Mandatory CIPC obligations for companies and close corporations for 2024- Beneficial Ownership
In February 2023, South Africa was put onto the “Grey List”, resulting in South Africa being required to have increased monitoring due to various strategic, regulatory, and compliance deficiencies. In response, and with the strategic deficiencies then identified, the CIPC issued an action plan to ensure that the competent authorities and regulatory bodies have timely access to accurate and verified beneficial ownership information on legal persons, and further authorizing the CIPC to apply sanctions for breaches and/or violations by legal persons of beneficial ownership obligations.
The Companies and Intellectual Property Commission (CIPC) has announced its beneficial ownership mandate/ register for companies as well as close corporations which will go into effect as of 1 April 2024. Beneficial ownership refers to the natural person(s) who ultimately own, control, or benefit from a company or legal entity. Understanding beneficial ownership is crucial for various reasons, including preventing money laundering, combating corruption by allowing the law enforcement to be inclined when it comes to their investigations of who the ultimate owners of an entity are, and ensuring transparency in business operations.
Furthermore, it important to note that you cannot submit the yearly returns for a company or close corporation unless you have already submitted the beneficial ownership details of all the beneficial owners of that particular company or close corporation. As of 1 April 2024, it will therefore be mandatory to file the beneficial ownership information before you can submit the annual returns of a company or close corporation. Both beneficial ownership information and annual return submissions must be completed on CIPC’s portal to avoid deregistration of a company or closed corporation.
The beneficial ownership regulations require companies to disclose information about their ultimate beneficial owners. Here are key aspects related to CIPC beneficial ownership:
- Definition of Beneficial Owner
A beneficial owner is an individual who directly or indirectly owns or controls more than 5% of the shares or voting rights in a company. It can also include individuals who have significant influence or control over the company through other means.
- Registration and Disclosure
Companies are required to identify and register their beneficial owners with the CIPC. The information typically includes the name, nationality, residential address, and other relevant details of the beneficial owners. It also includes the financial year of the company or close corporation, as well as its financial information and records.
- Changes in Beneficial Ownership
Companies must regularly update the CIPC regarding any changes in beneficial ownership within a specified timeframe.
- Penalties for Non-Compliance
Failure to submit the required beneficial ownership information is tantamount to non-compliance with the Companies Act, which could result in court-ordered administrative fines. Where applicable, filing beneficial ownership information is now a legislative requirement. Furthermore, non-compliant beneficial ownership information filings will trigger possible investigations and sanctions, including compliance notices, administrative fines, and the disqualification of directors.
- Access to Information
The CIPC maintains a register of beneficial ownership, and certain authorities, such as law enforcement agencies and financial institutions, may have access to this information to fulfill their regulatory obligations.
- Purpose and Benefits
The primary purpose of disclosing beneficial ownership is to enhance transparency in corporate structures and prevent illicit activities such as money laundering and corruption. It enables authorities to track and investigate the ownership structure of companies and identify any potential risks.
- Confidentiality and Data Protection
While beneficial ownership information is made available to relevant authorities, there may be provisions to protect the confidentiality and privacy of individuals in line with data protection laws.
- International Standards
The regulations align with international standards and best practices aimed at preventing and combating financial crimes and to minimize South Africa being Grey listed again.
The big question lies in who does not need to submit information on the beneficial ownership register? Where a juristic entity, such as a trust, is the entity that has beneficial ownership of a company, whichever individual ultimately derives beneficial ownership from that trust as defined in the Trust Property Control Act 57 of 1988, as amended, must have their information declared with the Master of the High Court, not on the beneficial ownership register. Furthermore, affected companies listed on a local stock exchange are also not required to declare information on the beneficial ownership register. Lastly, State-owned companies exempted by the relevant Minister are not required to file beneficial ownership information.
