UNPACKING THE RECENT CIPC REPORTING REQUIREMENTS RELATING TO BENEFICIAL OWNERS

Talha Kazi |Secretariat Dept. - Corporate Governance Officer

Following concerns raised by the Financial Action Task Force (FATF), it was indicated that South African authorities (i.e., the CIPC) must have “timely access to accurate and up-to-date Beneficial Ownership information on legal persons and arrangements”.

The CIPC consequently announced the promulgation of the amendments to the Companies Act 71 of 2008, as amended. The amendments give the CIPC a mandate to request companies to file and update Beneficial Ownership information, as and when applicable.

Who is a Beneficial Owner?

  •  A Beneficial Owner is a natural person who, directly or indirectly, ultimately owns a specific company or exercises effective control of that company. This may include:
    •  the holding of beneficial interests 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;
    •  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;”.

A 5% threshold of ownership and/or control will be applicable for all entities required to file Beneficial Ownership Information. It is important to note that juristics entities cannot be classified as Beneficial Owners, as Beneficial Ownership focuses on the natural person benefiting from the shares of a company.

Who must file Beneficial Ownership Information with CIPC?

All companies registered with the CIPC will be required to file Beneficial Ownership information and will be regarded as “affected companies”. An “affected company” , a new definition introduced by the Amendment Regulations includes:

  • A public company;
  • A state-owned company (except in case of exemption by Minister);
  • A private company – if more than 10% of its issued securities have been transferred (other than between related or inter-related persons) within 24 months immediately before the assessment is done, or its memorandum of incorporation expressly provides that parts B and C of the Companies Actand the Takeover Regulations shall apply to the company and its securities;
  • A private company that is a subsidiary of a regulated company (directly or indirectly)

Public Companies that are listed on a local stock exchange will not have to file Beneficial Ownership information provided such information is already kept at the stock exchange or any institution which has the authority to collect and keep such records.

Supporting information required for filing Beneficial Ownership Information

When filing, companies must provide:

  • The mandate of the filer,
  • the securities register for non-affected entities / beneficial ownership register for affected entities ,
  • certified ID copies or passport copies (if applicable) of the beneficial owners, and
  • any other supporting document that the CIPC may demand.

It is important for companies to ensure that their register is up to date, including making annual filings to confirm the validity of the information provided.

When do companies have to commence filing of Beneficial Ownership with CIPC

Entities incorporated after on and after the 24th of May 2023 will be required to file the records of their beneficial owner/s within 10 days after such incorporation. Entities incorporated before the 24th of May 2023 will have to complete their filing as part of its Annual Returns filing process from 24 May 2023 which is the date of publication of the final Amended Companies Regulations.

Companies also are required to update their records within five days of any future changes that occur. If there are no changes, an annual update is required to confirm that the Beneficial Ownership information has not changed, which is submitted with the annual return.

A compliance notice may be issued in terms of section 171 of the Companies Act and an administrative penalty of over R1 million or 10% of the entity’s turnover may be imposed in terms of section 175 of the Companies Act in the case of non-compliance.

Conclusion

In summary, the establishment of the Beneficial Ownership register by the CIPC is a significant step towards safeguarding the regulatory environment in South Africa. The implementation of the register will ensure that authorities have timely access to accurate and up-to-date ownership information on juristic entities which may ultimately aim to mitigate the risks associated with money laundering and terror financing activities.