The amendments to the Companies Act, No. 71 of 2008 (“Companies Act”) which came into effect from 1 April 2023, brought about provisions regulating the disclosure by companies of their beneficial ownership (i.e., the disclosure of the person or persons who ultimately, directly or indirectly, own or control the company).

Over the years corporate structures have been used by companies to hide the identity of their beneficial owners for legitimate reasons, and are important for supporting commercial and entrepreneurial activity, via nominees, however in accordance with recent reports released by the Financial Action Task Force (“FATF”) these structures are being used by criminals as a mechanism to obscure their ownership and control of illicitly obtained assets and are becoming more prevalent in the global community to facilitate money laundering, terrorist financing, tax evasion and corruption.

Findings by the FATF have revealed that South African law enforcement faces challenges to readily obtain accurate and updated beneficial ownership information about companies, sufficiently adequate to enable the effective investigation of money laundering and terrorist financing. As a result, FATF recommended that South Africa improve its legal structures to obtain beneficial ownership information.

It was in response to these findings that the Companies Act was amended, requiring companies to keep a record of natural persons who own or control it, and to provide a mechanism for the Companies and Intellectual Property Commission (“CIPC”) to keep accurate and updated beneficial ownership information, and to place obligations on companies to establish and maintain beneficial ownership records.

A beneficial owner, in respect of a company, is defined in Section 1 of the Companies Act as “an individual who, directly or indirectly, ultimately owns or exercises effective control of that company, including through –

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
• the ability to otherwise materially influence the management of that company.”

The amendments to Section 33 of the Companies Act, make it obligatory that every company (whether an affected company or not), as part of the process of filing its annual returns with CIPC, files a copy of its securities register reflecting the required beneficial ownership information.

For companies, other than affected companies, (i.e. a company that does not fall within the meaning of an “affected company”), a copy of the company’s securities register as required in terms of Section 50 of the Companies Act, must include the prescribed information regarding all of the natural persons who are the beneficial owners of the company, i.e. on whose behalf a nominee shareholder holds the relevant shares.

An “affected company” is defined in Section 1 of the Companies Act to mean 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 as a result of any circumstances contemplated in Section 2(2)(a) or Section 3(1)(a) of the Companies Act.

For affected companies, a copy of the company’s securities register as well as the company’s register of the disclosure of beneficial interest in terms of Section 56 of the Companies Act, shall include a register of persons who hold beneficial interests equal to or in excess of 5% of the total number of securities of that class issued by the company.

In both instances, a company must ensure that the information provided is updated within the prescribed period after any changes in beneficial ownership have occurred, or after having received a notice contemplated in Section 122(1) of the Companies Act.

Accordingly, an affected company will not disclose persons who hold beneficial interests in shares in its securities register but will only do so in the register of disclosure of beneficial interest and will only do so as regards interests equal to or in excess of the 5% threshold. Companies, other than affected companies, are not required to have a register of disclosure of beneficial interest, but must disclose prescribed information regarding all natural persons who are the beneficial owners of the company.

 In respect of the beneficial ownership information required to be filed with CIPC, the Minister of Trade, Industry and Competition together with CIPC published Companies Amendment Regulations, 2023 under Government Gazette No. 48648 on 24 May 2023.

 On 29 May 2023, CIPC issued Guidance Note 2 of 2023 titled “Beneficial Owner Filing Requirements” providing guidance on the filing of beneficial ownership information, which Note can be obtained at https://www.cipc.co.za/wp-content/uploads/2023/05/Beneficial-Owner-Filing-Requirements-Guidance-Notice-25_May-2023.pdf.

In addition to the amendments relating to beneficial interests in securities and beneficial ownership of companies, Section 69 of the Companies Act was also amended to include additional grounds of disqualification to be a director of a company, i.e. if a person:

1. has been convicted, in South Africa or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount for an offence

• involving money laundering, terrorist financing, or proliferation financing activities as those terms are defined in Section 1(1) of the Financial Intelligence Centre Act, No 38 of 2001 (“FICA”); or
• under the Protection of Constitutional Democracy Against Terrorist and Related Activities Act, No 33 of 2004, or the Tax Administration Act, No 28 of 2011; or

2. is subject to a resolution adopted by the Security Council of the United Nations, providing for financial sanctions.

In light of the above, Companies should begin to prepare the necessary beneficial ownership information to ensure same is timeously filed with CIPC so as to avoid any administrative penalties which the CIPC is entitled to impose.

By Candace Schoeman (Director) | Corporate and Commercial Department