Beneficial ownership and the importance of filing annual returns

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Beneficial ownership

In response to South Africa being greylisted due to non-compliance with international standards relating to the prevention of money laundering and terrorist financing, Parliament enacted the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act in December 2022, which mandated the
amendment of the Companies Act.

These Companies Act amendments, which came into effect on 1 April 2023, mandate the Companies and Intellectual Property Commission (“CIPC”) to oblige companies (excluding public companies and personal liability companies) and close corporations to disclose their beneficial ownership information to it.

The key highlights of the Companies Act amendments include the introduction of two new concepts: “beneficial owner” and “affected company”.

“Beneficial owner” means, in respect of a company, an individual who, directly or indirectly, ultimately owns that company or exercises effective control of that company, including through—

• the holding of beneficial interests in the securities of the company;
• the exercising, or controlling of the exercising, of the voting rights associated with securities of that company;
• the exercising, or controlling of the exercising, of the right to appoint or remove board members of that company;
• the controlling of beneficial interests in the securities of a holding company of that company;
• the ability to exercise control of a juristic person other than a holding company; a body of persons corporate or unincorporate; a person acting on behalf of a partnership; or a person acting in pursuance of a trust agreement; or
• the ability to otherwise materially influence the management of that company.

An “affected company” means a regulated company as determined in terms of section 118(1) and (2) of the Companies Act. Such companies are required to maintain a register of the holders of beneficial interests in the securities of such company.

Companies not falling within the ambit of an “affected company” are required to identify and record in their securities register information regarding any individual who directly or indirectly owns 5% or more of the shareholding in that company and file the securities register with CIPC. In the event of any changes in a company’s beneficial ownership, the company’s securities register must be updated within 10 business days of the change.

In addition, companies are required to file a copy of their securities register or register of disclosure of beneficial interest, as applicable, on an annual basis along with their annual returns to CIPC, so that CIPC remains abreast of beneficial ownership changes within a company.

Importance of filing annual returns

As authorised by the Companies Act, CIPC has commenced sending letters of demand to companies who have failed to file an annual return for two years in succession.

If a company fails to file its outstanding annual returns within 20 business days after receiving CIPC’s letter of demand, CIPC will issue a Notice of Pending Deregistration to the company. CIPC will proceed to deregister a company if it fails to file its outstanding annual returns within 20 business days after receiving the Notice of Pending Deregistration.

It is therefore crucial for companies to timeously file their annual returns to avoid the deregistration of the company.

Any queries regarding beneficial ownership reporting and/or the status of your company’s annual returns can be directed at pty@asl.co.za.