Small business owners and trusts in South Africa need to acquaint themselves with a new concept called Beneficial Ownership. Join us as we take a closer look at what exactly Beneficial Ownership is, and who it affects.
What is Beneficial Ownership?
Beneficial Ownership affects individuals who, despite not being officially registered as legal owners, hold significant influence or ownership in a company, close corporation or trust. Currently, the primary focus is on those who have more than 5% beneficial ownership.
Consider this scenario: you are the owner of a small business, and your company has issued shares, which represent ownership in the business. As the owner, you hold a certain percentage of these shares.
Now, suppose there is another individual involved, holding 25% of the company's shares. However, this person is not holding these shares for their personal benefit. Instead, they are acting on behalf of a third party, someone else who is not directly named on the company's official ownership records.
In this context, the person who ultimately benefits from the ownership of these shares, the third party, is considered the "Beneficial Owner." Despite not being formally listed on the company's records, this third party holds a significant interest in the business through the individual who controls the shares on their behalf.
So, while the legal ownership might show the individual with 25% of the shares, the true or "beneficial" ownership, in terms of who reaps the benefits and holds influence, lies with the third party. This scenario highlights the importance of understanding not just who holds shares on paper but also who stands to gain from the ownership arrangement.
Why Are Beneficial Ownership Disclosures Important?
The purpose of beneficial ownership disclosure is to foster transparency, accountability and ethical business practices in corporate structures. By revealing the real benefactors or controllers of a company, these regulations aim to prevent illicit practices such as money laundering and terrorism financing.
These declarations will also help financial institutions assess and mitigate risks associated with their clients. Additionally, compliance with international standards promotes a country's standing in the global financial community. Ultimately, the disclosure of beneficial ownership information contributes to building trust among the public, investors, and business partners, by complying with the requirements set out by The Financial Action Task Force (FATF).
Legal Requirements and Deadlines
Who Needs to Comply?
Individuals with more than 5% beneficial ownership in a company, close corporation or trust must submit the necessary information to the Companies and Intellectual Property Commission (CIPC).
Filing Deadline
The 1st of October 2023 is the deadline for filing beneficial ownership information for the 2023 financial year. Entities established before May 24, 2023, must file their Securities Register or Beneficial Interest Register as part of their Annual Returns filing process, starting from May 24, 2023. For businesses formed after this date, these requirements apply immediately.
Types of Beneficial Ownership
Beneficial Ownership manifests in various ways, such as holding beneficial interests in securities, controlling voting rights, appointing or removing board members or significantly influencing company management.
Exemptions
Certain entities are exempt from filing a register of their beneficial owners, including affected businesses listed on local stock exchanges, and state-owned companies that have been granted exemptions.
Making Sure You Stay Compliant With Beneficial Ownership Requirements
Identify Beneficial Owners
The first step involves identifying those individuals who qualify as Beneficial Owners within your small business or trust.
Gathering Relevant Information
To meet the compliance criteria, you'll need specific details about these beneficial owners. This includes their full names, dates of birth, identity or passport numbers, residential and postal addresses and email addresses if applicable.
Submitting The Information
Only authorised individuals within your organisation are able to submit essential documents and information to the CIPC. This could involve the company's securities register, certified copies of ID documents or passports of the Beneficial Owners, and any other important documents.
Maintain Accurate Data
Beneficial Ownership information should be promptly updated within five business days of any changes. Even in the absence of changes during a financial year, the register must be refreshed at least once within 30 days of the entity's annual return deadline.
Navigating the intricate landscape of Beneficial Ownership declarations can be daunting, particularly for small business owners. Consider reaching out to us at Booysen Accountants if you're a small business owner or trustee looking for expert guidance. Let us guide you through every step of the process, making sure you meet all the legal requirements along the way.