The Omnibus Bill proposes amendments to the Companies Act, 2008 (Companies Act), primarily related to disclosure of information concerning beneficial ownership. More extensive amendments to the Companies Act were proposed in the draft Companies Amendment Bill, 2021 (Companies Amendment Bill, 2021), which we reported on in an
e-alert. These amendments have not been finalised and it is not clear how the amendments in the Omnibus Bill will impact on these proposed amendments.
This alert summarises the amendments proposed to be made to the Companies Act by the Omnibus Bill.
Introduction of a new term: "beneficial owner"
The Omnibus Bill introduces a new definition, that of "beneficial owner".
The new term is used in the newly proposed provisions requiring the beneficial owners of securities to be (i) listed in a company's securities register and (ii) recorded with the Companies and Intellectual Property Commission (CIPC) (see discussion below). The new definition is therefore relevant to all companies.
It is not clear whether the definition of "beneficial owner" proposed by the Omnibus Bill is intended to replace the arguably simpler definition of "true owner" proposed by the Companies Amendment Bill, 2021.
It is also not entirely clear how the definition proposed by the Omnibus Bill is intended to interact with the definition of "beneficial interest" already contained in the Companies Act and used in section 56 of the Companies Act (see discussion below).
Definition of the term "beneficial owner"
The definition introduced into the Companies Act by the Omnibus Bill (i) incorporates the meaning ascribed to the term "beneficial owner" in the Financial Intelligence Centre Act, 2001 (FICA), as amended by the Omnibus Bill, and, (ii) for the purposes of the Companies Act, in respect of a company, includes, but is not limited to, a natural person who, directly or indirectly, ultimately owns or exercises control of a company.
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the first part of the new definition
The definition of "beneficial owner" in FICA, as amended by the Omnibus Bill, and incorporated into the Companies Act, refers to a natural person who directly or indirectly:
- ultimately owns or exercises effective control of:
- a client of an accountable institution; or
- a legal person, partnership or trust* that owns or exercises effective control of, as the case may be, a client of an accountable institution; or
- exercises control of a client of an accountable institution on whose behalf a transaction is being conducted; and
includes the natural persons contemplated in section 21B of FICA.
The natural persons contemplated in section 21B of FICA are linked to legal persons, partnerships, and trusts for purposes of FICA and include broad groups of natural persons.
As regards legal persons, section 21B(2)(a) of FICA, as amended by the Omnibus Bill, provides that these natural persons are:
- each natural person who, independently or together with another person, has a controlling ownership interest in the legal person;
- if in doubt, each natural person who exercises control of that legal person through other means, including through the natural person's ownership or control of other legal persons, partnerships or trusts; or
- each natural person who exercises control over the management of the legal person, including in the natural person's capacity as executive officer, non-executive director, independent non-executive director, director or manager.
As regards partnerships, section 21B(3)(b) of FICA, as amended by the Omnibus Bill, provides that these natural persons are:
- every partner, including every member of a partnership
en commandite, an anonymous partnership or any similar partnership;
- if a partner is not a natural person, the beneficial owner of that legal person, partnership or trust;
- the natural person who exercises executive control over the partnership; and
- each natural person who purports to be authorised to enter into a single transaction or establish a business relationship with the accountable institution on behalf of the partnership.
As regards trusts, section 21B(4)(c), (d) and (e) of FICA, as amended by the Omnibus Bill, provides that these natural persons are:
- each founder;
- if a founder of the trust is not a natural person, the beneficial owner of the legal person or partnership;
- each trustee;
- if a trustee is not a natural person, the beneficial owner of the legal person or partnership;
- each natural person who purports to be authorised to enter into a single transaction or establish a business relationship with the accountable institution on behalf of the trust, whether such a person is appointed as a trustee of the trust or not;
- each beneficiary of the trust;
- if a beneficiary is not a natural person, the beneficial owner of that legal person, partnership or trust; and
- if beneficiaries are not referred to by name in the trust deed or other founding instrument, the particulars of how the beneficiaries of the trust are determined.
(*For purposes of FICA, "trust" means a trust defined in section 1 of the Trust Property Control Act, 1988, other than a trust established:
- by virtue of a testamentary disposition;
- by virtue of a court order;
- in respect of persons under curatorship; or
- by the trustees of a retirement fund in respect of benefits payable to the beneficiaries of that retirement fund,
and includes a similar arrangement established outside South Africa.)
All accountable institutions that are companies will therefore be required to list the above broad groups of natural persons in their securities register as beneficial owners and record the same with CIPC. It is unclear how a company should report in its securities register and record with CIPC certain "once-off" beneficial owners, eg persons who are authorised to represent an entity in a specific transaction or to establish a relationship.
The legislator should clarify whether the incorporation of the meaning in FICA will, for purposes of the Companies Act, only apply to companies that are accountable institutions (ie listed in Schedule 1 to FICA) or to clients of accountable institutions, as defined in FICA, or to all companies. Although accountable institutions are already, under FICA, required to identify these natural persons, should the provision also apply to other companies, the provision will place a heavy administrative burden on other companies.
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the second part of the new definition
The second part of the new definition, which for the purposes of the Companies Act, in respect of a company, includes, but is not limited to, a natural person who, directly or indirectly, ultimately owns or exercises control of a company is broadly in line with what is contained in section 2(2) of the Companies Act, the section that specifies in what circumstances a person, natural or juristic, can be said to control a juristic person or its business, but with one important difference: it does not specifically refer, as section 2(2) does, to a
majority threshold. The interaction with section 2(2) of the Companies Act is therefore not clear.
The legislator should clarify what is meant by "effective control" and "control" in both parts of the definition since while control in the company law context is generally determined with reference to, for example, a
majority of the voting rights associated with a company's securities, for purposes of FICA, ownership of 25% or more of the shares with voting rights in a legal person is understood to usually be sufficient to exercise control of it. On a plain reading of the definition, it would appear that the lower threshold is now also made applicable to the Companies Act for purposes of the determination of beneficial ownership. However, the determination of "control" in section 2(2) of the Companies Act is arguably applicable for all purposes of the Companies Act. Given this discrepancy, there is potential for confusion as to who would be considered beneficial owners.
Records of beneficial owners
The Omnibus Bill provides that a company must:
- record in its securities register prescribed information (in the prescribed form) regarding the natural persons who are the beneficial owners of the company, and must ensure that this information is updated within the prescribed period after any changes in beneficial ownership have occurred; and
- file a record with CIPC, containing prescribed information (in the prescribed form) regarding the natural persons who are the beneficial owners of the company, and must ensure that this information is updated by filing notices with CIPC within the prescribed period after any changes in beneficial ownership have occurred.
Like the Companies Amendment Bill, 2021, the Omnibus Bill contains provisions requiring every company to include in its annual return a copy of its securities register as required in terms of section 50 and a copy of its register of the disclosure of beneficial interest as required in terms of section 56 and provides that CIPC must make the return available electronically to any person as may be prescribed. Given the proposed amendments to require a company to include details of beneficial owners in its securities register and to include a copy of its securities register in its annual return, it is not clear why a separate record (the record containing prescribed information relating to beneficial owners referred to in the second bullet point above) is required.
Beneficial ownership and beneficial interest
Unlike the definition of "true owner" proposed by the Companies Amendment Bill, 2021, the definition of "beneficial owner" has not been expressly linked to the definition of beneficial interest in the Companies Act. The interaction between the two terms is therefore not clear.
Section 56 of the Companies Act deals with beneficial interests and, among others, imposes requirements on regulated companies to disclose beneficial interests in their annual financial statements. Unlike the Companies Amendment Bill, 2021, the Omnibus Bill does not seek to amend the provisions of section 56 to extend this disclosure obligation to all companies, but rather has proposed a change in the title of the section to include beneficial ownership and the addition of requirements to file a record of beneficial owners with CIPC and update such record (as discussed above). It therefore appears that if the Omnibus Bill's proposed amendments are introduced, two distinct sets of disclosure obligations will exist – one of disclosure of beneficial interests (equal to or in excess of 5% of the total number of securities of a class of securities issued by a company) by regulated companies in their annual financial statements as is the case currently and one of disclosure of beneficial ownership by all companies.
New grounds for disqualification to be a director
The Omnibus Bill extends the grounds for disqualification to be a director, alternate director, prescribed officer or member of any board committee, contained in section 69 of the Companies Act, to persons who have been convicted, in South Africa or elsewhere, and imprisoned without the option of a fine, or fined more than the prescribed amount (currently, ZAR 1 000), for an offence:
- involving money laundering, terrorist financing, or proliferation financing activities as defined in section 1(1) of FICA; or
- under the Protection of Constitutional Democracy Against Terrorism and Related Activities Act, 2004 or the Tax Administration Act, 2011.
This summary is not intended to, and does not, constitute legal advice, and may not be relied upon. For further information or tailored advice, please contact
Madelein van der Walt or your usual Webber Wentzel contact.
You can also access the Omnibus Bill's proposed amendments to the other pieces of legislation
here.
