Today we are diving right back into the realm of beneficial ownership, a topic that remains widely debated and discussed. In a previous newsletter, we explored the implications of beneficial ownership on trusts. However, as the landscape continues to evolve, we’re turning our attention to the latest development: the extension of beneficial ownership obligations to companies in South Africa.
Beneficial Ownership: A Quick Recap
In a nutshell, beneficial ownership refers to the true individuals who ultimately own or exercise effective control over a company. It’s a concept that has garnered significant attention due to its implications of transparency, financial crime prevention, and corporate governance.
From Trusts to Companies: The Evolution Continues
While trusts have been at the forefront of the beneficial owner debate, the South African legislative landscape has taken a significant leap forward by extending similar obligations to companies.
The recent promulgation of amendments to the Companies Act 71 of 2008 brings beneficial ownership regulations to the forefront once again. These amendments mark a turning point in the ongoing efforts to enhance transparency within the business environment.
The Key Aspects
Prior to the amendments, companies were merely required to keep and update their securities registers – a record maintained by a company that contains the details of its shareholders.
Under the new amendments, companies now need to maintain and disclose registers of their beneficial owners, mirroring the obligations placed on trusts. Essentially, the aim of these registers serves to record the identities of the natural persons (the so-called “warm bodies”) who ultimately own or control a legal entity. This extension aims to create a comprehensive framework that leaves no room for opaqueness or ambiguity.
Similar to trusts, companies are mandated to carry out rigorous identification and verification procedures to ensure the accuracy and reliability of beneficial ownership information; however, while trusts are required to file registers of its beneficial owners at the Master of High Court, in the context of companies, that requirement extends to the filing of its registers to the Companies and Intellectual Property Commission (“CIPC”).
As a side note, the new amendments make clear distinctions between the different type of companies resulting in varying requirements for each.
For affected companies, it can be a regulated company which is either a public company, a state-owned company (unless the Minister of Trade, Industry, and Competition grants them exemption), or a private company that has transferred more than 10% of its shares in the past two years (except between related parties), or a private company that is a subsidiary of a regulated company.
Affected companies must create and keep a register of persons who hold beneficial interest of 5% or more of the company’s securities (“the beneficial interest register”). They need to record the particulars of those persons (such as their full names and contact details, to name a few), report the extent of such beneficial ownership and keep the beneficial interest register updated along with their existing securities register.
And if a company doesn’t fit the definition of an affected company, the rules aren’t as strict as they simply need to keep a record of the persons who are the beneficial owners of the company within their existing securities register.
Deadline for submission
Submission of Beneficial Ownership information to the CIPC should further coincide with the forthcoming filing of a company’s CIPC annual returns, ensuring compliance before the 1 October 2023 deadline.
Furthermore, these records must be promptly revised within ten days of any changes to that company’s beneficial ownership. This consistency across entities contributes to a more robust and unified approach.
Strengthened Regulatory Oversight
By bringing trust and companies under the same umbrella of beneficial ownership regulations, the amendments appear to empower regulatory authorities with greater tools for monitoring and investigation. One certainly hopes that this proactive approach will contribute to the prevention of financial crime and unethical practices.
In accordance with many important Acts, the draft Taxation Laws Amendment Bill, 2023 (“TLAB”), which is an annual legislative instrument introduced by National Treasury to propose further amendments to particular sections of various tax-related legislation, has been published for public comment. Of significance, it has also included the definition of “beneficial owner”, which will essentially encompass specific meanings in relation to companies, trusts and partnerships.
The roles of vital institutions like the South African Revenue Service (“SARS”), the Master of the High Court, and the Financial Intelligence Centre (“FIC”) become pivotal in effectively managing the administrative burden associated with beneficial ownership disclosure. The collaborative effort to ensure streamlined processes, accurate collection of data and efficient oversight will be a decisive factor in the successful implementation of these regulations.
As South Africa strives to emerge from the grey list of jurisdictions under scrutiny, the commitment to robust beneficial ownership regulations could play a pivotal role in its journey towards international recognition as a responsible and compliant jurisdiction.
In the midst of these ongoing developments, it remains to be seen how these institutions will align their efforts, streamline processes, and collectively contribute to removing administrative bottlenecks. As we witness these changes unfold, the synergy among SARS, the Master of the High Court, FIC, and other relevant stakeholders will be essential in realising the true potential of these regulations and further strengthening South Africa’s stance on the global stage.