There's a new kid on the block, and not everyone is thrilled about its arrival.
Recent amendments to the Companies Act give the Companies and Intellectual Property Commission ("CIPC") a mandate to require companies and closed corporations to file and update information regarding their beneficial ownership.
That's a mouthful! Let's unpack it together.
*In this blog post we'll be looking at companies, not closed corporations. The requirements are exactly the same, it's just the terminology that will differ.
The method behind the madness
Back in 2021, the Financial Action Task Force found that South Africa was not doing enough to ensure that accurate and verified information regarding legal entities' beneficial ownership was available to law enforcement authorities to investigate financial crimes.
In response to this, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 ("GLAA") was promulgated. The GLAA amended several pieces of legislation, amongst others, the Companies Act 71 of 2008. As a result of this amendment, CIPC is mandated with the obligation to require companies to file and update certain information relating to its beneficial ownership.
What is Beneficial Ownership?
DECODING THE LEGALESE: BENEFICIAL OWNERSHIP
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An individual who has some form of control over a company or closed corporation and gains benefit from it.
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From a more in-depth perspective, beneficial ownership is where someone:
1. Holds shares or securities in a company
Importantly, it does not matter whether you have "direct" beneficial ownership in a company or whether you are a beneficial owner through some sort of chain. It is crucial that no one should be able to hide behind a complex chain of ownership.
2. Has the right to vote in decisions affecting the company
3. Can appoint or remove directors
4. Exercises some degree of control over the company
5. Has the ability to influence the management of the company.
Importantly, obligations only arise where the beneficial ownership is 5% or more.
In other words, if Peter owns 2.5% of Company XYZ, his details will not be included in the company's register of beneficial ownership.
Does this apply to my company?
The odds are, yes! The obligation to submit a Beneficial Ownership register and keep it updated applies to:
Private companies;
Closed corporations;
Non-profit companies; and
State-owned companies
The obligation does not apply to:
Public companies;
Primary co-operatives; and
Personal liability companies
What must companies do to stay in the clear?
In essence, companies must have an updated and accurate beneficial ownership register.
The CIPC has published a "how to" guide on this topic, which you can view by clicking the button below.
This register will not be available to the public, but only to law enforcement and other competent authorities.
It contains the following information pertaining to every beneficial owner:
Full names and surname
Date of birth
Identity or passport number
Residential address
Postal address
Email address
The extent of the individual's ownership or effective control over the company.
What can happen if you don't comply?
Importantly, the deadline for submission of the company's beneficial ownership register is 1 October 2023.
If companies do not submit the relevant information by then, the most likely consequence is a compliance notice, followed by an administrative fine. Other consequences include the triggering of other investigations and in serious cases, the disqualification of directors.
Okay, now what?
Now you get your ducks in a row!
Start by gathering the information listed in this blog post. When doing so, keep in mind that the idea of beneficial ownership extends beyond only the "direct" owners of the company.
Hit the blue button below to get in touch with us and we'll help you file your Beneficial Ownership register so that you can stay legally compliant and fine-free.
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