Proposed changes to the Companies Act could soon require companies to disclose the identities of their shareholders.
The Companies Amendment Bill, which was published for comment in September, contains a planned amendment that would require companies to file a copy of their securities register, which contains details of shareholders, with the Companies and Intellectual Property Commission (CIPC).
Currently, the Companies Act only requires companies to provide the CIPC with limited information, including an annual return and directors’ information. Although companies must keep a securities register, they are not required to file it with the CIPC, Vivien Chaplin, a partner at Hogan Lovells, explains.
Although the securities registers of listed companies are maintained by Strate (South Africa’s Central Securities Depository), such records are not generally available to the public. The proposed amendments to the Companies Act will apply to all companies and, if it is implemented, may result in shareholder information of both private and public companies becoming readily available to the public.
Chaplin says although shareholders and third parties have always had the right to access the securities register of a company, they would likely have had to jump through several hoops.
Transparency versus privacy
The move is in line with international trends that try to balance greater transparency and privacy concerns.
“With international money laundering, with crime, with corruption, with international terrorism, I think the whole world has been having these debates about whether or not this kind of information should be disclosed,” she says.
In South Africa, the issue may be even more pertinent against the background of widespread corruption. Journalists have often had to join the dots even amid limited publicly available ownership information.
Yet it is not entirely clear how public the information will be. While anyone can easily gain access to the names of directors and addresses online, this is not the case when it comes to a deeper level of content such as a company’s Memorandum of Incorporation. Following a written request, it can take between six and eight weeks to obtain such a document from the CIPC, according to Chaplin.
Annual returns also do not become publicly available knowledge, adds Hogan Lovells associate Darryl Jago.
“We are also debating what the true intention is behind this,” he says.
It could be that the South African Revenue Service (Sars) wants to track transfers of shares within certain companies, but the proposal may also allow for the identification of politically exposed persons who may have conflicts of interests due to their shareholding, Jago adds.
Not just names and addresses
While a securities register would normally list the names and addresses of shareholders and the number of shares issued, it is not only limited to shares.
“There has been a proposed change in the bill which defines securities as ‘shares, debentures and any options in respect thereof’,” says Jago. “So this could possibly extend to things like convertible preference shares, share loans and similar funding instruments.”
But finding a balance between increased transparency and privacy is a fine line to walk.
Chaplin says as long as there is a level playing field, more disclosure is a positive development, but there is also a risk that the information could be abused.
“I think there will be a bit of a dichotomy in respect of how this is received, and it will be welcomed by some and naturally feared by a few,” Jago says.
With widespread concerns about corruption in South Africa it would be great to see exactly what public figures own, instead of relying on parliamentary disclosures which are often half-baked, Chaplin adds.
“I think from a political, sound democracy perspective, it does add an extra check and balance.”
While the proposal may be unpopular with very wealthy shareholders of private companies who may prefer to fly under the radar, it will no doubt strike fear in those with something to hide.
Jago says it is quite likely that the proposal will become law. The Companies Act has in many ways been informed by developments in the international law environment. If that is anything to go by, the amendment will probably be implemented.
The deadline for comments is November 20.