How the latest Companies Act amendments affect your business

The Companies Act was one of the five pieces of legislation that was amended by the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, which came into force on 31 December 2022.

Nada van Dyk and Rakhee Singh, who are directors of law firm DLA Piper, provide the following overview of the key amendments to the Companies Act, which are:

• Broader obligations on companies to keep records of persons with beneficial interests in their securities and their ultimate owners/controllers;
• These records must be filed with the Companies and Intellectual Property Commission (CIPC) and will be publicly available (subject to some limitations); and
• An expansion of the grounds on which a person can be disqualified from being a director.

What is an ‘affected company’ and a ‘beneficial owner’?

The Amendment Act introduces two new concepts: an affected company and a beneficial owner.

An affected company is:

• A regulated company – that is, a public company, a state-owned company (unless exempt) or a private company if either more than 10% of its issued securities have been transferred (other than between related or inter-related persons) within 24 months immediately before the assessment is done or its memorandum of incorporation expressly provides that parts B and C of the Companies Act and the Takeover Regulations shall apply to the company and its securities.
• A private company that is a subsidiary of a regulated company (directly or indirectly).

A beneficial owner, in respect of a company, means 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 that company;
  • The exercise of or control of the exercise of the voting rights associated with securities of that company;
  • The exercise of or control of the exercise of the right to appoint or remove members of the board of directors of that company;
  • The holding of beneficial interests in the securities, or the ability to exercise control, including through a chain of ownership or control, of a holding company of that company;
  • The ability to exercise control, including through a chain of ownership or control, of –
    1. a juristic person other than a holding company of that company;
    2. a body of persons corporate or unincorporate;
    3. a person acting on behalf of a partnership;
    4. a person acting in pursuance of the provisions of a trust agreement; or
  • The ability to otherwise materially influence the management of that company.

   

• Also of relevance is the existing concept of beneficial interest.
• A beneficial interest in a security means the right or entitlement of a person, through ownership, agreement, relationship of otherwise, along, or together with another person to:
  • Receive or participate in any distribution in respect of the company’s securities;
  • Exercise or cause to be exercised, in the ordinary course, any of or all the rights attaching to the company’s securities; or
  • Dispose or direct the disposition of the company’s securities, or any part of a distribution in respect of the securities.

  Information about beneficial ownership

  The Amendment Act expands on the duties in section 56 of the Companies Act, which now not only govern beneficial interests in securities but also beneficial ownership of companies.

  From 1 April, all companies that are not affected companies must file records with the CIPC containing information about their beneficial owners and must keep such information up to date.

  Such companies must also record and maintain in their securities register information about the beneficial owners of the company. This information must also be filed with the CIPC.

  As any person is entitled to inspect a company’s securities register in terms of section 26 of the Companies Act, the information about beneficial owners will be accessible by the public.

  Information about beneficial interests

  In terms of section 56 of the Companies Act, registered shareholders of public companies must disclose to the public company in question the identity of all persons with a beneficial interest in the securities registered in the name of such registered shareholder.

  From 1 April, all affected companies (regulated companies and their subsidiaries) must establish and maintain a register of:

  • The abovementioned disclosures of beneficial interests; and
  • Persons who hold beneficial interests of 5% or more of the securities of a particular class in such company, together with the extent of such beneficial interests.

  The disclosure obligations in section 122 of the Companies Act (relating to acquisitions and disposals of beneficial interests in securities amounting to whole multiples of 5% of the issued securities of a particular class) will now apply to affected companies and not only to regulated companies.

  The CIPC will be obliged to maintain a register of the notices received from companies pursuant to section 122.

  Annual returns

  From 1 April, companies will have to include the following documents when filing their annual returns:

  • A copy of the company’s securities register, which must include details of the beneficial owners in the case of a company that is not an affected company; and
  • In the case of affected companies, a copy of the register of disclosure of beneficial interests discussed above.

  The CIPC must make such annual returns available electronically to any person.

  Based on the Draft Companies Amendment Regulations published for public comment on 10 March, access to the documents filed with annual returns (the securities register and register of disclosure of beneficial interests) will be more limited. The draft regulations state that access will be provided to such persons and on such conditions as may be determined by the CIPC after consultation with the Minister of Finance and the Financial Intelligence Centre.

  Disqualification of directors

  The portion of the Amendment Act that came into effect on 31 December 2022 broadened the section 69 director disqualification relating to convicted individuals.

  It now includes persons who have been convicted, in South Africa or elsewhere, of an offence relating to money laundering, terrorist financing, or proliferation financing activities as defined in the Financial Intelligence Centre Act, or an offence in terms of the Protection of Constitutional Democracy Against Terrorist and Related Activities Act, or the Tax Administration Act.

  Section 69 now also specifically disqualifies a person who is subject to a resolution adopted by the Security Council of the United Nations that provides for financial sanctions which entail the identification of persons or entities against whom member states of the UN must take the actions specified in the resolution. Such a disqualification ends when the Security Council takes a decision to no longer apply that resolution to that person.

  Amendment of regulations

  The draft regulations are not yet final. As they stand, the draft regulations generally provide that companies will have to update their records relating to shareholding, beneficial interests, and beneficial owners within five business days of any change.

  Disclaimer: The information in this article does not constitute legal advice.