During October 2021, the Financial Action Task Force published its Mutual Evaluation Report of South Africa which evaluated the effectiveness of South Africa’s money laundering and terrorism financing measures (“Report”). The Report recommended, amongst other things, the creation of a beneficial ownership register for companies, in terms of which companies would record and file information on the individuals who ultimately own or control the company. In response to the findings contained in the Report, South Africa passed the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act No. 22 of 2022, amending the provisions of the Companies Act No. 71 of 2008 (“Companies Act”). As a result, companies in South Africa are now required to record and file a register of beneficial ownership of natural persons with the Companies and Intellectual Property Commission (“CIPC”). In this article we will explore the proposed amendments to the Companies Act and how they compare to the provisions provided for in the United Kingdom (“UK”).

Amendments to the Companies Act:

One of the principle amendments to the Companies Act is the inclusion of the definition of “beneficial owner” – which is defined as any individual who, directly or indirectly, ultimately owns a company or exercises effective control of a company, including through:

• the holding of beneficial interests in the securities of a company;
• the exercise of, or control of the exercise of the voting rights associated with securities of a company;
• the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of a company;
• 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 the company;
• the ability to exercise control, including through a chain of ownership or control, of –
  • a juristic person other than a holding company of a 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 a company.

In light of the aforementioned amendment to the Companies Act, companies now have the following obligations with regard to the recording of their beneficial ownership information:

• in relation to affected companies, as defined in section 1, read with section 117 of the Companies Act:
  • establish and maintain a register of the 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, together with the extent of those beneficial interests, and ensure that this register is updated within the prescribed period after having received a notice contemplated in section 122(1) of the Companies Act; and
• in relation to companies that do not fall within the meaning of an affected company:
  • record in its securities register the prescribed information regarding the natural persons who are the beneficial owners of the company, in the prescribed form, and ensure that this information is updated within the prescribed period after any changes in beneficial ownership have occurred.

The implementation of a beneficial ownership register signifies a significant step towards greater transparency and accountability in the commercial sector. It will help to prevent the misuse of companies for illegal activities such as money laundering and terrorism financing, by making it harder for individuals to hide their true identities behind complex corporate structures.

Position in the UK:

In comparison to South Africa, the UK already has a beneficial ownership, otherwise known as “people with significant control”, register in place which is maintained by Companies House. The register requires companies to provide information on their beneficial owners, including their name, date of birth, nationality, and residential address. The UK register also includes information on the nature and extent of the individual’s interest in the company, as well as the date on which they became a beneficial owner.

However, in contrast to the proposed amendments to the Companies Act, the UK register only requires companies to disclose their “people with significant control”, which includes individuals who own or control more than 25% of the shares or voting rights in a company, or who otherwise exercise significant control over the company. The UK register therefore does not require companies to disclose information on their ultimate beneficial owners, which means that it may still be possible for individuals to hide their true identities behind complex corporate structures.

Despite these limitations, it can be said that the UK’s beneficial ownership register has been successful in increasing transparency and accountability in the commercial sector. It has helped to prevent the misuse of companies for illegal activities such as money laundering and terrorism financing and has made it easier for law enforcement agencies to identify and investigate criminal activity.

Conclusion:

The implementation of a beneficial ownership register in South Africa is a positive step towards greater transparency and accountability in the corporate sector. It will help to prevent the misuse of companies for illegal activities and make it harder for criminals to hide their true identities behind complex corporate structures. The UK’s beneficial ownership register provides a useful comparison and highlights the importance of ensuring that the register includes information on ultimate beneficial owners.

VDMA’s team of experts are available to assist you and your business with determining the measures which your company needs to comply with in order to ensure compliance with the latest amendments to the Companies Act as well as the drafting and/or updating of your securities register in line with the requirements of the Companies Act.

Published 03 May 2023