Everything you need to know about beneficial ownership
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.