Beneficial Ownership: The Compliance Blind Spot That Could Put Your Company at Risk
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Business Law Focus host Evan Pickworth interviews Ziyaad Moosa, an expert in business advisory and support at PKF, about the challenges businesses without sophisticated compliance departments face, particularly the risk of deregistration.
Mandatory beneficial ownership reporting is a good example of heightened compliance standards: it is no longer simply a Companies Act technicality, but part of the basic governance hygiene of running a South African business, big or small.
At its simplest, a beneficial owner is the natural person who ultimately owns or exercises effective control over a company, whether directly or indirectly. That sounds straightforward when one person owns 100% of a small business. It becomes more complicated when shares are held through other companies, trusts or more complex structures, or when effective control does not necessarily align with the obvious shareholding.
The important point for entrepreneurs is that this is not just a requirement for large corporates with legal and compliance departments.
Companies and close corporations must keep their beneficial ownership information up to date with CIPC. Beneficial ownership declarations are now part of the annual compliance cycle, and since July 2024, CIPC's system has prevented the completion of an annual return if the beneficial ownership information is not up to date. You must also generally report changes to beneficial ownership information within 10 business days.
For a busy entrepreneur, this can easily fall between the cracks. You register a company, focus on customers, cash flow, employees and tax, and assume that because SARS returns and CIPC annual returns are handled, the company is compliant. That assumption can now be costly.
CIPC has stepped up enforcement against entities that have failed to comply with beneficial ownership requirements. Consequences may include compliance notices and, potentially, court-sanctioned administrative fines. Because beneficial ownership compliance is also linked to the annual-return process, ongoing non-compliance can ultimately put the company on the path to deregistration.
Deregistration is much more than an administrative inconvenience. CIPC has warned that the consequences can include frozen company bank accounts, disruption to suppliers and creditors, and potential personal exposure for directors in certain circumstances.
Mandatory beneficial ownership reporting is a good example of heightened compliance standards: it is no longer simply a Companies Act technicality, but part of the basic governance hygiene of running a South African business, big or small.
At its simplest, a beneficial owner is the natural person who ultimately owns or exercises effective control over a company, whether directly or indirectly. That sounds straightforward when one person owns 100% of a small business. It becomes more complicated when shares are held through other companies, trusts or more complex structures, or when effective control does not necessarily align with the obvious shareholding.
The important point for entrepreneurs is that this is not just a requirement for large corporates with legal and compliance departments.
Companies and close corporations must keep their beneficial ownership information up to date with CIPC. Beneficial ownership declarations are now part of the annual compliance cycle, and since July 2024, CIPC's system has prevented the completion of an annual return if the beneficial ownership information is not up to date. You must also generally report changes to beneficial ownership information within 10 business days.
For a busy entrepreneur, this can easily fall between the cracks. You register a company, focus on customers, cash flow, employees and tax, and assume that because SARS returns and CIPC annual returns are handled, the company is compliant. That assumption can now be costly.
CIPC has stepped up enforcement against entities that have failed to comply with beneficial ownership requirements. Consequences may include compliance notices and, potentially, court-sanctioned administrative fines. Because beneficial ownership compliance is also linked to the annual-return process, ongoing non-compliance can ultimately put the company on the path to deregistration.
Deregistration is much more than an administrative inconvenience. CIPC has warned that the consequences can include frozen company bank accounts, disruption to suppliers and creditors, and potential personal exposure for directors in certain circumstances.
