Is My Company Affected or Non-Affected? Understanding Beneficial Ownership Filing

In March 2023, South Africa was added to the Financial Action Task Force (FATF)’s “grey list,” which flagged the need to improve its measures to combat money laundering and terrorist financing. To address these concerns, the government passed the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 22 of 2022 in a proactive manner. This law introduced significant changes to the Companies Act, effective from 1 April 2023, which require companies to maintain and regularly update a register of Beneficial Owners with the Companies Intellectual Property Commission (CIPC).

While this has increased the compliance burden on companies, the goal is clear: improving transparency in company ownership. This article explains the essential aspects of Beneficial Ownership (BO) reporting and helps you determine whether your company is classified as affected or non-affected.

Who is a Beneficial Owner?

A beneficial owner is a natural person who ultimately owns or controls a company. This person may not always be the legal owner, but they exercise significant control over the company. Beneficial ownership examples include individuals who:

• Hold at least 5% of the company's issued shares.

• Have significant voting power or the ability to appoint/remove directors.

• Can materially influence a company’s management, even without holding a large share of the company.

Typically, the following persons are considered beneficial owner(s) in a:

• Private company, shareholders with 5% or more of the issued shares

• Close corporation (CC), members holding 5% or more interest.

• Non-profit company (NPC), members or directors (in the absence of members.

• State-owned company, the minister or representative who is a shareholder.

Register of Beneficial Owners

All registered companies and close corporations (except public or state-owned entities) must maintain a register of beneficial owners. This register should include the full name, ID or passport number, and details of the equity or ownership interest of each person who holds 5% or more of the shares.

Affected vs. Non-Affected Companies

An "affected company" is subject to more stringent regulations. A company is considered affected if it falls into one of the following categories:

1. It is a public company (LTD).

2. It is a state-owned company (SOC).

3. It is a private company (PTY) that:

• Transferred more than 10% of its shares in the last two years to a non-related or non-interrelated person.

• Is a subsidiary of a regulated company (public or state-owned).

• Is subject to public company regulations under its Memorandum of Incorporation (MOI).

A related person is someone who has a close relationship or is a family member of another person, or it can refer to a juristic person (like a company or trust) that has significant control over someone. An inter-related person is simply someone connected to a related person.

An affected transaction generally involves:

• Selling all or most of a regulated company’s assets (except in business rescue).

• A merger or amalgamation with at least one regulated company (except in business rescue).

• Arrangements between a regulated or affected company and its shareholders.

• Acquiring a significant interest in a regulated company’s voting shares.

• Plans to acquire the remaining voting securities of a regulated company.

• A mandatory offer or compulsory acquisition.

“Non-affected companies” are entities that do not fall within the above definition of an affected entity and will be classified as non-affected. They are typically smaller or less regulated entities.

Example 1: Identifying an Affected Company

XYZ (Pty) Ltd is a private company incorporated in 2018. Its shareholders include Mr. Green, who owns 50% of the shares, Ms. Brown with 30%, and Mr. White with 20%. One year ago, XYZ transferred 15% of its shares to a local investment firm, resulting in a change in its ownership structure.

Given that XYZ (Pty) Ltd transferred more than 10% of its shares within the last two years to a non-related party, it is considered an affected company. As a result, XYZ must comply with the more stringent Beneficial Ownership reporting requirements and regularly update its ownership information with the CIPC.

Example 2: Group Structures

Current Group Structure:

• Holding Company (Co X): Co X holds 70% of the shares in Co Y.

• Subsidiary (Co Y): 70% owned by Co X, with the remaining 30% held by individual shareholders.

Let’s determine whether Co Y qualifies as an affected company based on its ownership by Co X.

Key Considerations:

1. Is Co X a Public or State-Owned Company?

• If Co X is a public or state-owned company, then Co Y is automatically an affected company as its subsidiary. If the answer to this questions is yes, Co Y must follow all compliance and reporting obligations for affected companies.

2. Is Co X a Private Company?

If Co X is a private company, we need to ask if Co X transferred more than 10% of its shares in the last two years?

• If yes, Co X would be classified as an affected company, and Co Y would also be affected as its subsidiary.

• If no, Co Y would likely be a non-affected company unless there are other qualifying factors.

Scenario Applied:

• If Co X is a public or state-owned company:
  Co Y is automatically an affected company and must comply with stricter Beneficial Ownership filing requirements.

• If Co X is a private company:
  Check if Co X has transferred more than 10% of its shares in the past 24 months.

• If yes, Co Y would be an affected company.

• If no, Co Y would be a non-affected company.

Summary:

• If the holding company is a public or state-owned company, the subsidiary is an affected company.

• If holding company is a private company and has not transferred more than 10% of its shares in the past two years, the subsidiary is a non-affected company.

Use CIBA’s beneficial ownership register template for your clients.

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What you will learn

After attending this webinar you will:

• Stay up to date with the most important legislation updates;

• Be aware of the latest legislative changes and what it means for your business, practice, and your clients;

• Be able to inform your staff and clients on how to stay compliant;

• Adapt business models to fit new legislative landscapes;

• Receive references to documents and guides; 

• Have access to your own technical resource; and 

• Have access to the presenter via email for follow-up Q & A.