On 1 April 2023 certain amendments (Amendments) to the Companies Act, No 71 of 2008 (Companies Act) were promulgated to strengthen South Africa’s combatting of money laundering and terrorist financing in line with the recommendations of the Financial Action Task Force.

Pursuant to the Amendments, put simply –

• companies that do not qualify as “affected companies” must report information about their shareholding structures, and the natural persons at the top of their shareholding structures, (their “beneficial ownership”) to the CIPC (newly inserted section 50(3A)); and
• companies that do qualify as “affected companies” must report information about their shareholding structures, and the (juristic) persons at the top of their shareholding structures (their “beneficial interests”) to the CIPC (newly inserted sections 33(1)(aA) and (aB)).

There appears to be some uncertainty as to whether these disclosure requirements apply to external companies. External companies are companies that are incorporated outside South Africa, but do business in South Africa.

The CIPC’s position is that the disclosure requirements do apply to external companies, as outlined in the User-Guidelines in respect of Beneficial Ownership (the Guidelines) published at the beginning of 2023, and confirmed in various webinars hosted by the CIPC, where this question was pertinently asked. At first blush, this position seems to make sense as it is in line with the general spirit of the Amendments, which is casting a wide net to assuage the concerns of the Financial Action Task Force.

However, a close reading of the definition of “company” in the Companies Act indicates that these disclosure requirements are not applicable to external companies.

The newly inserted section 50(3A) of the Companies Act reads as follows:

A company that does not fall within the meaning of an “affected company” must record in its securities register prescribed information regarding the natural persons who are the beneficial owners of the company, in the prescribed form, and must ensure that this information is updated within the prescribed period after any changes in beneficial ownership have occurred
(Emphasis added.)

In terms of the newly inserted section 33(1)(aA) and (aB), every “company” must also file with the CIPC –

a copy of the company’s securities register as required in terms of section 50 … [and] a copy of the register of the disclosure of beneficial interest as required in terms of section 56(7)(aA)

Section 33 of the Companies Act distinguishes between the requirements applicable to companies and external companies. Section 33(2) provides that external companies must file an annual return each year. This section has not been amended by the Amendments to refer to the filing of beneficial ownership information or a securities register by external companies.

The Companies Act defines the term “company” as follows:

…a juristic person incorporated in terms of [the Companies Act], a domesticated company, or a juristic person that, immediately before the effective date –

a) was registered in terms of the –
i) Companies Act, 1973, other than as an external company as defined in that Act;
ii) Close Corporations Act, 1984, if it has subsequently been converted in terms of Schedule 2;
b) was in existence and recognised as an ‘existing company’ in terms of the Companies Act, 1973; or
c) was deregistered in terms of the Companies Act, 1973, and has subsequently been reregistered in terms of this Act.
(Emphasis added.)

The Companies Act defines the term “juristic person” to include a “foreign company”, which is defined as –
an entity incorporated outside the Republic…
(Emphasis added.)

The Companies Act defines the term “domesticated company” as follows:

… a foreign company whose registration has been transferred to the Republic…
(Emphasis added.)

Applying the principles above, it is evident that though an external company qualifies as a “juristic person” in terms of the Companies Act, it does not qualify as a “company” since it was, by definition, not incorporated in terms of the Companies Act, but rather its equivalent in a foreign jurisdiction. External companies would also not have been registered in terms of South Africa’s previous Companies Act, No 61 of 1973 (the Old Act), nor have been an “existing company” at such time, nor deregistered in terms thereof. External companies registered as such under the Old Act are also specifically excluded from the definition of “company”.

We note that a term defined in an Act must be given its defined meaning unless the context indicates otherwise. In our view, the context of section 50(3A) and section 33(1) of the Companies Act does not require that any other than the defined meaning be attributed to the term “company”. In a number of provisions in the Companies Act, the phrase “company or external company” appears which, by definition, means that an external company is clearly distinguished from a “company” as defined. This is another indication that an external company cannot be a “company”.

Furthermore, section 33 distinguishes between companies and external companies, and had the legislature intended to bring external companies within the ambit of section 33(1), this should have been addressed explicitly in the Amendments to section 33 and section 50. Practice notes and guidelines published by the CIPC do not have the status of enacted law and are not enforceable if in conflict with promulgated legislation.

In our view therefore, external companies are excluded from the operation of section 50(3A) and 33(1)(aA) and (aB) of the Companies Act, and, in our view, should not be required to disclose beneficial ownership to the CIPC.

Margot Basson
Please note that this article is published for information purposes only and does not constitute legal advice.