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Beneficial Ownership

Everything you Need to Know 

In March 2023, South Africa was placed on the Financial Action Task Force (FATF)’s “grey list” of countries with strategic deficiencies in their anti-money laundering and counter-terrorist financing (AML/CTF) regimes. This means that the FATF has identified weaknesses in South Africa’s AML/CTF regime that need to be addressed.

The above resulted that on the 29 December 2022, the South African government published the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 including amendments to the Companies Act 71 of 2008 that came into effect on 1 April 2023.

These amendments include the requirement to keep a register of Beneficial Owners updated at CIPC together with its standard compliance requirements.

What is a Beneficial Ownership?

A 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.

Here’s an example:

Let’s say Paul owns 60% of the shares in Company ABC, giving him a majority vote in company decisions and the power to appoint or remove board members. Additionally, through a chain of ownership involving a holding company, he can influence the management and strategies of Company ABC. Therefore, Paul is considered the ‘beneficial owner’ of Company ABC and his details will be on the Beneficial Ownership Register.

Who Are the Beneficial Owners?

  • Private Company ((PTY) LTD) - Individuals holding 5% or more of the issued shares.  Companies with beneficial owners holding beneficial interest of 5% or more in a subsidiary company.

  • Close Corporation (CC) - Members holding 5% interest or more of the close corporation.

  • Non Profit Company with members (NPC) - The members would be the beneficial owners.

  • Non Profit Company without members (NPC) - The directors would be the beneficial owners.

  • State-Owned Company (SOC) - Where a shareholder is a minster, the minister would be the beneficial owner.

  • Trust with beneficiaries - Although this is not required by CIPC as it's submitted to the Master of the High Court.

Why was Beneficial Ownership Regulations implemented in South Africa?

Before these new regulations, companies were not required to disclose their Beneficial Ownership or shareholding information to entities like the CIPC. These issues were treated as confidential matters and were managed internally by the company through its share register, share holder agreements and the like.

However, in response to these fresh regulations set out by the SA Government, the CIPC has made it clear that they have collaborated closely with various regulatory and law enforcement bodies to establish a system for “gathering Beneficial Ownership information with the aim of cross-referencing this information.” These regulatory and law enforcement entities encompass the South African Revenue Service (SARS), the Financial Intelligence Centre (FIC), and the Financial Sector Conduct Authority (FSCA).

The recent obligation has put companies in the spotlight, forcing them to disclose their Beneficial Ownership to the CIPC. Consequently, the era when individuals with hidden interests in a company could go unnoticed is now over. This has various consequences for anyone holding valuable assets or involved in intricate ownership arrangements. The new regulations empowers government bodies such as SARS to go through your ownership structures with a fine tooth comb and take you to task.

When is the Beneficial Ownership filing deadline at CIPC?

The deadline for submitting the first round of Beneficial Ownership register with the CIPC is 1 October 2023 (6 months after the regulation was announced). Companies have little time to finalize their ownership structures and comply with beneficial ownership requirements. Failing which they might find themselves being made an example of.

The CIPC noted that failure to file beneficial ownership information will constitute non-compliance and may result in a court-ordered administrative fine of either 10% of the non-complying company’s turnover or R1 million, whichever amount is greater.

This ads a significant burden on South African Businesses.

Fortunately, our team of specialist can assist to file Beneficial Ownership register with CIPC at minimal cost.


Consumer Protection Act

Are your business systems compliant with the Consumer Protection Act?

The Consumer Protection Act has been around since 2008, but has only been implemented since 2010. It is designed to do exactly as its name suggests: protect the consumer. There are fundamental areas within the Act that call for significant changes to be made to various business processes and software, such as bookkeeping programs, in order for a business to be considered compliant.

Interestingly, even after ten years in existence, many businesses remain non compliant with the Consumer Protection Act. Some are aware of the shirking of their responsibilities, but many don’t realize that their business model is in fact non-compliant. For example, many businesses still include an auto-renewal clause in their contracts with their customers.

It is important to double-check that your automated business systems are aligned to Consumer Protection Act compliance.

Most businesses have their processes built into business systems, such as accounting software and ERP software. These are some of the things to check out in order to make sure that your business system is in fact compliant with the law:

  • Do your customers only receive direct marketing they have signed up for and can they opt out of what they don’t want to receive?

There are many companies that offer businesses databases of email addresses that brands can use to send marketing communication to. However, the consumer protection act says that you can only send marketing messages to people that have requested communication from the company. So if you have previously bought email addresses (as the majority of companies have done) then it is important that these addresses are removed from the systems that send your marketing emails, such as your CRM system.

If the email address is a legitimate customer email address and you have permission to contact them, you must give the customer the option to opt out of receiving email communication or unsubscribe from further communication. This option must be highlighted on every piece of communication you send.

It is important to note that often there are different systems that send different emails. For example, your accounting system might send invoices and statements to your customers, but your CRM system sends emails promoting products to your customers. If your customer unsubscribes from one system, they are in fact unsubscribing from communication from your company. The request to unsubscribe must sync between all your communication systems.

  • Do you give your customers due notice of the near expiry of their contracts and the terms of renewal?

When a customer signs up for a contract, such as a health club membership, they are entitled to give the company notice and end the contract. This is significant as companies can now no longer hold a customer liable for a fixed-term contract. It is important that business systems, such as the accounting system that bills the customers, has the ability to end a contract as soon as the customer gives notice.

In addition, a contract that comes to an end cannot be auto-renewed for another set period. So customers cannot be locked in for another 24 months for example. If the customer does not re-sign a new contract, then the contract defaults to month-to-month. Many businesses will amortize the cost of a product or service over several months and only then do they make a profit. If this is the case then there needs to be reminders in place, specifically in the ERP software or bookkeeping programs, which are used to get the customer to physically re-sign or stop offering the service. In some cases companies may be happy to offer a month-to-month service.

  • Do you conduct a per-authorisation of services?

This in particular relates to the repair of products such as cars. Work cannot be carried out that is over a certain value without approval of the customer. Businesses of certain sizes would find this difficult to track manually and so they use systems such as ERP software to manage quoting, approval and resource allocation to jobs. It is important that business rules are built into the system so that an engineer does not begin working on a repair job until the customer has approved the cost.

  • Do your customers have the right to cancel a per-booked service?

Services such as accommodation can be cancelled within a certain period without a customer being charged a cancellation fee. It is important that the accounting software used is configured in such a way that if a cancellation is made before the given period the customer does not get an invoice. If a cancellation is made after that period then the accounting software must recognize that a cancellation fee must be charged and not the full fee.

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