Beneficial ownership filings have become a prominent administrative requirement since the Companies and Intellectual Property Commission (CIPC) implemented the beneficial ownership filing procedures on 24 May 2023 in accordance with the Companies Amended Regulations, 2023.
Ian Hayes, the head of Cliffe Dekker Hofmeyr’s corporate and commercial practice, and Sasha Schermers, an associate designate in the practice, have issued a guidance based on the recent updates provided by the CIPC in Customer Notice 5 of 2024.
They outline who is required to file registration of beneficial ownership, what the updated timelines and deadlines are for filing registrations of beneficial ownership with the CIPC, and the consequences of failing to file beneficial ownership registration.
Who is required to file registration of beneficial ownership?
Non-affected entities are required to disclose beneficial ownership in accordance with Regulation 32B of the Companies Regulations.
Affected companies, as defined in the Companies Act are expected to enter the information of the persons who hold a 5% or greater beneficial interest in the securities of the company, in accordance with Regulation 32A of the Companies Regulations.
An affected company is a:
- public company;
- state-owned company; or
- private company that is a “regulated company” for takeover law purposes – namely where more than 10% of the shares in the company have been transferred among non-related persons within the preceding 24 months. Subsidiaries of regulated companies are also affected companies.
It is noteworthy that the draft Companies Amendment Bill proposes to overhaul the test for a private company to be considered a “regulated company” (and therefore an “affected company” for beneficial interest disclosure purposes).
The new test will enquire into the number of “direct or indirect” shareholders (there would need to be at least 10 or more) and annual turnover or asset value considerations as may be prescribed in the regulations.
Although it is unclear at this stage what the regulations will ultimately provide, it will be important for beneficial ownership filing purposes to identify whether a company is a non-affected or affected company, because the filing requirements differ.
Click here for more information about who is required to file registration of beneficial ownership and how to complete such filings.
What is the deadline for beneficial ownership filings?
Neither the Companies Act nor the Companies Regulations provide clear guidance as to when exactly beneficial ownership filings are required to be made by non-affected companies. This has been largely left to be dealt with by way of the CIPC’s guidance notes and customer notices.
The most recent update from the CIPC by way of Customer Notice 5 of 2024 states that entities incorporated after 24 May 2023 must file beneficial ownership information within 10 business days after the date of incorporation.
Entities are required to update their beneficial ownership records within 10 business days of changes in beneficial ownership of the entity.
Entities that were incorporated before 24 May 2023 have had to file their beneficial ownership information with their annual returns and are now faced with a hard deadline of 24 May 2024.
From 1 April 2024, the CIPC will introduce a “hard-stop functionality” that will have significant consequences for entities that do not comply with the 24 May 2024 deadline. The rationale for this is that by this time all companies should have reached their first anniversary since the commencement of the Companies Regulations.
What are the consequences if beneficial ownership registrations are not filed?
If this deadline is not met, not only will entities be liable for administrative fines, as initially indicated by the CIPC, but they will also be unable to file their annual returns, the consequences of which can result in the deregistration and possible withdrawal of the entity by the CIPC.
However, in terms of section 171(7) of the Companies Act, there first needs to be a compliance notice issued by the CIPC (after its investigation of a breach of the Companies Act), which if not complied with by the company can give rise to an administrative fine upon application by the CIPC to the court.
As for blocking further annual return filings, questions may arise regarding the exact source of the CIPC’s statutory authority to impose this strong measure – and this might become an active area of administrative law litigation.
Disclaimer: The views expressed in this article are those of the writers and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute legal advice that is appropriate for every individual or entity’s needs and circumstances.
