Ongoing beneficial interest shareholder and regulated company obligations under the Companies Act and JSE Listings Requirements

Shareholders have ongoing obligations which are not always clearly understood.  These include the ongoing obligations relating to beneficial interests in securities and how these obligations apply in the context of regulated companies.  In order to understand these obligations we investigate what a beneficial interest is, how the obligation of disclosure is ongoing, how this applies to regulated companies and reasons for the obligations.

Having a “beneficial interest” in securities means that while a shareholder may be the registered owner of the share in a company, the rights and benefits attaching to that share are exercisable and due to another person.  The Companies Act, 2008 provides that having a “beneficial interest” in securities in a company means that a person has a right or entitlement, through ownership, agreement, relationship or otherwise, either alone or together with others, to –

• receive or participate in any distribution in respect of the securities;
• exercise, in the ordinary course, any of the rights attaching to the securities; or
• dispose of the securities, or any part of a distribution in respect of the securities.

Interests held in unit trusts or collective investment schemes are specifically excluded and are not discussed here.

Section 56 of the Companies Act sets out the ongoing obligations of shareholders where others have a beneficial interest in their shares.  While beneficial interest holders are permitted to build up a stake in a company, and to benefit from that stake, there is an obligation on the shareholder to disclose this when the shares are held in a “regulated company”, as defined in section 117(1)(i) of the Companies Act.  Briefly, a “regulated company” is either a public company, or a private company that has elected to be regulated, or that has seen in excess of 10% of its own shares being transferred in the preceding 24 months.  This promotes transparency between the company and the shareholder.  The shareholder must disclose –

• the identity of the person on whose behalf those securities are held; and
• the identity of each person with a beneficial interest in the securities held, the number and class of securities held for each beneficial interest holder and the extent of the beneficial interest.

This information must be disclosed by the shareholder to the company within five business days after the end of the month in which the change of beneficial interest in the securities occurred.  In addition to this, section 122 provides that a beneficial interest holder is obliged to notify a regulated company within 3 days of them acquiring or disposing of a beneficial interest in securities of the regulated company amounting to any whole multiple of 5%.  This ensures that the company is fully aware of who its beneficial shareholders are.

The obligation to disclose information disclosed to it by shareholders also lies with the regulated company itself. These companies must establish and maintain a register of the disclosures of beneficial interests made by shareholders.  A list of the beneficial interest holders who hold 5% or more of the total number of securities of that class of the company, as well as the extent of the beneficial interests, must also be published by the regulated company.  Furthermore, a regulated company is obliged to provide the Takeover Regulation Panel with a copy of any acquisition or disposal notice provided to the company by beneficial interest holders in terms of section 122.  The regulated company must also report this disposal or acquisition information to the remaining shareholders of that class of securities.  This ensures and entrenches transparency between companies and their shareholders.

Listed public companies (which fall within the definition of “regulated company”) are also subject to additional disclosure requirements set out in the JSE Listings Requirements.  JSE-listed companies are obliged to establish and maintain a register of the disclosures of beneficial interests made in terms of section 56 of the Companies Act.  Specific items for disclosure include a description of the beneficial interests, beneficial interest holders and major shareholders, all of which must be published in the company’s annual financial statements.  In addition, if the company is required to have its annual financial statements audited, a list of the persons who hold beneficial interests equal to or in excess of 5% of the total number of securities of that class, together with the extent of those beneficial interests, must also be disclosed.

We hope that this has helped to clarify the ongoing obligations of both shareholders and the regulated companies in which those shareholders hold beneficial interests.  While the obligations imposed are numerous and do require constant monitoring and updating of records, it is clear that they are necessary in order to promote transparency between companies, shareholders, beneficial interest holders and the general public.