IN A NUTSHELL:
Beneficial ownership requirements in South Africa are aimed at enhancing transparency in business ownership structures. These requirements mandate companies to identify and disclose the individuals who ultimately own or control the company, trust or other legal entity. The goal is to prevent money laundering, tax evasion and other illicit financial activities by ensuring that the true owners behind these entities are known. Implementation of beneficial ownership requirements aligns with international efforts to curb financial crimes and promote greater accountability in corporate governance. Companies are obligated to maintain accurate records of beneficial ownership information, which can aid law enforcement agencies and regulatory bodies in investigating and preventing financial misconduct.
LEGISLATIVE BACKGROUND:
Following its commitment towards improved beneficial ownership with its adoption of the G20 High – Level Principles on Beneficial Ownership Transparency in October 2015 and its commitment to the Financial Action Task Force (“FATF”), South Africa underwent an evaluation on its anti-money laundering and counter-terrorist financing measures. Based on the findings contained in this Mutual Evaluation Report which were published in October 2021, it was found that South Africa had not met the desired standards with regard to beneficial ownership requirements and it was consequently expected to ensure that competent authorities have timely access to accurate and up to date beneficial ownership information on legal persons and arrangements and the authority to apply sanctions for breaches of violation by legal persons to beneficial ownership obligations.
It was in response to these shortcomings and deficiencies identified by the FATF’s Report, that the South African Government enacted the General Laws (Anti-Money Laundering and Combatting Terrorism Financing) Amendment Act 22 of 2022 (“the Amendment Act”). This Act is aimed at combatting money laundering and terrorism financing and targets companies and Trusts which are seen by the international community as vehicles regularly used to facilitate such criminal activities through greater transparency requirements in the ownership and control of these entities. This Act amended various existing Acts, including the Companies Act and the Trust Property Control Act.
The amendments that were made to the Trust Property Control Act and the Companies Act, including the enactment of the Companies Amendment Regulations, 2023 (which followed South Africa’s placement on the FATF grey list in February 2023) has introduced the concept of “beneficial ownership” and now forms the basis for the required filing of beneficial ownership information. The amendments to the Companies Act further gave the Companies and Intellectual Property Commission (“CIPC”) a mandate to collect beneficial ownership information.
The CIPC has issued Guidance Note 2 of 2023 under Regulation 4(1)(a) of the Companies Act Regulations, outlining its new filing requirements for Beneficial Owner Information in respect of companies, the rules of which we have detailed in our FAQ’s below.
*Note that the rules applicable to companies and trusts are not identical. Trustees are to please refer to page ----- for the FAQ’s dealing with Trusts.
BENEFICIAL OWNERSHIP - COMPANIES
FAQ’s
What / Who is a beneficial owner?
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:
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;
The exercise of, or control of the exercise of, voting rights;
The right or control of the right to appoint and remove directors;
The ability to exercise control through a chain of ownership of:
A juristic person other than a holding company;
A body of persons;
A person acting on behalf of a partnership
A person acting on behalf of a trust ie trustees and beneficiaries of a trust
The ability to otherwise materially influence the management of the company.
In other words, beneficial owner is a natural person who has some form of effective ownership or control of a legal entity and gains some form of benefit. There is a threshold, with the CIPC Beneficial Ownership Register only requiring individuals who hold more than 5% beneficial ownership having to file. Therefore any beneficial ownership or control below 5% does not need to be declared.
Who must the beneficial owner information be filed with?
The Companies and Intellectual Property Commission (CIPC) which, in terms of its recently extended mandate as the authorised regulator, established the Beneficial Ownership Register on its e-services platform to enable corporate vehicles, such as companies and close corporations, to submit details regarding their beneficial ownership status to the CIPC.
Who needs to submit information on the Beneficial Ownership Register?
- Private Profit Companies
- Private Non – Profit Companies
- External Companies
- Close Corporations
- Non- Exempt State-Owned Enterprises
In the case of a shareholder who is a trust, the beneficiaries of the trust would be the beneficial owners.
In the case of a Close Corporation, the members would be the beneficial owners.
In the case of a Non-Profit Company with members, the members would be the beneficial owners.
In the case of a Non-Profit Company without members, the directors would be the beneficial owners.
In the case of a State – Owned Company where a shareholder is a Minister, the Minister would be the beneficial owner.
Who does not need to submit information on the Beneficial Ownership Register?
- Where 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, must have their information declared with the Master of the High Court, and not on the Beneficial Ownership Register.
- Affected Companies (public companies) listed on a local stock exchange (such as the Johannesburg Stock Exchange).
- State-Owned Companies that have been exempted by the relevant Minister.
- Primary Co – Operatives; and
- Personal Liability Companies
What is an affected company?
An affected company falls into one of two categories:
A regulated company, which refers to one of the below:
A public company
A state-owned company (unless exempt); or
A private company that meets the following criteria:
More than 10% of its issued securities have been transferred (except between related / interrelated parties) within the last 24 months; or
Its Memorandum of Incorporation states that certain sections of the Companies Act and Takeover Regulations will apply to the company and its securities.
A subsidiary of a regulated company, which applies to a private company that is either directly or indirectly owned by a regulated company.
Can a company or a trust be a beneficial owner?
No, only a natural person (warm body) can be considered a beneficial owner.
How do I file beneficial ownership information?
An authorised individual, with the necessary mandate, must register as a customer or user of the CIPC. To assist users with the filing of beneficial ownership information, the CIPC has 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
Who can file the beneficial ownership information with the CIPC?
Any individual who has been designated or mandated in writing by a company to file the beneficial ownership information on its behalf (by means of a written mandate, Power of Attorney, Special Resolution, etc).
Does a filer need to present a mandate in order to file the beneficial ownership information?
Yes, without a valid mandate a filer is not permitted to transact on the Beneficial Ownership Register.
What documents are required to be filed?
- Written Mandate mandating filer to lodge
- Certified Id / Passport of Beneficial Owners and filer
- Securities Register (within this register, the prescribed beneficial ownership information must be recorded)
What information must be declared?
Full names, dates of birth, Identity / Passport Numbers, Residential Addresses, Postal Addresses of beneficial owners together with the extent of their ownership and/or effective control of the relevant company.
Is there a limit on the number of beneficial owners that can be added into the Register for a specific company?
No, there is no limit as there could be more than one person considered a beneficial owner in a company.
What is the minimum threshold before a person can be considered a beneficial owner?
5% - shareholding, beneficial interest, voting rights, etc.
If the beneficial owner’s details have changed, can the beneficial owner file these changes at any time?
Yes. When there are changes on the beneficial ownership of a company, the company has 10 days to update its beneficial ownership/ securities register (Regulation 32(3A) non-affected companies) and Regulation 32A (affected companies))
Is the Beneficial Ownership Information filed with CIPC accessible to the public?
No, unless South Africa’s policy changes, the public will not have access to beneficial ownership information.
Who is allowed access to beneficial ownership information?
Law enforcement agencies and vetted competent authorities.
Why must beneficial ownership information be filed with the CIPC?
This is a legal requirement by the Financial Action Task Force and a requirement imposed by the General Laws (Anti Money – Laundering and Combating Terrorism Financing) Amendment Act.
When must the beneficial ownership information be filed with the CIPC?
It is crucial that all companies file their beneficial ownership information as soon as possible. There is no transitional period, nor can companies wait until their annual return anniversary date.
What happens if I do not submit the required beneficial ownership information?
In the case of non-compliance, a compliance notice may be issued in terms of section 171 of the Companies Act 71 of 2008 and you may face an administrative penalty of over R1 million or 10% of the Company’s annual turnover in terms of section 175 of the Companies Act
BENEFICIAL OWNERSHIP - TRUSTS
FAQ’s
What / Who is a beneficial owner?
In respect of a Trust, an individual (natural person) who:
Directly or indirectly ultimately owns the relevant trust property
Exercises effective control of the administration of the trust
Each founder of the trust, or
if a founder is a legal person, a person acting on behalf of a partnership or in pursuance of the provisions of a trust instrument, the natural person who directly or indirectly ultimately owns or exercises effective control of that legal person or partnership or the relevant trust property.
Each trustee of the trust, or
if a trustee of a trust is a legal person or a person acting on behalf of a partnership, the natural person who directly or indirectly ultimately owns or exercises effective control of that legal person or partnership; and
Each beneficiary referred to by name in the founding documents of the trust or;
if a beneficiary is a legal person, a person acting on behalf of a partnership or in pursuance of the provisions of a trust instrument, the natural person who directly or indirectly ultimately owns or exercises effective control of that legal person or partnership or the relevant trust property.
Who must the beneficial owner information be filed with?
The beneficial owner information must be filed with the Master of the High Court.
Who needs to submit information on the Trust Beneficial Ownership Register?
The Trustees (or person authorised by the Trustees by way of written Power of Attorney) are required to establish, record and capture the beneficial ownership information of the specific trust on the portal.
Who does not need to submit information on the Trust Beneficial Ownership Register?
This is not established in the Trust Property Control Act and would have to be interpreted based on the context and on the specific set of facts. For example, in the case of a share scheme, a beneficiary who is not specifically named and who does not have a vested right to trust assets but who receives income derived from trust assets, can arguably not qualify as a beneficial owner as defined, although each case would need to be assessed based on its own set of facts.
Can a legal entity be a beneficial owner?
No. A beneficial owner is always a natural person. In the instance where a legal entity fulfils the role of a beneficial owner, the natural person/s who ultimately benefit/s from the legal entity will be recorded as the beneficial owner/s of the Trust.
How do I file beneficial ownership information?
The Master of the High Court website allows trustees to upload their beneficial ownership information on the Trust Beneficial Ownership Register through an online portal on their website. The following is a link to this portal: https://icmsweb.justice.gov.za/mastersinformation/
Who can file the beneficial ownership information with the Master?
Only Trustees are permitted to record the beneficial ownership information with the Master of the High Court, however, the authority to upload this information on behalf of the Trustees may be given to a Trust Administrator by the Trustees.
Does the filer need to present a mandate to file the beneficial ownership information?
Only if the filer is not a Trustee, in which case the filer must present a written Power of Attorney signed by the Trustees authorising the filer to capture the beneficial ownership information on the trustee’s behalf.
What documents are required to be filed?
Trustees are required to lodge an electronic register capturing detailed data on each beneficial owner in relation to the Trust on the Master’s online portal. This is a manual exercise which requires basic details of the trust and details of the person capturing the beneficial ownership information to be captured on the electronic register. Following this, the trustee is required to upload an Excel file (max 10MB and only one single Excel file allowed) populated with comprehensive data on each beneficial owner of the trust.
Trustee’s are required to keep certified copies of the identity documents of all ‘beneficial owners’ as well.
What information must be declared?
A trustee is required to keep an updated record of, and to upload on the register, the following information relating to each identified beneficial owner of the trust:
Full names
Date of birth
Nationality
An official identity document number/ passport number, indicating the type of document and country of issue
Citizenship
Residential address (and address for service of notices if different from residential address)
Other means of contact
If the person is a registered taxpayer in South Africa, the person’s tax number
The class or category of beneficial ownership under which the person falls
The date on which the person became a beneficial owner and, where applicable, the date on which the person ceased to be a beneficial owner of the trust.
Where a beneficial owner is a minor, the trustee must keep a record of the same abovementioned information in respect of the minor’s legal guardian.
Trustees must keep certified copies of an official identity document/passport of each identified beneficial owner of the trust, and the information record on the register must appear the same way as it appears on this certified identity document/ passport.
If the beneficial owners details have changed, can the trustee file these changes at any time?
Yes, trustees are required to maintain up to date records.
Is the beneficial ownership information lodged with the Master accessible to the public?
No, in terms of the regulations, access to this information is restricted to various government bodies only.
Who is allowed access to this beneficial ownership information?
Only government bodies such as the National Prosecuting Authority, the Independent Police Investigative Directorate, State Security Agency, the Intelligence Division of the National Defence Force, a Special Investigating Unit, the South African Revenue Service, the Financial Intelligence Centre and other bodies as named in the regulations.
Note, access could be granted to a person who is entitled to receive such information in terms of national legislation.
These entities must request access in writing providing proof that they qualify and designate officials who will have access. The Master will then grant access to the designated officials.
Why must beneficial ownership information be filed with the Master?
This is a legal requirement by the Financial Action Task Force and a requirement imposed by the General Laws (Anti Money – Laundering and Combating Terrorism Financing) Amendment Act.
When must this beneficial ownership information be filed with the Masters Office?
It is crucial that trustees upload their beneficial ownership information as soon as possible. There is no transitional period and the Amendment Act, in which this requirement stems, became effective on 1 April 2023.
What happens if trustees do not upload their beneficial ownership information?
Failure of a trustee to comply with the beneficial ownership requirements is an offence and, on conviction thereof, trustees may expose themselves to fines of up to R10 million, imprisonment for a period of five years, or both.
The newly introduced definition of ‘beneficial owner’ contained in both the Companies Act and Trust Property Control Act is not as straight forward as one may think. Preparing and submitting the correct information either to the CIPC, in the case of companies, or the Masters Office in the case of trusts, requires an informed and careful approach to ensure compliance.
Should you require assistance with understanding the requirements or managing your reporting duties, please feel free to contact one of our Attorneys who are dedicated to ensuring you comply with your new reporting obligations.