Submitting Beneficial Ownership/Beneficial Interest Information: Recent Developments And A Step-By-Step Guide For Companies To Follow

On 28 June 2024, the Companies and Intellectual Property Commission (the "CIPC") published a media release (the "Release") which provides that the CIPC will, with effect from the 1^st of July 2024, strictly enforce the filing of Beneficial Ownership Declarations with the filing of annual returns. According to the Release, the implementation of this "hard-stop functionality" means companies will not be able to file their annual returns via any of the CIPC electronic platforms unless the Beneficial Ownership Declaration has been submitted and/or is up to date and, if not up to date, companies may incur penalties for the late filing of annual returns, face enforcement action by the CIPC through investigations, be issued with compliance notices and may be referred for deregistration and/or final deregistration due to non-compliance.

To avoid these consequences and/or penalties, we set out below a basic step-by-step guide for companies on how to file their Beneficial Ownership Declarations. Before doing so, we provide some brief important legislative background in order to give further context to the Release and explain what exactly the Release requires from companies, in particular, what type of information i.e. beneficial ownership or beneficial interest information, must be filed and by whom. Finally, we make some general observations for consideration by readers.

Background and Statutory Source(s)

In October 2021, the Financial Action Task Force ("FATF") released its Mutual Evaluation Report of South Africa (the "Report"), which analyses South Africa's level of compliance with the FATF 40 Recommendations and the level of effectiveness of the AML/CFT (Anti-Money Laundering and Combatting the Financing of Terrorism) system and recommends how the system could be strengthened. According to the Report, the major deficiencies were that there were limited measures to ensure adequate, accurate, and timely information on beneficial ownership and control of legal persons which could be accessed in a timely way by competent authorities.

According to a media statement issued on 6 January 2023 by the National Treasury, the South African government and its authorities had worked closely to address the deficiencies that were identified in the Report, and, on 22 December 2022, the President assented to the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act No.22 of 2022 (the "GLAA") which amended various pieces of legislation including the Companies Act. Furthermore, and as a result of the GLAA, the Minister of Trade, Industry and Competition on 23 May 2023 published the final Companies Amendment Regulations 2023 (the "Regulations").

The Regulations together with the Companies Act, as amended, provide for the legislative framework that sets out the new reporting obligations for companies in relation to beneficial ownership/beneficial interest information (as applicable) which we discuss below.

Beneficial ownership vs beneficial interest

The GLAA introduced the concept of a beneficial owner to the Companies Act. Prior to this, there had only been the concept of beneficial interest. Section 1 of the Companies Act now provides that a "beneficial owner", means, in respect of a company, a natural person who, directly or indirectly, ultimately owns or exercises effective control of that company, including through:-

• the holding of beneficial interests in the securities of that company;
• the exercise of, or control of the exercise of the voting rights associated with securities of that company;
• the exercise of, 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, including through a chain of ownership or control, of inter alia, a juristic person other than a holding company of that company; or
• the ability to otherwise materially influence the management of that company.

The concept of beneficial interest, on the other hand, pre-dates the GLAA and was therefore already in the Companies Act. "Beneficial interest", when used in relation to a company's securities, means the right or entitlement of a person, through ownership, agreement, relationship, or otherwise, alone or together with another person to –

• receive or participate in any distribution in respect of the company's securities;
• exercise or cause to be exercised, in the ordinary course, any or all of the rights attaching to the company's securities; or
• dispose or direct the disposition of the company's securities or any part of distribution in respect of the securities,

but does not include any interest held by a person in a unit trust or collective investment scheme in terms of the Collective Investment Schemes Act, 2002 (Act 45 of 2002).

From the above, it is clear that beneficial ownership and beneficial interest are distinct terms, although beneficial interest may be a type of beneficial ownership, for example, a beneficial owner may own/or exercise effective control of a company through the holding of beneficial interests in securities of a company.

It is important to note this distinction because, as explained further below, the reporting obligations in relation to whereas the reporting obligations flowing from beneficial ownership applies to companies that are "non-affected". This distinction is key in understanding a company's practical reporting obligations.

Affected vs "non-affected" companies and their respective reporting obligations

An "affected company" is another new term that was introduced to the Companies Act by the GLAA which means a regulated company as set out in section 117(1)(i) (i.e. a company to which Part B, Part C of the Companies Act and Chapter V of the Companies Regulations (i.e. the takeover regulations) apply) and a private company that is controlled by or a subsidiary of a regulated company as a result of any circumstances contemplated in section 2(2)(a) or 3(1)(a). On the other hand, the Companies Act seems to refer to all other companies (i.e. those companies that are not classified as affected companies) as "a company that does not fall within the meaning of an 'affected company'" and therefore, for ease of reference, we refer to these companies as being "non-affected".

With the above in mind, we set out the following reporting obligations in respect of affected and non-affected companies prescribed by the Companies Act and the Regulations.

An affected company must:

• establish and maintain a register of the persons who hold beneficial interests equal to or in excess of 5% of the total number of securities of that class issued by the company, together with the extent of those beneficial interests;
• file a copy of its register of the disclosure of beneficial interest with the CIPC together with its annual return; and
• keep the beneficial interest register up to date and must as soon as practical, but no later than 10 business days of any notification, pursuant to section 122(1), as to the change of the prescribed information in its register of the disclosure of beneficial interest, update that register to reflect the changes to such information.

Please note that according to CIPC's Guidance Note 2 of 2023 ("Guidance Note 2"), an affected company listed on a local stock exchange is not required to file a register of its beneficial owners/beneficial interest holders if such information is already kept at such stock exchange or any institution with the authority of collecting and keeping such records, and this also applies to entities related i.e. a subsidiary or an entity controlled by the affected company in question. (It is unclear why Guidance Note 2 refers to "beneficial owners" given that the legislation doesn't say anything about affected companies having to file beneficial ownership information but, in our view, the intention behind Guidance Note 2 is probably to refer only to beneficial interest).

Furthermore, and for completeness, we note the CIPC guidelines provide that state-owned companies will be required to file beneficial ownership information unless exempted by the Minister in terms of section 9(2) of the Companies Act. In terms of section 118(1)(b) a state-owned company is an affected company (except to the extent that any such company has been exempted in terms of section 9) so the reference again to filing beneficial ownership is not clear but we assume that it is similarly probably intended to refer to the beneficial interest.

A non-affected company must:

• record in its securities register prescribed information regarding the natural persons who are the beneficial owners of the company, and must also file a record of the beneficial owners with the CIPC;
• update its securities register to reflect any changes to BO information as soon as practical but no later than 10 business days after it receives any notification regarding changes to its BO information;
• within 10 business days after updating its securities register, file the applicable CoR Form and a copy of its securities register with the CIPC.

It is important to note Guidance Note 2 which states that the threshold of 5% of ownership and/or control will be applicable for all entities required to file beneficial ownership information, meaning that anything less than 5% will not need to be filed.

In summary, according to the Companies Act and the Regulations, an affected company has an obligation to establish and maintain a beneficial interest register, and a non-affected company must record its beneficial ownership information.

However, we would just like to respectfully point out that the guidelines (discussed below), in certain respects, seem to sometimes conflate beneficial ownership with beneficial interest, even though, as discussed above, these concepts are not one and the same according to the definitions in the Companies Act. In any event, please remember that both affected and non-affected companies have reporting obligations and, when you follow the steps below, CIPC's portal will direct you to click on certain options depending on whether the company you are filing for is affected or non-affected, and you will then be directed to file beneficial ownership or beneficial interest information, as applicable.

Therefore, we take the view that where the Release refers to "Beneficial Ownership Declarations", it is likely that this means beneficial ownership information (for non-affected companies) and beneficial interest information (for affected companies).

How to submit beneficial ownership/beneficial interest information

In order to submit beneficial ownership/beneficial interest information, follow the steps below:

1. Click on CIPC's e-services portal and log in using your Customer Code, Password, and Security code.
2. Click on the Transact button and then click on the Beneficial Ownership option.
3. To start a new transaction, click on the New button which will take you to a list of entities linked to your profile, and select the entity you wish to file beneficial ownership information for.
4. Populate the details of the beneficial owners applicable to that entity and click on the Save button once the information has been captured and then click Continue.
5. Select the Choose File option to upload supporting documentation.
6. After uploading all supporting documentation, click Continue which will take you to a summary page.
7. If you are certain that all the information recorded is true and correct, click the Submit button.
8. Only the mandated filer of the entity will receive both an email and SMS OTP.
9. Once these OTPs have been received, click on the Confirmed button to capture the OTPs.
10. Capture all mandatory fields and verify the OTPs and then click the Finish button.
11. Note that only non-affected companies will receive a confirmation certificate of their beneficial ownership filing. Affected companies and non-affected companies with zero beneficial ownership to declare will only receive a notification of the submission of required documents when filing.

For more detailed steps on how to submit beneficial ownership/beneficial interest information, we recommend following these CIPC guidelines.

General observations

We note that the distinction between affected and non-affected companies may not always be clear. Would, for example, a private company incorporated in South Africa which is a wholly-owned subsidiary of a foreign public company be an affected or non-affected company? This depends on whether the private company in question (a) meets the definition of a regulated company in terms of section 117(1)(i) or (b) is controlled by or is a subsidiary of a regulated company. Option (b) won't apply in our view because, for the purposes of the Companies Act, a regulated company does not include foreign companies.

However, option (a) may apply – and a private company may therefore be regarded as a regulated company (and hence an affected company) – if the private company's MOI expressly provides that the company and its securities are subject to Part B, Part C and the Takeover Regulations, or if the percentage of the company's issued securities that have been transferred, other than by transfer between or among related or inter-related persons, within 24 months immediately before the date of a particular affected transaction or offer exceeds 10%.

Therefore, although a private company wholly owned by a foreign public company will generally be categorised as a non-affected company and would thus be required to report its beneficial ownership information, it is advisable to check the private company's MOI and/or to consider whether it has transferred more than 10% of its issued securities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.