May the real shareholder please stand up

Through an arrangement with the registered holder, a beneficial holder was able to enjoy all shareholder rights and benefits without their identity being disclosed to the company and without being obliged to appear on the publicly accessible securities register (s 26(2) of the Companies Act, grants the right to inspect or make a copy of the securities register of a company to any member of the public) of the company (except in terms of s 56(5), which entitles a company to require the registered holder to disclose the identity of the beneficial holder if the company knows or has reasonable cause to believe that shares are held for the beneficial interest of another).

In practice, the arrangements between a beneficial holder and a registered holder would be regulated by a nominee agreement in terms of which the beneficial holder would nominate the registered holder to hold the shares on behalf of the beneficial holder, vote in the company as directed by the beneficial holder and receive distributions on behalf of the beneficial holder. The ultimate beneficiary to all rights and entitlements relating to the shares would be the beneficial holder, and the registered holder would merely be a proxy.

It should, however, be noted that public companies, state-owned companies, and private companies in respect of whom there has been a transfer (other than by transfer between or among related or inter-related parties (as defined in s 2)) of 10% or more of the issued shares in the company within the preceding 24 months (collectively ‘regulated companies’ (see s 117(1)(i) for a definition of regulated companies (as amended)) were (and are still) required to disclose the identity of certain beneficial holders in their audited financial statements.

The absence of specific disclosure requirements has been viewed by the legislature as potentially enabling corruption, money laundering, fraud and the like. Consequently, the Companies Act has been amended such that the true and ultimate beneficiaries in respect of all companies must be known to the company, the regulatory authorities, and the public.

In terms of the amendment, all regulated companies as well as private companies that are controlled by or are subsidiaries of the regulated companies (collectively the ‘affected companies’), are now also (among other things) required to establish and maintain a register of persons who hold beneficial interests that are equal to or in excess of 5% of the total number of the issued shares in the company (the beneficial interest register), and file such register with the Companies and Intellectual Property Commission (the Commission) (see s 56(7)(aA) read with reg 121A of the Companies Regulations, 2011 (as amended)).

Further, all companies that do not fall within the meaning of affected companies are now required to – a file a record containing all the information regarding natural persons who, directly or indirectly, ultimately own a company or exercise effective control of that company (the ‘beneficial owner’) to the Commission (see s 56(12)); and
include in their securities registers the name and identity/registration number of the registered holders, as well the full details (ie, names, registration numbers, addresses, and extent of ownership) of the beneficial holders and the beneficial owners, and keep the Commission informed of any changes to the beneficial owners by furnishing the Commission with a copy of its updated securities register within ten business days after a change has occurred (see reg 32 and 32B of the Companies Regulation, 2011 (as amended)).

In terms of Guidance Note 2 of 2023: Beneficial Owner Filing Requirements issued by the Commission on 29 May 2023, companies incorporated before 24 May 2023 should file the above information with the Commission on the date on which the next annual returns become due for filing. Any company incorporated on and after 24 May 2023 will be required to file the above information with the Commission within ten business days after it has been incorporated.

A failure by a company to comply with the new requirements of the Companies Act, in relation to its beneficial interests and ownership, constitutes a contravention of the Companies Act, and may result in the Commission issuing a compliance notice. Moreover, a non-complaint company may incur administrative fines.