Looking through the telescope: Companies Amendment Bill on beneficial ownership

The Department of Trade, Industry and Competition published the draft Companies Amendment Bill, 2021 ("Bill") which proposes several amendments to the Companies Act No. 71 of 2008 ("Companies Act").

29 Oct 2021 3 min read Corporate & Commercial Alert Article

At a glance

  • The draft Companies Amendment Bill, 2021 proposes amendments to the Companies Act, including changes to section 56.
  • The proposed amendments aim to require companies to establish and maintain a register of disclosure of beneficial interests, request details of beneficial interest holders from registered security holders, and publish a list of persons holding 5% or more beneficial interests in their audited annual financial statements.
  • The concept of a "true owner" is introduced to bridge the gap between beneficial holders and registered holders, with only natural persons being considered true owners. This transparency measure aims to address financial crimes and enhance corporate governance.

Amongst these proposed amendments, the Bill seeks to amend section 56 of the Companies Act to require, inter alia:

  • every company to establish and maintain a register of disclosure of beneficial interests;
  • every company to request the registered security holder to provide details of the beneficial interest holders each quarter; and
  • certain companies to publish in their audited annual financial statements, a list of persons who in aggregate, alone or together with another person hold beneficial interests amounting 5% or more or any such percentage prescribed by the Minister.

Currently, section 56(5) the Companies Act does not compel any company to request from shareholders the identity of holders of beneficial interest – it is an entitlement to do so. The obligation to disclose is placed on the beneficial holders of securities in a public company. There is therefore a lacuna in that beneficial holders of securities in a private company are not subject to the compulsory disclosure regime. The proposed amendments, if effected, will ensure the same standard applies across the board to all profit companies.

In order to close the gap between 'beneficial holder' and 'registered holder', the Bill introduces the concept of a 'true owner'. This is defined as a natural person who would in all the circumstances be considered to be the ultimate and true owner of the relevant securities, whether by (i) reason of being capable either directly or indirectly of directing the registered holder with regard to the securities or (ii) because of being a person for whose benefit the securities enure or (iii) for any other reason.

It is notable that only a natural person and not a juristic person can be regarded as a true owner. This will reveal beneficiaries at the end of the investment chain in their personal capacities beyond merely another juristic entity which may be an alter ego or a facade. However, this identification may not be possible in all instances. Furthermore, it may be challenging to ensure compliance by an offshore registered holder to disclose the true owner as such a provision may be difficult to enforce.

Given that opaque ownership structures can be utilised for financial crimes, including money laundering and terrorism finance, it is envisaged that the proposed access and transparency will assist in providing oversight which aligns with the objectives of the Companies Act. It is hoped that this would shield various stakeholders from risk, identify misstatement, fraud and corruption, and ensure compliance and law enforcement. This approach would not be novel to South Africa, similar efforts have been made in the United States and European Union (with the concept of a UBO).

The attempt at ascertaining true ownership appears to be a positive development in light of corporate governance, transparency and recent corporate scandals in the South African context. While this paradigm shift may be welcomed, it should not be underestimated. The knock-on effect to existing agreements, mandates, confidentiality obligations, business and family trusts, brokers and other intermediaries and the actual compilation of the required register could prove to be exhaustive, and will involve additional diligence. We would expect the true owner concept to permeate other finance related legislation in due course.

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