Beneficial Ownership

On 29 December 2022, President Ramaphosa assented to the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 (“GLAA”). The GLAA amends several Acts, including: the Trust Property Control Act,1988; the Nonprofit Organisations Act, 1997; the Financial Intelligence Centre Act, 2001; the Companies Act, 2008 (“Companies Act”); and the Financial Sector Regulation Act, 2017. Whilst the amendments to each of these Acts have far-reaching consequences, in this blog post, we’ll be focusing on the changes brought about to the Companies Act specifically relating to the aspect of “beneficial ownership” (we’ll explain what this means below). The amendments became effective on 1 April 2023.

What do the amendments to the Companies Act have to do with me?

Well, if you own or hold shares in a company, they do impact you in several ways:

• When you file your annual returns, you are now required to submit a copy of the company’s securities register (you might know this as a “share register” or a “cap table”) alongside the return, as well as the details of the beneficial owners of the shares (see the third bullet below).
• The CIPC is now required to make the annual return contemplated above available electronically to any person as prescribed, and in line with certain prescribed requirements.
• When you draw up a share register, it no longer suffices to include the name of a company that is a shareholder, but also certain prescribed information regarding the natural person/s who is (or are) the beneficial owner/s of that shareholder company. This information must also be regularly updated by filing notices with the CIPC within the prescribed period.

These disclosure obligations become a bit more complicated and onerous than the requirements above relating to whether you’re an “affected company” or not. An “affected company” is defined as a regulated company, or a private company that is controlled by, or a subsidiary of, a regulated company.” In turn, a company is a regulated company if (amongst other considerations) more than 10% (ten percent) of the issued shares in the company have been transferred within 24 (twenty-four) months “immediately before the date of an affected transaction or offer.” This doesn’t really make much sense, because there won’t always be an “affected transaction or offer” involved. For your purposes, it is safe to assume that you’re an affected company as of a particular date if more than 10% of your issued shares were transferred in the 24-month period immediately preceding that particular date.

If you are an affected company, you must also maintain a register of persons who hold “beneficial interest” (discussed below) equal to or in excess of 5% (five percent) of a class of securities, which must accompany your annual returns alongside your securities register. You are also required to update this beneficial interest register after receipt of notice from a person who has acquired (or disposed of) a beneficial interest in the company’s securities that resulted in that person holding (or ceasing to hold) a beneficial interest in any multiple of 5% (five percent) of the company’s securities. These must also be filed with the CIPC and the Takeover Regulation Panel, and must further be reported to the holders of the relevant class of securities in the company.

What is a “beneficial owner”?

When we’re talking about the beneficial owner of a company, we’re specifically talking about the individual who, whether directly or indirectly, ultimately owns that company or exercises effective control of the company. This can take several forms, for example:

• the holding of “beneficial interest” (defined below) in the securities of that company;
• the exercise of, or control of the exercise of the voting rights associated with securities of that company;
• the exercise of, or control of the exercise of the right to appoint or remove members of the board of directors of that 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 that company; or
• the ability to otherwise materially influence the management of that company.

Crucially, a beneficial owner is also a person who has 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 whether corporate or unincorporate;
• a person acting on behalf of a partnership; or
• a person acting in pursuance of the provisions of a trust agreement.

This definition paints with quite a wide brush, and the legislature clearly intended to make this definition apply to as many people as reasonably possible.

What is “beneficial interest”?

When used in relation to a company’s securities, the term “beneficial interest” means the right or entitlement of a person, through ownership, agreement, relationship or otherwise, alone or together with another person to—

• receive or participate in any distribution in respect of the company’s securities;
• exercise or cause to be exercised, in the ordinary course, any or all of the rights attaching to the company’s securities; or
• dispose or direct the disposition of the company’s securities, or any part of a distribution in respect of the securities,

but does not include any interest held by a person in a unit trust or collective investment scheme in terms of the Collective Investment Schemes Act 45 of 2002 (as amended).

Conclusion

As you can see, this Amendment Act creates additional requirements surrounding the disclosures that need to be made alongside your annual returns. Before the implementation of these requirements, submitting annual returns was a fairly straightforward process. It is now slightly more complex and may necessitate the engagement of a suitable lawyer or accountant to advise you on the requirements specific to your company, or to prepare the annual returns on your behalf. Get in touch with Legalese, and we’ll be able to discuss these requirements with you and assist you in this process.

– Written by Kyle Freitag

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