The Finance Act No 8 of 2020 amended the Companies Act 2002 and introduced the beneficial ownership requirement for companies incorporated or registered under the Companies Act (The Act). To effect and implement the amendments, a new regulation The Companies (Beneficial Ownership) Regulations, Government Notice NO 391 of 2021 is currently already applicable and enforceable.
The Regulation provides compliance requirements for companies to provide accurate information of all its beneficial owners and register all the beneficial owners of the company.
The Regulation has four Parts namely the Preliminary Provisions, Information and Particulars of Beneficial Owners, Register of Beneficial Owners and its requirements and Miscellaneous Provisions such as offences and non-disclosure obligations.
This Part provides for definition of the term “Beneficial Owner”. There are four alternative conditions that constitute the definition of “Beneficial Ownership” namely:
- a natural person who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement;
- A natural person who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons;
- A natural person on whose behalf an arrangement is conducted;
- A natural person who exercises significant control or influence over a person or arrangement through a formal or informal arrangement.
Regulations 3 to 6 of the Beneficial Ownership Regulations lays down the following requirements:
- Identification of Beneficial Owners
A company is required to identify its beneficial owners as prescribed under section 14(2)b of the Companies Act and must submit to the Registrar of Companies the particulars of its beneficial owners in a prescribed Form No. 14b.
- Notification of Change to the Registrar
When a person ceases to be a beneficial owner, the company must file a notice to that effect to the Registrar within thirty days from the date of cessation, as provided for in Form No. 14c.
When there is change of beneficial owners, the company shall, within thirty days from the date of change, lodge the particulars of change of its beneficial owners as provided for in Form No. 14f.
In case of default in complying with the requirement of filing notice within the prescribed time the company and every officer, shareholder and beneficial owner who is in default will be jointly liable to a late filing fee.
- Declaration of Beneficial Interest
A person is required to file a declaration of beneficial interest with the company in the following circumstances:
- When he is a registered shareholder but does not hold beneficial interests in his shares
- When he acquires beneficial interests in shares of a company not registered in his name
- Where there are any changes as to the beneficial interests
When a company receives any declaration under this regulation, the company shall make a note in the register of members and beneficial owners and file a return within thirty days from the date of receipt of declaration with the Registrar.
- Non-disclosure of Beneficial Owner Information
As general rule a company is prohibited to use or disclose any information about its beneficial owners except for communicating with the beneficial owner concerned; in order to comply with any requirement of these Regulations; or in compliance with court order.
REGISTER OF BENEFICIAL OWNER
There shall be a “Register of Beneficial Owners” containing information of beneficial owners and kept by the Registrar.
The Registrar has the power to refuse to register any document of a company required to be registered under the Act if a company fails to disclose beneficial ownership information and shall communicate his decision to the company. This could lead to operational challenges to companies when undertaking certain corporate actions such as registering share transfer or transmission, change in share capital, alteration of articles of association etc.
OFFENCES AND PENALTIES
Regulation 10 provides the following as offences:
- Failure to keep the record of beneficial owners;
- Failure to provide information to the Registrar about a change in beneficial ownership;
- Failure to provide the Registrar with a declaration containing information of the beneficial owners of a company; or
- Contravening any provision of these Regulations
The offences are punishable by a fine of not less than five million shillings but not exceeding ten million shillings.
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
The Registrar or any other officer performing their duties under the Act shall neither disclose confidential information obtained in their capacities to persons not entitled to receive them nor to the public or make other use of it.
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