Beneficial ownership disclosure as good corporate practice

Continued from yesterday

A person with “significant control” is defined as any person: (a) directly or indirectly holding at least 5% of the shares or interest in a company or limited liability partnership; (b) directly or indirectly holding at least 5% of the voting rights in a company or limited liability partnership; (c) directly or indirectly holding the right to appoint or remove a majority of the directors or partners in a company or limited liability partnership; (d) otherwise having the right to exercise or actually exercising significant influence or control over a company or limited liability partnership; or (e) having the right to exercise, or actually exercising significant influence or control over the activities of a trust or firm whether or not it is a legal entity, but would itself satisfy any of the first four conditions if it were an individual.

Such person(s) with significant control should be disclosed through a three-step obligation outlined in Section 119 of the CAMA 2020 as follows:

Step 1- Every person with significant control over a company should notify the company within 7 days of becoming such a person.

Step 2- Upon such disclosure, the company is required to notify the CAC within one month from the receipt of such information. The company is further required to state same when filing its annual returns and also inscribe against the name of every member in the register of members the information received.

Step 3- The CAC is required to maintain a register of persons with significant control in which it shall enter the information received from the company or any change therein.

While disclosure of persons with significant control is required for all, as it specifically relates to public companies, the steps are similar but with a specific threshold and further obligations.

Section 120 of the CAMA 2020 provides that a person who is a substantial shareholder in a public company shall notify the company with his details and full particulars of the shares held by him or his nominee, by virtue of which he is a substantial shareholder within 14 days of becoming aware of same. The individual is also required to notify the company despite ceasing to be a substantial shareholder within the timeframe for disclosure.

As it stands, it is mandatory for every company seeking to be registered with the CAC to disclose persons with significant control at the point of registration; whenever there is any change in the information; or at the point of filing of its annual returns. The request for this information is attached to the CAC forms to be filled out by applicants. In addition to this, the public can also view and access information about companies that have persons with significant control through the public search registry of CAC.

Failure to comply with this requirement attracts fines as the CAC may prescribe for each day the default continues.
Clearly, these measures by CAC aim to enhance transparency, address the challenge of concealed asset protection, and deter money laundering.

Overview of Beneficial Ownership Disclosure under Ghana’s Companies Act
Ghana’s drive towards a robust beneficial ownership transparency has been in the pipeline for some time. Notable progress however remained elusive until the release of the Panama Papers, which catalyzed a global endeavour to tackle the issue of beneficial ownership.

Consequently, the Companies Act of 1963 was amended in August 2016 to accommodate the disclosure of beneficial ownership. This marked a significant milestone in enabling the enactment of a beneficial ownership disclosure system in Ghana.

This achievement was realized through collaborative partnerships involving the government, the Office of the Registrar of Companies (ORC), as well as various international and domestic organisations.

Along the line, it was discovered that more needed to be done as the amendment did not capture some pertinent issues surrounding beneficial ownership.

In 2019, the Companies Act 1963 was repealed through the passage of the new Companies Act 2019 (Act 992). Act 992 like its forerunner governs the establishment and regulation of business operations in Ghana. It establishes the Office of the Registrar of Companies (ORC) and requires every company to furnish the ORC with a list of its members and beneficial owners.

Act 992 defines “Beneficial Owner” as an individual who directly or indirectly ultimately owns or exercises substantial control over a person or company; who has a substantial economic interest in or receives substantial economic benefits from a company whether acting alone or together with other persons; on whose behalf a transaction is conducted; or who exercises significant control or influence over a legal person or legal arrangement through a formal or informal agreement.

Under Act 992, the requirement to disclose and register beneficial owners applies to all types of business formation without any exception.

The threshold disclosure for companies regarded to be in a low-risk sector is 20% direct or indirect interest in the company. Some other sector-specific entities in high-risk sectors require a threshold as low as 5%. In addition to full disclosure, Section 35(6) of Act 992 requires a company to submit particulars of members or beneficial owners who are Politically Exposed Persons (PEP).

For a foreign Politically Exposed Person (“PEP”), an interest of 5% or greater in any company must be disclosed and registered, while a domestic PEP with any shares or form of control in an entity must be disclosed and registered.

Section 383 of Act 992 defines a PEP to include (a) a person who is or has been entrusted with a prominent public function in this country, a foreign country, or an international organization including (i) senior political party official, government, judicial or military official; (ii) a person who is or has been an executive of a State-owned company; (iii) a senior political party official in a foreign country; and (b) an immediate family member or close associate of a person referred to in paragraph (a).

Going forward, information on beneficial owners is required at the point of incorporation and filing of annual returns. All companies are also required by Act 992 to retain a register of members and beneficial owners.

In 2019, the ORC announced the arrangement of a new central beneficial ownership register for all companies operating in the country starting with the extractive industry and other high-risk sectors like banks and other financial institutions, which may be accessible to the public.

Section 35 (14) of Act 992 provides that a person who fails to provide the information required or provides false or misleading information to the Registrar commits an offence and is liable on summary conviction to a fine of not less than one hundred and fifty penalty units and not more than two hundred and fifty penalty units or to a term of imprisonment of not less than one year and not more than two years or to both.
Where a company is in default, the company and every officer of the company in default are liable to also pay to the Registrar an administrative penalty of twenty-five penalty units for each day during which the default continues.

The implementation of this disclosure is a step in the right direction and a great development in the Ghanaian corporate regime.
Beneficial Ownership Disclosure and Corporate Governance

Certainly, a primary objective of any business establishment is achieving profitability. While this objective holds significance, maintaining a strong foundation of corporate governance is equally indispensable. Adhering to best practices, every organization should actively pursue effective corporate governance, as it not only reflects business integrity but also fosters trust and assurance among stakeholders.

Elevated corporate governance standards encompass a framework of regulations, protocols, and checks that define an organization’s operational conduct. Integrating the practice of disclosing beneficial ownership within a company contributes significantly to its overall success and contributes to the broader economic advancement.

Significantly, one of the core tenets of corporate governance is transparency. Transparency, in simple terms, denotes openness, honesty, and accuracy. It signifies that an organization has no hidden agendas and the information disclosed is both truthful and precise.

Disclosure of material information such as the beneficial owners behind a company is in line with the principle of transparency. This not only reveals factual information but also shows that such an entity complies with legal and regulatory requirements.

Transparency further ensures that a company’s actions can be reviewed and verified by an independent party at any time without the fear of unethical practices and uncertainties. This boosts stakeholders’ confidence and can help promote financial viability.

The revelation of beneficial owners serves as a catalyst for fostering robust corporate governance aligned with industry standards. This, in turn, cultivates a culture of accountability, enhances the entity’s reputation, dismantles the funding network for terrorists and criminal elements, and reduces the likelihood of engaging in unlawful practices.
Concluded

Odunayo is a Corporate and Commercial Lawyer.