Introduction
Section 93 of the Companies Act (the ‘Act’) provides that Companies ought to keep a members’ register which includes information relating to beneficial owners of the company. The Companies (Beneficial Ownership Information) Regulations (the ‘Regulations’) were put in place to control how companies collect and maintain beneficial ownership information. Under the Regulations, Companies will now be required to keep a Beneficial Ownership Information register, in addition to the Members Registers. The Regulations were published by the Attorney General vide Legal Notice 12 of 2020 dated 21st February 2020.
Key Highlights of the Regulations and their implications
Who is a Beneficial Owner?
A beneficial owner is defined as person for whose benefit the company transacts. The Regulations define a beneficial owner to include the natural person who ultimately controls a legal person or a natural person on whose behalf a transaction is conducted. It also includes those persons who exercise ultimate effective control.
The Regulations require disclosure of beneficial information of persons who exercise control rights. The Regulations particularize persons that have ‘control’ to be:
- Those that hold at least 10% of the issued shares;
- Those that exercise at least 10% of the voting rights;
- Those that hold a right to appoint/remove a director; or
- Those that exercise significant influence or control over a company.
Searches about Beneficial Ownership and Disclosure of Protected information
Companies are now required to obtain and maintain personal information from Beneficial Owners. Generally, this information is personal and therefore protected. It includes, the Beneficial Owners’: identification card number/passport number; personal identification number; residential address; current email address; and current telephone number.
A person can conduct a basic search on a company from the Companies Registry in order to obtain the name of the beneficial owner of that company. However, a Company will not be permitted to use or disclose protected information about a beneficial owner, except:
- For communicating with the beneficial owner concerned;
- In order to comply with any requirement of the Regulations; or
- In order to comply with a court order.
The provision on searches and disclosure of Beneficial Ownership presents several challenges including:
- Privacy queries in the wake of an inadequate system of processing and storing beneficial information that would otherwise be confidential; and
- The fact that it is difficult to determine the beneficial owners of some shareholders like trust funds and private equity funds, and therefore it will be quite a challenge to acquire the beneficial information in such circumstances.
Obligation to investigate beneficial owners
The Regulations provide that a Company has an obligation to identify its beneficial owners. Where the particulars of beneficial owners are not within the knowledge of a company, then the company shall give notice to anyone whom it knows or has reasonable cause to believe to be a beneficial owner.
If the person given the notice does not comply with it, the company is supposed proceed to issue a warning notice that it will proceed to issue a restriction notice if the person does not comply with the notice. The effects of a restriction notice include the fact that transfers of interest are void and no rights are exercisable in respect of the interest and no shares may be issued in right of the interest among other effects.
M&K Advocates Advisory Statement
It is expected that Companies other than public companies will lodge a copy of their Register of Beneficial Owners with the Registrar within thirty days after completing its preparation.
The Regulations are more detailed, and this newsletter provides a preview of the general feel of the new law. We at Muma & Kanjama Advocates are ready and willing to train and partner with companies, firms and organizations in order to advise further on the matter of Beneficial Ownership Information as per the new law.
