Access to the beneficial ownership register

Introduction

Following the coming into effect of the General Laws of the Anti-Money Laundering and Combatting Terrorism Financing Amendment Act, 22 of 2022 ("GLA 2022"), companies and close corporations have had to familiarise themselves with the requirements of the Companies and Intellectual Property Commission ("CIPC") requiring them to keep beneficial ownership information and, in certain circumstances, to file such information with the CIPC.

The keeping of beneficial ownership information was initially meant to serve as a repository of natural persons who own or exercise control over legal entities to assist law enforcement with relevant information during their investigations about who the ultimate owners or controllers of an entity are. The Companies Amendment Bill, 2023 ("Companies Bill 2023"), expands on the provisions of the GLA 2022 by providing for specific access rights to the beneficial ownership registers or information of companies under certain circumstances. The effective date of the Companies Bill is yet to be promulgated, however, it has been passed by parliament.

What is beneficial ownership?

A beneficial owner means a natural person who, directly or indirectly, owns an interest in a company or exercises effective oversight or control of that company, this includes ownership through:

• the holding of beneficial interests in the securities of that company;
• the exercise of the voting rights associated with securities of that company;
• the exercise 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 through a chain of ownership or control by:
  • a juristic person either than a holding company of that company;
  • a body of persons corporate or unincorporate;
  • persons acting on behalf of the partnership; and
  • persons acting on behalf of a trust agreement; or
• the ability to influence the management of that company otherwise materially.

For example, if Mr Dlangamandla owns 50% of the shares in Company ABC, which in turn, owns 25% of Company XYZ, Mr Dlangamandla would have a beneficial interest in Company XYZ of 12.5%. Another practical example would be if Mr Nominee Mkhize holds 20% of shares within a company, and 10% of those shares are held on behalf of Mr Zwane.

Who does it apply to?

The beneficial ownership filing obligation applies to profit companies, non-profit companies with members, and close corporations.

Profit companies

In addition to having a share register, an affected company is required to establish and maintain a register of the persons who hold a beneficial interest equal to or in excess of 5% of the total number of securities of that class issued by the company. The term "affected company" includes a (i) public company, (ii) a state-owned company (unless exempted), (iii) a private company if more than 10% of its issued securities have been transferred between unrelated third parties within the previous 24 months (or if its memorandum of incorporation expressly provides that parts B and C of the Companies Act, 2008 ("Companies Act") and the Takeover Regulations shall apply to the company and its securities), and (iv) an indirect or direct subsidiary of the above persons that is a private company. Companies that are not affected companies must record the beneficial owners of the company in their securities register.

Affected companies are required to file a beneficial interest register with the CIPC. Affected companies must also notify the CIPC of any acquisitions or disposals of securities such that a person acquires or disposes of a beneficial interest of 5% or any other whole multiple of 5%, in a class of securities. Companies that are not affected companies are also required to file updates to their securities register when there is a change of information relating to beneficial ownership.

In terms of a guidance notice issued by the CIPC, an affected company that is listed on a local stock exchange (or its subsidiaries) does not have to file beneficial ownership information if such information is already kept as per the rules of a stock exchange or other regulatory authority.

Non-profit companies

Non-profit companies with members will have to file a register with the details of their members, if there are no such members then the details of the directors of the non-profit company will suffice.

Access to beneficial interest information

According to the Companies Bill 2023, a holder of beneficial interests in the company's securities has the right to access the register of the disclosure of beneficial interests of the company. Third parties (that do not have beneficial interests in a company) shall also have the right to access the register of the disclosure of beneficial interests.

The Companies Act currently already provides that holders of beneficial interests or other persons have a right to access a company's securities register. For companies that are not affected companies and who have beneficial interest information included in their securities register, this means that those parties accessing the securities register will also have access to the beneficial interest information.

In addition to the enhancement of law enforcement capabilities and financial transparency, expanded access to beneficial interest information is aligned with the legislative scheme of the Companies Act. The concept of a beneficial interest is important to the interpretation and application of various sections of the Companies Act, and greater access to such information may have various other practical benefits. Holders of beneficial interests have entitlements to access information and may vote in certain circumstances. Transactions or corporate action concluded with or in respect of holders of beneficial interests may have certain approval requirements under the Companies Act. For example, a direct or indirect transfer of property by a company to the holder of a beneficial interest of a company is likely to "distribution" that is subject to the solvency and liquidity requirements of the Companies Act. Allowing holders of beneficial interests and other parties to access the beneficial ownership information will enable them to have the necessary information to hold the company accountable in respect of compliance with provisions that apply to beneficial interests.

The Companies Bill 2023 has amended the category of a private company that will be subject to the Takeover Regulations and parts B and C of the Companies Act and now makes reference to a private company that (i) has 10 or more direct or indirect shareholders, and (ii) meets or exceeds the prescribed financial threshold (currently, the private companies falling with the category are those that have had a transfer of shares between unrelated parties in the past 24 months of 10% or more). The definition of "indirect shareholding" is not without its challenges, however, access to beneficial interest information will assist in this assessment.