Beneficial ownership: What is it, and how does one comply with the CIPC reporting requirements?

Aug 2, 2023 | News

Beneficial ownership: What is it, and how does one comply with the CIPC reporting requirements?

The Companies and Intellectual Property Commission (CIPC) recently launched the Beneficial Ownership Register, which allows for the filing of beneficial ownership information and documentation for companies and close corporations in South Africa.

Background

In October 2021, the CIPC participated in the Financial Task Force (FATF) assessments. Based on the findings contained in the Mutual Evaluation Report, it determined that South Africa should improve its mechanisms to ensure accurate and verified beneficial ownership information is available timeously to the competent authorities by, among other things, affording law enforcement authorities the power to gain direct and timely access to ownership and control information of legal persons and entities for them to have a greater capability to thoroughly and effectively investigate financial crimes. This should also enable the CIPC to impose administrative sanctions and penalties directly for non-compliance with information and filing requirements, particularly in terms of beneficial ownership.

Subsequently, in February 2023, South Africa was put onto the FATF “Grey List”, resulting in South Africa being required to have increased monitoring due to various strategic, regulatory, and compliance deficiencies. In response, and with the strategic deficiencies then identified, the CIPC issued an action plan to ensure that the competent authorities and regulatory bodies have timely access to accurate and verified beneficial ownership information on legal persons, and further authorising the CIPC to apply sanctions for breaches and/or violations by legal persons of beneficial ownership obligations.

The Beneficial Ownership Register

Following the abovementioned action plan, and in terms of its recently extended mandate as the authorised regulator in terms of the Companies Act 71 of 2008, General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act 22 of 2022, and the Companies Amendment Regulations 2023, the CIPC established the Beneficial Ownership Register on its e-services platform, which became functional on the 1st of April 2023. This functionality enables corporate vehicles, such as companies and close corporations, to submit details regarding their beneficial ownership status to the CIPC.

The purpose of the Beneficial Ownership Register is to ensure that companies, including non-profit companies and close corporations, keep a record of natural persons who own or control the legal entity and provide the CIPC with a detailed mechanism to maintain accurate and updated beneficial ownership information of complex corporate structures so that the relevant law enforcement authorities and regulatory bodies can swiftly identify who enjoys ownership of various corporate vehicles.

To submit the requisite beneficial ownership details, an authorised individual, with the necessary mandate in the form of a power of attorney, special resolution of a company, or any other recognised format of a company or close corporation, must register as a customer or user of the CIPC. No fee is charged for the filing of the requisite information. To assist these users with the submission of the required information and documentation on the Beneficial Ownership Register, the CIPC released a guideline for users, which is available using the following link: https://www.cipc.co.za/wp-content/uploads/2023/05/USER-GUIDELINES-BO-LEGISLATIVE-REQUIREMENTS.pdf.

What is beneficial ownership?

In respect of a company, a beneficial owner is an individual who, directly or indirectly, ultimately owns the company or exercises effective control thereof through:

  1. holding beneficial interests in securities (or shares) of a company or of a holding company through its subsidiary company, or the ability to exercise control through a chain of ownership of a holding company through its subsidiary company;
  2. the exercise of, or control of the exercise of, voting rights;
  3. the right or control of the right to appoint and remove directors;
  4. the ability to exercise control through a chain of ownership of:
    1. a juristic person other than a holding company;
    1. a body of persons;
    1. a person acting on behalf of a partnership;
    1. a person acting on behalf of a trust, i.e., trustees and beneficiaries of a trust.
  5. the ability to otherwise materially influence the management of the company.

In other words, a beneficial owner is thus a natural person who has some form of effective ownership or control of a legal entity and gains some benefit. Notably, the CIPC’s Beneficial Ownership Register is only concerned with individuals who hold more than 5% beneficial ownership, and thus, any beneficial ownership or control below the 5% threshold need not be declared.

A simple example in practice would be if Ms X holds 80% of the shares in a company, of which 25% are held on behalf of, or for the benefit of, Mr Y, Mr Y would be deemed to be a beneficial owner of the company and the relevant information about Mr Y would have to be declared on the Beneficial Ownership Register.

So, what information must be declared on the Beneficial Ownership Register?

In basic terms, the information of anyone who holds beneficial ownership in a company or close corporation must be declared on the Beneficial Ownership Register. The data of a legal or known owner, i.e., Ms X in the above example, need not be reported on the Beneficial Ownership Register, as it will already be required to be disclosed on the company’s securities register.

Importantly, it is only high-level information of the beneficial owner that needs to be disclosed, such as the full name, date of birth, identity or passport number, residential and postal address, and email address (if applicable) of the individual, and the extent of ownership or effective control which the individual has of the company.

Who does not need to submit information on the Beneficial Ownership Register?

Where a juristic entity, such as a trust, is the entity that has beneficial ownership of a company, whichever individual ultimately derives beneficial ownership from that trust as defined in the Trust Property Control Act 57 of 1988, as amended, must have their information declared with the Master of the High Court, not on the Beneficial Ownership Register.

Affected companies listed on a local stock exchange are also not required to declare information on the Beneficial Ownership Register. Lastly, State-owned companies exempted by the relevant Minister are not required to file beneficial ownership information.

Requirements for the reporting of information on the Beneficial Ownership Register:

To record information on the Beneficial Ownership Register, authorised individuals must submit their mandate, the company’s securities register, certified copies of the identity documents or passports of the beneficial owners, and any other supporting documents required by the CIPC.

Authorised individuals must report or update their entity’s beneficial ownership information within five (5) business days of any change to this information. Suppose no change occurs within a given financial year. In that case, the Beneficial Ownership Register must be updated at least once annually, within 30 days of the entity’s annual return deadline or incorporation anniversary if the entity was incorporated before the 24th of May 2023, and within 10 days thereof if incorporated after the 24th of May 2023. The Beneficial Ownership Register may be updated with the entity’s annual returns filing. For 2023, the initial deadline for filing beneficial ownership information is the 1st of October 2023. From 2024 onwards, together with yearly returns, the beneficial ownership information of an entity must be changed, or confirmation must be provided that no information has changed before the financial year end of each year.

Once the necessary beneficial ownership information has been recorded on the Beneficial Ownership Register and is processed accordingly, the CIPC shall issue a Beneficial Ownership Confirmation Certificate to the relevant entity to indicate compliance with the beneficial ownership requirements.

The possible consequences of non-compliance

Failure to submit the required beneficial ownership information is tantamount to non-compliance with the Companies Act, which could result in court-ordered administrative fines. Where applicable, filing beneficial ownership information is now a legislative requirement.

Non-compliant beneficial ownership information filings will trigger possible investigations and sanctions, including compliance notices, administrative fines, and the disqualification of directors. Complaints regarding non-compliance can be emailed to CoR135.1complaints@cipc.co.za.

At FWB, we can help you navigate these new requirements should you need our assistance.

Article authored by Delan Dhaya & Gaby Meintjes.