Publication of draft Companies Act Regulations to enable beneficial ownership of shares to be determined

11 Apr 2023

On 1 October 2021 the Companies Amendment Bill, 2021 (“the Bill”) was published. It proposed certain changes to the Companies Act (Act no. 71 of 2008) (“the Companies Act”) and recognised the current inadequacies of the Companies Act around establishing the identity of true owners of companies, and that transparency in respect of beneficial ownership reporting is becoming a matter of global concern.

The Financial Action Task Force’s (“FATF”) Mutual Evaluation Report of South Africa, released on 26 October 2021, contained similar sentiments, and identified various deficiencies in South Africa’s efforts to achieve transparency around the beneficial ownership of legal persons.

Despite an attempt to strengthen our financial intelligence, South Africa was grey listed recently by the FATF and must now work with the FATF to tighten our money laundering and terror financing laws. One of the eight strategic deficiencies noted by the FATF in its February 2023 evaluation of South Africa, was that there is a lack of timeous access by competent authorities to accurate and up-to-date beneficial ownership information.

It was for this purpose that the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (Act no. 22 of 2022) (“the General Laws Amendment Act”) was passed. It introduces legal provisions into the Companies Act in support of the collection of beneficial ownership information and provides the Companies and Intellectual Properties Commission (“the CIPC”) with a mandate to request companies to file and update beneficial ownership as and when applicable.

The draft Companies Act regulations (“the Draft Regulations”), relating to the establishment of a Beneficial Ownership Register (“BOR”), have now been published.

The aim of establishing the BOR is to have a register of natural persons who own or exercise control over legal persons, to assist law enforcement with relevant information when it comes to their investigations of who the ultimate owners of any legal person is and to mitigate the risks identified in the national risk assessment where legal persons are identified as vehicles prone to abuse for money laundering and terror financing activities.

A beneficial owner of a legal person is defined as follows:

‘‘‘beneficial owner’, in respect of a company, means an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company, including through:

(a) the holding of beneficial interests in the securities of that company;

(b) the exercise of, or control of the exercise of the voting rights associated with securities of that company;

(c) the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that company;

(d) 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;

(e) the ability to exercise control, including through a chain of ownership or control, of – (i) a juristic person other than a holding company of that company; (ii) a body of persons corporate or unincorporate; (iii) a person acting on behalf of a partnership; (iv) a person acting in pursuance of the provisions of a trust agreement; or

(f) the ability to otherwise materially influence the management of that company.’’

A company which does not qualify as an “affected company” must file its securities register which should include beneficial interest holders of the securities of that company if they are held by one person for and on behalf of another.

A company which qualifies as an “affected company” must file its securities register as prescribed in the Draft Regulations. The securities register must comply with the prescribed requirements.

An “affected company” is defined as:

“a regulated company as set out in section 117(1)(i) and a private company that is controlled by or a subsidiary of a regulated company as a result of any circumstances contemplated in section 2(2)(a) or 3(1)(a).”

State-owned companies are considered “affected companies” and will be required to file a register of its beneficial owners, unless exempted by the Minister in terms of section 9(2) of the Companies Act.

Interested parties should submit written comments on the Draft Regulations within 14 days from the date of its publication.

Article sourced from Gildenhuys Malatji Incorporated.

See also:

• Beneficial Ownership regulations are strengthened to address FATF’s grey listing
• Registering beneficial ownership following South Africa’s grey listing
• The high cost of FICA non-compliance
• Removal of a director by shareholders of a company: reasons not necessarily to be provided

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)