The Companies and Intellectual Property Commission (CIPC) has set new obligations for reporting beneficial ownership information, with the next deadlines linked to each company’s date of inception. This requirement means that businesses have only 30 days from this anniversary date to declare their beneficial owners, much like annual return filings, while newly registered companies must file within just ten days if incorporated after May 24, 2023.
Alana-Lee Slinger, candidate attorney at specialist commercial law firm Gillan & Veldhuizen Inc., explains the rationale behind the CIPC’s push for beneficial ownership disclosures: “The aim here is really to bring a new level of transparency and accountability to corporate ownership structures. South Africa is merely aligning with global trends, where transparency is not just a regulatory tick box but also a crucial aspect of responsible corporate governance.”
Why beneficial ownership matters for companies
Beneficial ownership regulations serve multiple purposes. Primarily, they help regulatory authorities and government bodies identify who really benefits from a business’s activities and assets, helping curb misuse of corporate structures for illicit purposes. Businesses with complex ownership layers are especially scrutinised, as obscure structures can hide true owners, making it harder for authorities to detect fraud, tax evasion and other criminality.
For companies, understanding and reporting beneficial ownership is also essential to avoid hefty penalties. This compliance requirement can affect all types of businesses, from small family-owned entities to large corporations. As Slinger notes, “For businesses, it’s no longer a matter of choice but a necessity. Non-compliance not only runs the risk of fines but could also damage a company’s reputation, especially as more clients and partners expect businesses to uphold transparency standards.”
The practicalities of compliance with CIPC
The CIPC has laid out specific filing timelines for beneficial ownership declarations and disclosures. These are aligned with companies’ anniversary dates for most businesses or their incorporation dates if registered after the stipulated cut-off of May 24, 2023.
The filing must be completed:
- Within 30 days of the company’s anniversary date (similar to annual returns)
- Within 10 days of incorporation for companies registered after May 24, 2023
This means that each business should be aware of its filing dates, as failure to report within the deadlines could lead to penalties or other enforcement actions by the CIPC. It is as simple as that.
Who qualifies as a beneficial owner?
Identifying beneficial owners is not always straightforward, especially in businesses with layered or international ownership structures. According to the Financial Action Task Force (FATF) and the CIPC guidelines, a beneficial owner is typically someone who:
- Directly or indirectly holds a substantial portion of the company (often 25% or more of ownership or voting rights).
- Exercises significant control over the company, possibly as an influential board member or through other means.
- Holds an interest in the company that may benefit them financially or otherwise, without being explicitly listed as a shareholder.
To comply, businesses may need to go beyond their registered shareholders and identify individuals or entities with substantial control or influence over the company. “The beneficial ownership rules may require some consideration and record-keeping on the company’s part. For companies with intricate ownership structures, a professional advisor can be most helpful in the compliance process,” instructs Slinger.
Steps for filing beneficial ownership information
The CIPC has provided an online platform for submitting beneficial ownership information, which is intended to streamline the process. Here is a basic outline of the steps companies should take:
- Identify beneficial owners: Ensure you have clarity on who qualifies as a beneficial owner under the guidelines.
- Collect required documentation: Gather identification and relevant records for each beneficial owner to ensure the information submitted is accurate and comprehensively presented.
- Submit the information via CIPC online portal: Follow the CIPC’s online submission process and ensure all required fields are accurately completed.
- Keep a record for future audits: Companies should maintain detailed records of beneficial ownership submissions for future reference, especially if audited by the CIPC or another regulatory body.
Penalties for non-compliance
Failing to declare beneficial ownership within the prescribed period can lead to significant consequences, including administrative penalties imposed by the CIPC. “The consequences aren’t only financial,” warns Slinger. “The reputational risk can be severe, especially as beneficial ownership compliance has now become a standard across most business sectors.”
Companies that delay or neglect this responsibility may face difficulties during audits, and depending on the extent of non-compliance, may be subjected to investigations or other regulatory inconvenient scrutiny. Additionally, clients and partners increasingly expect transparency, so a lack of compliance might also affect a business’s reputation among stakeholders.
As the CIPC deadlines approach, now is the time for businesses to get proactive and organised, ensure their beneficial owners are accurately identified and submit timely declarations. By doing so, businesses not only avoid potential penalties but also contribute to a more transparent and trusted corporate landscape in their sphere of industry and in the country.