Disclosure of Ownership in South African Company Law

• Jurisdiction: South Africa
• Author: Richard Rachlitz
• Citation: (2013) 24 Stell LR 406
• Published date: 16 August 2019
• Date: 16 August 2019
• Pages: 406-429

406

DISCLOSURE OF OWNERSHIP IN SOUTH

AFRICAN COMPANY LAW

Richard Rachlitz

Ass Jur (Germany) LLM (Stell)

Akademischer Rat aZ, Ludwig-Maximilians-Universität München, Germany*

1 Introduction

Clear determi nation of ownership is a crucial f unction of the law. Ownership

is a legal construct ion. It is the law and the law alone that determ ines it

and provides the conditions necess ary for ownership to exi st. In addition,

as ownership itself is not im mediately obvious, a system is necessa ry that

provides for perceptibility of owner ship. This article gives a comprehen sive

overview of South African compa ny law dealing with deter mination (pa rt

2) and disclosure (part 3) of company ownership. Following this overv iew,

two fundament al aspects of the South Af rican company law of ownership

disclosure are evaluated ( part 4). It will become appare nt that the scope of

company ownership disclosure i s far from cert ain, especially with r egards to

indirect holding. Moreover, due to a lack of enforcement measu res, compliance

with substantial pa rts of the law of company ownership disclosure seems t o be

de facto at the discret ion of the owne rs involved.

2 Company ownership

Quite obviously, the subject matter of company ownership d isclosure

is predetermi ned by the legal concept of company ownership conc erned.

The legal rules regard ing determi nation of ownership and percept ibility

thereof must match each other in ord er to function effect ively. They are

mutually dependent. T hus, in order to be able to under stand and evaluate

the various ownersh ip disclosure mechanisms of the Companies Act 71 of

2008 (“the Companies Act” or “ the Act”), it is nec essary to rst understand

the underlying concept of company owne rship. According to the concept of

company ownership establishe d under the Companies Act in conjunction with

the common law, company ownership, in a wider sen se of the word, can be

broken down to three dif fere nt forms of legal recognition as “owner”. Firstly,

it is comprised of the legal capacity to d ispose of any shares1 (“owner ship”

* This art icle is based on parts of my ma ster thesis presente d in October 2012 in partia l fulfilment of th e

requireme nts for the degree of Maste r of Laws (LLM) at Stellenbosch Un iversity I would like to thank

my supervi sor Prof AH van Wyk , the Studienstiftung des deutschen Volkes and the Z EIT-Stiftung for their

support to c onduct this resea rch

1 Se curities other t han shares will not b e taken into accou nt However, it has to be pointed out t hat hybrid

debt/equity i nstrume nts may grant voti ng rights and a re therefore suit able to constitu te forms of company

ownership qu ite similar to those de scribed in part s 2 2 and 2 3; cf s 43(3)(a) of the Act For an in- depth

study on alloc ation of voting rig hts via hybrid in strume nts see HTC Hu & B Black “T he New Vote

Buying: Empt y Voting and Hidden (Mor phable) Ownership” (200 6) 79 S Cal L Rev 811

(2013) 24 Stell LR 406

© Juta and Company (Pty) Ltd

in the narrow sen se of the word).2 Secondly, it refers to the legal capacity

to exercise any shareholder rights vis-à-vis a company (“shareholders” or

“membe rs”).3 T he third category of company ownership is that of “holders of

a benecial interest”.4 It includes t he rst two, but exceed s them in that it also

covers legal capacity to cause the di sposition of any shares and/or the exercise

of any shareholder rights vis-à-vis the company, whether accompan ied by the

legal capacity to actu ally do so or not. Insofar as the exceedi ng part of it

is concerned, the establishme nt of the category of “ holders of a benecial

interest” ai ms at identifying the “ultimat e owne rs” of, or “nal investors” in,

a company.

2 1 Ownership

South African compa ny law determines com pany ownership as a bundle

of rights attached to t he share. These rights vest i n the owner. It is the owner

and the owner alone who is entitled to the sha reholder rights, at least when

seen from the owner’s perspective and not f rom the company’s.5 The terms

“owner” and “benecial owner” ar e sometimes used as synonyms,6 but “it

is more accurate to refer to h im as the ‘owner’ of the shares”.7 The Rules of

Strate8 also u se the term “legal owner ”.9 The rst owner of a shar e is the

person to whom that share was i ssued. From then on, the means of transfer of

ownership var y depending on whet her the share is certicated, ie eviden ced

by a share cert icate,10 or unce rticated, ie issued in book-entry-only form

(“BEO”).

(i) Transfer of ownership in cer ticated shares is not regulated i n the

Companies Act. It takes place by means of cession of the rig hts at tached

to t he share. T herefore, mere con sensus is sufcient, unless otherwise

agreed by the par ties.11 The sh are cer ticate is proof that the person

2 Bel ow part 2 1

3 Bel ow part 2 2

4 Bel ow part 2 3

5 Cf M Bl ackman, R Joost e, GK Everingham , FHI Cassim, R D e la Harpe & JL Yeats (eds) Comme ntary on

the Companie s Act (RS 9 2012) 5-169 n 3 For the c ompany’s perspective se e below part 2 2 1

6 Cf , for example, Standar d Bank of South Afric a Ltd v Ocean Commodi ties Inc 1983 1 SA 276 (A) 289

7 Bla ckman et al Commentary on the Companies Act 5-172; quot ed also by R Joo ste & J Yeats “Sha res

Securitie s and Transfer” i n FHI Cassim , MF Cassim, R C assim, R Joost e, J Shev, JL Yeats (eds)

Contemporary Company Law (2012) 212 249 In oth er jurisdictions, t he term “beneficia l ownership” is

used to refer to t hose who ultim ately own or contr ol a company, ie has, in s ubstance, a me aning close to t hat

of the South Afr ican legal concept of “ holder of a beneficial i nterest”; for example Fin ancial Action Task

Force (“FATF”) “The Misu se of Corpor ate Vehicles, Includ ing Trust an d Company Ser vice Provid ers” (13-

10-20 06) FATF sandtrends/documents/themisus eofcorporatevehicles

including trustandc ompanyservice providers html > (acce ssed 29-08-2013); Organisation for Econo mic

Co-opera tion and Development (“OECD” ) “Principles of Cor porate Governanc e” (2004) OECD

oecd org/corporate/ca/corporategovernance principles/31557724 pdf> (accessed 29-08 -2013)

8 Reg n o 1998/022242/06, last updat ed as per GG 34811 of 09-12-2011

9 Se e, for example, 5 71 of th e Rules of Strate

10 Cf s 49(1) of the Act

11 Cf Standa rd Bank of South Afri ca Ltd v Ocean Commodit ies Inc 1983 1 SA 276 (A) 289; Blackman et al

Commentary on the Companies Act 5-169; P Delport (ed) Henochs berg on the Companie s Act 71 of 2008

1 (RS 1 2012) 211

DISCLOSURE OF OWNERSHIP 407

© Juta and Company (Pty) Ltd