Understanding beneficial ownership: Key insights for compliance

Nov 14, 2024 3:25:51 PM

"Beneficial ownership refers to individuals who ultimately control, own or benefit from a company, even if they are not the officially registered shareholders."

Understanding beneficial ownership: Key insights for compliance

By Eldré De Swart

In today’s regulatory environment, beneficial ownership has emerged as a crucial area for businesses around the world and a critical area of focus for South African businesses as regulatory authorities prioritise transparency in corporate ownership and control. With the introduction of new requirements by the Companies and Intellectual Property Commission (CIPC), companies must ensure they accurately disclose information on beneficial owners to remain compliant.

Beneficial ownership refers to individuals who ultimately control, own or benefit from a company, even if they are not the officially registered shareholders. This concept highlights the true influencers behind an entity, such as individuals who indirectly control significant shares or voting rights she adds. Beneficial owners may not appear on formal records but still hold the power to make decisions, receive financial benefits, or influence company policies.

The drive to disclose beneficial ownership is part of a global effort to combat financial crimes like money laundering, tax evasion and corruption. When companies provide accurate information about who controls and benefits from their activities, regulatory bodies can better identify and prevent potential misuse of corporate structures. In South Africa, enhanced transparency requirements improve market integrity and reinforce investor trust by allowing stakeholders to understand who truly controls a business.

In addition, beneficial ownership transparency is important for good corporate governance. When companies disclose their true owners, they build trust with investors, regulatory bodies and the public. This is especially important in South Africa, where increased transparency supports the financial integrity of markets and contributes to a fairer business environment.

In line with global standards, South Africa’s regulatory framework now mandates more detailed beneficial ownership disclosures. The CIPC has recently updated its guidelines, which specify who, what, when and how companies need to report:

Who

Companies with complex ownership structures: Any business where ownership or control is not straightforward must disclose information on beneficial owners. For instance, companies where shares are held through trusts or nominees must identify the individuals with ultimate control
Financial institutions and specific non-financial entities: According to the Financial Intelligence Centre Act (FICA), some entities must identify beneficial owners as part of their due diligence practices

When and how

Beneficial ownership information is required during annual return submissions or whenever there is a significant change in ownership
The information must be kept up-to-date and ready to be provided to CIPC upon request

Staying compliant

Staying compliant with beneficial ownership requirements can be manageable with a few straightforward steps:

Identify beneficial owners: Review your company’s ownership structure to identify all beneficial owners. This may include shareholders, trustees, and anyone with significant influence over the company’s decisions
Maintain accurate records: Keep detailed records on all beneficial owners, including the required information. This ensures you can respond quickly to CIPC queries or submit accurate details in your annual returns
Monitor changes in ownership: Any change in ownership or control must be recorded and reported, so it’s important to regularly review and update your records
Seek professional assistance if needed: If your company has a complex ownership structure, consult with your accountant or legal advisor to ensure all beneficial ownership reporting requirements are met. This guidance can be particularly helpful if your company is privately owned or involves trusts or nominee arrangements

By meeting beneficial ownership reporting requirements, your company can benefit in several ways:

Builds trust with investors and stakeholders: Transparency about who controls your business enhances credibility and trust
Reduces risk of penalties: Non-compliance with CIPC requirements can result in penalties. Accurate disclosure minimises these risks
Supports market integrity: By participating in these initiatives, your company contributes to a safer and more accountable business environment in South Africa

Beneficial ownership reporting requirements may continue to evolve in South Africa as the regulatory landscape aligns with international best practices. By identifying beneficial owners, maintaining up-to-date records, and staying informed of regulatory changes, your business can navigate these obligations confidently.

Beneficial ownership requirements can feel complex, but understanding the basics helps ensure your company remains compliant and transparent. If you need support be sure to reach out to your accountant to ensure you’re fully compliant.

Eldré De Swart is the Company Secretarial Administrator at leading audit and advisory firm, Galbraith Rushby.