What every business needs to know about beneficial ownership registries

Image source: Rabia Elif Aksoy from Pexels

This ownership information is meant to form part of a central database of individuals who own legal entities. This database is meant to assist law enforcement in the event of a criminal investigation by giving them certainty over who the ultimate owners or controllers of any implicated legal entity are.

Once implemented, the Companies Amendment Bill, 2023 (Companies Bill 2023) will expand on the provisions of the GLA 2022 by giving specific access rights to beneficial ownership registers or information of companies under certain circumstances. In effect, this means that there will be specific cases where law enforcement officials aren’t the only ones who can access such registers, a move which is, among other things, intended to increase transparency in the business sector.

Understanding beneficial ownership

Before looking at who’ll have access to beneficial ownership registers and under what circumstances, it is worth examining what beneficial ownership means.

Simply put, a beneficial owner is an individual who, directly or indirectly, owns an interest in a company. That person could also exercise effective oversight or control over that company, including ownership through:

• the holding of beneficial interests in the securities of that company;
  
• the exercise of voting rights associated with securities of that company;
  
• the control of the right to appoint or remove members of the company’s board of directors;
  
• 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 by:
  • a juristic person other 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 materially influence the management of that company.

Big Brother or best friend? Govt's motivation for total information

Philip Tillman  30 Oct 2023

Here’s what a practical example of this might look like. If someone, let us call him Mr Nkosi, owns a 50% stake in Company A and that company, in turn, owns a 25% stake in Company Z, then Mr Nkosi would have a 12.5% interest in Company Z. Another practical example would be if someone holds 20% of shares within a company, and 10% of those shares are held on behalf of someone else.

Which organisations are obliged to file

The obligation to file beneficial ownership details to the CIPC applies to profit companies, non-profit companies with members, and close corporations.

For-profit companies are required to have a share register as well as a register of the persons who hold a beneficial interest equal to or greater than 5% of the total number of securities of that class issued by the company.

The term "affected company" includes a public company, a state-owned company (unless exempted), or a private company if more than 10% of its issued securities have been transferred between unrelated third parties within the last two years. It also includes any company with a memorandum of incorporation that expressly provides that parts B and C of the Companies Act of 2008 (Companies Act), with that Act’s takeover regulations applying to the company and its securities. The term additionally applies if a company is an indirect or direct subsidiary of the above companies. If it is not an affected company, it must record its beneficial owners in the securities register.

Affected companies are required to file a beneficial interest register with the CIPC. These companies must also notify the CIPC if anyone buys or sells 5% or more of a class of securities. Companies not categorised as affected companies must file updates to their securities register when there is a change of information relating to beneficial ownership.

There is, however, at least one notable exception. A notice issued by the CIPC states that an affected company listed on a local stock exchange (or its subsidiaries) does not have to file beneficial ownership information if this information is already kept as per the rules of a stock exchange or other regulatory authority.

Things are much simpler for non-profits. If a non-profit company has members, it must file a register with member details. The details of the directors of the non-profit company will suffice if there are no members.

Company ownership: Unpacking new record-keeping, reporting requirements

Janine Will  28 Mar 2023

Accessing beneficial ownership information

Knowing all that, what are the rules around who can access beneficial ownership registers?

According to the Companies Bill 2023, anyone who holds beneficial interests in the company's securities has the right to access the register where the beneficial interests of the company are disclosed. The Companies Act already allows beneficial interest holders and others to access a company's shares register. For companies that are not categorised as affected companies and have beneficial interest information included in their securities register, this means those with access to the stocks register will also be able to attain beneficial interest information.

In addition to increasing 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 other practical benefits. Holders of controlling 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.

A direct or indirect transfer of property by a company to the holder of a beneficial interest of a company will, for example, be subject to the solvency and liquidity requirements of the Companies Act. Allowing holders of beneficial interests and other parties to access such ownership information will empower them with the necessary information to hold the company accountable when it comes to rules around GLA 2022.

The Companies Bill 2023 has updated the private company categories that must follow the takeover regulations and parts B and C of the Companies Act, further strengthening the transparency and oversight provided by beneficial ownership registers.

It now refers to a private company that has 10 or more direct or indirect shareholders and meets or exceeds the prescribed financial threshold (currently, the private companies falling within the category are those that have had a transfer of shares between unrelated parties in the past two years of more than 10%). The definition of "indirect shareholding" is not without its challenges, however, access to beneficial interest information will assist in this assessment.