who exercise effective control over a nonprofit company must be included in the filing.

Updating beneficial ownership changes

Whenever there are changes in beneficial ownership, a company must update its Beneficial Ownership Register within 10 days of the change.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services (Pty) Ltd.

• Sean Kleynhans | sean.kleynhans@za.ey.com
• Yumna Abrahams | yumna.abrahams@za.ey.com

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor