In terms of section 72 of the Companies and Other Business Entities Act [which we shall refer to as “the Act” in this bulletin] all companies are required to keep a register of beneficial owners – who, as we shall explain in more detail below, are the individuals who control the companies or who hold a substantial number of shares. The Government – specifically the Ministry of Finance and Economic Planning and the Financial Intelligence Unit of the Reserve Bank – has published a notice drawing attention to this requirement and giving companies until the end of this month to comply with it. In this bulletin we shall set out the notice, then analyse it and explain why it is important, in the interests of good governance, that companies should disclose their beneficial owners.
The notice reads as follows:
“LEGAL REQUIREMENT FOR ALL COMPANIES TO MAINTAIN INFORMATION ON BENEFICIAL OWNERS
In conformity with international standards on Anti-Money Laundering and Combating Financing of Terrorism, in 2019 the country passed the Companies and Other Business Entities Act which, under section 72 thereof, requires all companies to—
(a) gather and maintain at the company’s registered office information on the company’s ultimate beneficial owners, i.e. the natural persons / individuals who own or control the company; and
(b) File such information with the Companies Registry and ensure that the information is kept up-to-date as and when there are changes.
The Companies Registry is currently undergoing a computerization exercise that will enable all new and existing companies to register or re-register online and in the process submitting the required beneficial ownership information in compliance with the new law as well as with international standards.
Pending the completion of the Companies Registry computerization exercise, all companies are required under the law to ensure that [they] maintain a Beneficial Ownership Register which should contain accurate and up-to-date information on the identity, identification number and address of each of the beneficial owners. This will entail maintaining information on each natural person / individual that ultimately owns / controls 10% or more of the company’s shares, whether directly or indirectly through proxies or other corporate vehicles or trusts.
This register of beneficial ownership information should be maintained in Zimbabwe and be available if and when required by competent authorities. All companies are expected to be in compliance with this requirement by 31 July 2021, after which date the Companies Registry inspectorate teams will conduct on-spot compliance inspections and impose penalties on non-compliant companies.
Once the computerization process is completed, the Registrar of Companies will issue a public notice requiring all new companies to register and all existing companies to re-register online, and, in the process, submit beneficial ownership information among other registration [or] re-registration requirements.
International standards on Anti-Money Laundering and Combating Financing of Terrorism place emphasis on the importance for countries to maintain information on the beneficial ownership of companies, as part of measures to ensure transparency of legal persons and legal arrangements and to guard against their use for money laundering, terrorism financing, tax evasion and other illicit purposes.
For further information, contact the Companies Registry today:
Address: Century House, East, 38 Nelson Mandela Avenue
Phone: +263 4 777373, 775545-6
Fax: +263 4 777372”
Inaccuracies in the Notice
The notice is generally correct but it contains some inaccuracies:
Who are “beneficial owners” of a company?
The notice suggests that beneficial owners, whose particulars must be recorded in a register of beneficial owners, are individuals who own or control more than 10 per cent of a company’s shares. That is not quite accurate. Section 2 of the Act defines the term “beneficial owner” in relation to a company as a natural person, i.e. a human being, who ultimately owns or controls rights or benefits to property (presumably shares) or who exercises ultimate effective control over the company, and more specifically, who:
- Directly or indirectly holds more than 20 per cent of a company’s shares or voting rights, or
- Directly or indirectly has the right to appoint or remove a majority of a company’s directors.
So the figure given in the notice does not conform to the Act.
There is however a good argument for saying that as a matter of policy the figure should be 10 per cent rather than 20 per cent. Under the Banking Act no one is allowed to acquire a “significant interest” in a bank without permission from the Registrar of Banking Institutions – and a significant interest is a holding of more than five per cent of the bank’s shares. In the case of banks therefore the legislature considered that people with only a five per cent shareholding could influence their banks to such an extent that they needed to be controlled. The Companies and Other Business Entities Act does not require anyone to get permission to hold more than 20 per cent of the shares of a company; it only requires the shareholder’s real identity to be disclosed. Perhaps in the interest of greater transparency and accountability section 72 of the Act should be amended to require the same disclosure specified in the Banking Act i.e. disclosure for shareholders holding 5 per cent or more of a company’s shares.
What particulars must be recorded in a register?
According to the notice, companies must record “accurate and up-to-date information on the identity, identification number and address” of each beneficial owner. Again, that is not quite accurate. Section 72(1)(b) requires companies to record the following information about directors – not other persons:
- Their first names and surnames, and any previous such names,
- The identification reference numbers appearing in their identity documents,
- Their full residential or business addresses as well as their postal addresses,
- Their nationality, and
- The nature and extent of their beneficial ownership.
Section 72 does not prescribe what information must be recorded about beneficial owners who are not directors, beyond saying the information must be “accurate and up-to-date”. This section of the Companies Act should also be amended in the interest of transparency and accountability.
Finally, anyone who tries to contact the Companies Registry using the telephone numbers given in the notice, will be unsuccessful unless he or she remembers to add a 2 to the beginning of each number: 0242-777 373 and 0242-775 545/6. And for those in the western part of the country, there is a Companies Office in Bulawayo at the corner of Fort Street and Leopold Takawira Street; its telephone number, according to the Ministry website, is 09-61601-2.
Good Economic Governance
According to the notice, the reason for making companies reveal who their beneficial owners are is to comply with international standards on anti-money laundering and combating financing of terrorism. In fact there are other reasons as well:
- Disclosure of beneficial owners allows investors to see who owns or controls a company before they put money into it.
- At a national level disclosure enables journalists, investigators and members of the public to find out who controls the companies and cartels that have allegedly taken over large sections of the country’s economy.
- Tax collection would be more efficient which would stop the present situation of the fiscus being short changed. This would mean more money for education, health, infrastructure, etc.
- There would be greater transparency and accountability which is important in preventing, uncovering and combating corruption.
All in all a good argument to amend the Companies and Other Business Entities Act, and to ensure administrative compliance.