Private companies that are "regulated companies", as well as the shareholders of such regulated private companies, are required to comply with additional disclosure and reporting obligations as set out in the Companies Act for as long as the company is regulated. It is important for boards of companies (including private companies) and shareholders to ascertain whether they are regulated and, if so, to take cognisance of such obligations. Failing to do so may have serious consequences.
Both shareholders and the regulated companies1 in which those shareholders hold securities and/or beneficial interests, have ongoing disclosure obligations in respect of information related to beneficial interests which necessitates consistent monitoring and updating of records. Such obligations are aimed at ensuring transparency between companies, shareholders and beneficial shareholders.
Section 1 of the Companies Act defines "beneficial interest" as the right or entitlement of a person, through ownership, agreement, relationship or otherwise, alone or together with another person to: receive or participate in any distribution in respect of the company’s securities; exercise or cause to be exercised, in the ordinary course, any or all of the rights attaching to the company's securities; or dispose or direct the disposition of the company’s securities, or any part of a disposition in respect of the securities. Accordingly, having a beneficial interest in a share means that while a particular person may be recorded as the shareholder and is accordingly the registered owner of the share, the rights and benefits attaching to the share accrue to and are exercisable by a person who is not the registered owner of the share.
Section 56 of the Companies Act sets out the ongoing obligations of shareholders, where others have a beneficial interest in their shares, as well as of the companies themselves in certain circumstances. Section 56(1) provides that, except to the extent that a company's memorandum of incorporation (MOI) provides otherwise, the company’s issued securities may be held by, and registered in the name of, one person, for the beneficial interest of another person.
Section 56(3) of the Companies Act imposes an obligation on the registered holders of securities (i.e. registered shareholders) in a
public company, where they are not the holders of the beneficial interest in all the securities so registered, to disclose the following information to the company:
- the identity of the person on whose behalf those securities are held; and
- the identity of each person with a beneficial interest in the securities held, the number and class of securities held for each such person with a beneficial interest and the extent of the beneficial interest.
Such disclosure must be made by the shareholder to the company in writing within five business days after the end of the month during which a change in this information has occurred or more promptly as may be required by the central securities depository.
A regulated company (whether public/private) also has the obligation, like that of the shareholder, to disclose information regarding beneficial interests in its securities as disclosed to it by the shareholders. A regulated company must:
- establish and maintain a register of the disclosures of the beneficial interest holders as made by shareholders in terms of section 56; and
- publish in its annual financial statements, if the company is required to have such annual financial statements audited in terms of section 30(2),2 a list of persons who hold beneficial interests equal to or more than 5% of the total issued securities of that class issued by the company, together with the extent of those beneficial interests.
- Further, section 122 of the Companies Act provides that a person (i.e. a beneficial interest holder which may or may not be the shareholder) must notify a regulated company within three business days of them acquiring/disposing of a beneficial interest in sufficient securities of a class that, as a result of the acquisition/disposal respectively, the person holds a beneficial interest amounting to 5%, 10%, 15% or any further multiple of 5% of the issued securities or no longer holds a beneficial interest in securities amounting to a multiple of 5%. This applies to a person irrespective of whether the person acquires/ disposes of the securities indirectly or directly or individually or in concert with any other person/s.
- Furthermore, when a regulated company receives notice of a disposal or acquisition from a person that is a beneficial interest holder, it is obliged to provide the Takeover Regulation Panel (TRP) with a copy of the acquisition/disposal notice and to report the information regarding the acquisition or disposal to the remaining shareholders of that class of securities unless the notice concerned a disposition of less than 1% of that class of securities. This is a method intended to ensure transparency between a company and its shareholders.
It is significant to note that while section 56(3) refers to "the registered holders of securities" (i.e. the shareholder as set out in the security register) as the party required to make the requisite disclosures, section 122 instead refers to "a person", which must be read to mean the beneficial interest holder, which may or may not therefore be the registered shareholder, as the party obliged to notify the company in regard to specific share transactions and changes to shareholding. The parties referred to are responsible for these separate but interrelated disclosure and reporting obligations.
Accordingly, shareholders and companies, including private companies in certain circumstances, are obliged in terms of section 56 of the Companies Act to disclose and keep records of any beneficial interest holders and to publish certain information in their annual financial statements (if applicable). In addition, shareholders, beneficial interest holders and companies, including private companies in certain circumstances, are required in terms of section 122 to disclose certain share transactions and changes thereto as part of their corporate governance obligations.
Section 168 of the Companies Act provides that any person may file a complaint with the TRP in respect of a matter contemplated in Part B or C of Chapter 5 (Fundamental Transactions) or in the Takeover Regulations; or with the Companies and Intellectual Property Commission (CIPC) in respect of any other provision of the Companies Act, alleging that a person has acted inconsistently with the Companies Act or that the complainant's rights under the Companies Act or the MOI have been infringed. The TRP or the CIPC will then investigate and, should they find the complaint to have merit and accordingly believe on reasonable grounds that a person has contravened the Companies Act or assented to, been implicated in, benefited (directly/indirectly) from a contravention of the Companies Act, will issue a compliance notice. The TRP or the CIPC may also, should the party fail to comply with the compliance notice, also apply to a court to issue an administrative fine not exceeding the greater of 10% of the respondent's turnover for the period within which they failed to comply with the compliance notice and ZAR 1m. A failure by the regulated company or shareholder to comply with any of the disclosure obligations in section 56 could be reported to and investigated by the CIPC; while a failure by a regulated company or the person holding a beneficial interest to disclose and notify in compliance with section 122 could in turn be reported to the TRP. A regulated company that knows of a person who has failed to make a "disclosure" required in terms of section 122 must lodge a complaint with the TRP in terms of section 168.
1 A regulated company means a company to which Part B and Part C of the Companies Act and the Takeover Regulations apply, as determined in accordance with section 118(1) and (2). Section 118(1) provides that Part B and C of the Companies Act and the Takeover Regulations apply to a profit company if the company is: (a) a public company; (b) a state-owned company, unless exempted in terms of section 9; or (c) a private company if (i) more than 10% of the issued securities of the company have been transferred, other than between or among related or inter-related persons, within the period of 24 months immediately preceding the date of the particular affected transaction or offer; or (ii) the MOI of that company expressly provides that the company and its securities are subject to Part B, Part C and the Takeover Regulations. We note for completeness that the Companies Amendment Bill which has not yet been passed into law proposes changes in respect of when the Takeover Regulations will apply to private companies, the proposal being that a financial threshold should determine regulation.
2 The annual financial statements must be audited if the company is a public company; or in the case of any other profit or non-profit company be audited if so required by the regulations made in terms of subsection (7), taking into account whether it is desirable in the public interest, having regard to the economic and social significance of the company including its annual turnover; or be either audited voluntarily if the company's MOI or a shareholders resolution so requires or be independently reviewed.