The concept of beneficial ownership has gained prominence in recent years as a crucial mechanism in combating financial crimes, promoting transparency, and preventing the misuse of legal entities for illicit purposes.
The Companies and Other Business Entities Act (Chapter 24:31) (hereinafter referred to as the COBE Act) comprehensively addresses beneficial ownership, outlining its definition, disclosure obligations, and consequences for non-compliance.
This article delves into the key sections of the COBE Act that pertain to beneficial ownership, highlighting the significance of this concept in modern corporate governance and anti-money laundering efforts.
Defining beneficial ownership
Section 2(1) of the COBE Act provides a comprehensive definition of “beneficial owner” concerning a company. A beneficial owner is understood as a natural person who has ultimate ownership or control over property, exercises significant influence or control, or holds certain ownership rights within the company. Specifically, the definition includes individuals who meet the following criteria:
Ownership of shares: A person who directly or indirectly holds more than twenty percent of the company’s shares.
Voting rights: A person who directly or indirectly holds more than twenty percent of the company’s voting rights.
Director appointments: A person who directly or indirectly holds the right to appoint or remove a majority of the company’s directors.
Significant influence or control: A person who otherwise exercises or has the right to exercise significant influence or control over the company.
Obligations and disclosure requirements
Section 72 of the COBE Act focuses on the obligations of companies regarding the maintenance and disclosure of beneficial ownership information. Every company is required to maintain an accurate and up-to-date register of beneficial owners, referred to as the “register of beneficial owners.” This register must be kept within Zimbabwe and at the same office where the register of members is maintained.
The register of beneficial owners should contain details such as the first name, surname, identification reference number, residential address, and the nature and extent of beneficial ownership in the company for each beneficial owner. The COBE Act also mandates that companies file accurate and up-to-date beneficial ownership information with the Registrar in a prescribed form. In case of any material changes to the information, updates must be filed with the Companies Registry within seven days.
Access to beneficial ownership information
Section 72(3) establishes that beneficial ownership information held by companies or the Registrar must be accessible for inspection by the Financial Intelligence Unit and law enforcement agencies as defined in the Money Laundering and Proceeds of Crime Act.
Additionally, the COBE Act requires companies to appoint a resident in Zimbabwe responsible for maintaining the register of beneficial owners and providing information to relevant authorities upon request.
Public disclosure and enforcement
One of the notable aspects of the COBE Act is the public nature of beneficial ownership information. Section 72(6) emphasizes that beneficial ownership and other company information held by the Registrar are considered public information and can be inspected by members of the public, financial institutions, and designated non-financial businesses or professions as defined in the Money Laundering and Proceeds of Crime Act.
Non-compliance with the obligations outlined in Section 72 is taken seriously under the COBE Act. Section 72(10) states that failure to comply with various requirements could result in penalties such as fines not exceeding level 14 or imprisonment for up to five years, or both.
Prohibition of concealment of beneficial ownership
Section 73 of the COBE Act addresses the prohibition of concealing beneficial ownership. It emphasizes that companies and private business corporations are prohibited from allotting or issuing shares, transferring shares, or registering shares in the name of a person other than the intended beneficial owner. This provision ensures that ownership of shares cannot be hidden behind nominee entities.
However, there are exceptions outlined in Section 73(2), which allow for the allotment or registration of shares in the name of certain individuals or entities, such as nominees of beneficial owners holding less than twenty percent of shares, managers or trustees of collective investment schemes, executors of deceased estates, and others defined by law.
The COBE Act empowers companies to request information from individuals about their beneficial ownership status to ensure compliance with Section 73(1). Failure to comply with such requests can result in restrictions on voting and receiving dividends.
Enforcement mechanisms
The COBE Act establishes strong enforcement mechanisms to ensure compliance with beneficial ownership requirements. In cases where shares or interests are allotted or transferred to nominees in contravention of the law, the Registrar may serve a category 2 civil penalty order on the alleged nominee. This order may require the nominee to divest themselves of the shares within a specified period, and failure to comply could lead to those shares becoming vested in the State.
Conclusion
Beneficial ownership is a critical concept in contemporary corporate governance and efforts to combat financial crimes, money laundering, and corruption. The Companies and Other Business Entities Act provides a robust framework for identifying, disclosing, and regulating beneficial ownership information. By imposing obligations on companies to maintain accurate records and ensuring public access to this information, the COBE Act contributes to greater transparency and accountability in the business landscape. Effective implementation of these provisions can significantly contribute to a more trustworthy and secure business environment.
The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice.
Kelvin Sabao is a registered legal practitioner and he writes in his personal capacity. He is a co-author of a book entitled ‘The Directors’ Handbook in Zimbabwe’. For more information, you can contact Kelvin via email at: sabaokelvin@gmail.com
