Beneficial ownership refers to a person who ultimately has the right to some share of a legal entity’s income/assets and the ability to control its activities.
The Companies Act 2012 was recently amended by the Companies (Amendment) Act 2022. The Amendment Act was assented to on 7 September 2022 and commenced on 16 September 2022. The Amendment Act introduced a raft of amendments including the elimination of the form for registration of a company (S.18) in the incorporation process, the inapplicability of the code of corporate governance to private companies, repeal of share warrants, and the introduction of a procedure for the re-registration of a company limited by guarantee as a company limited by shares.
One of the most notable amendments is the requirement for the register of beneficial owners. Additional guidance on this requirement is provided under the Companies (Beneficial Owners) Regulations 2023 (Beneficial Ownership Regulations).
A report by Global Financial Integrity (GFI) and Advocates Coalition for Development and Environment (ACODE) asked government to urgently enact beneficial ownership law to curb increasing cases of illicit financial flows.
The report titled “Corporate Transparency: A guide for beneficial ownership laws in Uganda” noted that government officials used shell companies and offshore trusts to stash and hide their wealth.
The report indicates that Uganda loses up to Shs2 trillion ($550 million) annually through Illicit Financial Flows (IFFs). This, the report says is orchestrated by shady companies whose ownerships have remained anonymous.
“This demonstrates how the failure to collect beneficial ownership information is frequently exploited by individuals looking for a convenient way to move illicit proceeds and conceal their criminal activity,” the report indicates.
Presenting a paper on Placing Uganda’s Beneficial Ownership Legislative Framework in the Global Context, Samuel Bekoe an expert on BO, explained how companies conceal ownership.
Bekoe revealed that some rich people, especially those in Government, hide under foreign companies who run such companies on their behalf. According to Bekoe, such companies evade tax, by not declaring revenue and using anonymous accounts.
“They pool investors’ money from different countries, protect trade secrets and store illicit wealth from prying eyes,” Bekoe explained.
The Uganda Registration Services Bureau (URSB) issued a notice on 9 January 2023 requiring compliance with the register of beneficial owners’ requirement within 30 days of the notice, failing which company documents would not be registered.
The Registrar General, Mercy Kainobwisho dismissed information circulating that those who do not respond to this call will be penalized up to 500,000 Shillings daily.
“The current penalty applicable to companies or partnerships that do not submit this Beneficial Ownership info is the registrar of Companies’ refusal to accept any other subsequent filings on the company file until they comply,” she said, adding that the move is in line with global transparency requirements.
According to her, business entities have been the main conduit for illicit money, hence the global campaign to fight it through legislation and enforcement of national legislation.
“Globally, Corporate vehicles like companies, partnerships, trusts, etc have been misused for money laundering, terrorism financing among other illegal activities. As such all countries have to ensure transparency in the ownership of corporate vehicles to mitigate the global risks,” she says.
According to S&L Advocates Uganda, complying with this requirement would be straightforward for private companies whose shareholders/members are individuals.
“Companies whose shareholders/members are companies would need to provide details of the individuals who ultimately own or control their respective shareholder companies. Subsidiaries would need to provide details of the individuals who ultimately own or control their respective holding companies,”
“Public companies that are listed or publicly traded, or private companies with shareholder companies that are listed, present a unique challenge. Considering the fluidity of movement in shares of listed companies, the huge number of shareholders involved and the sheer impracticality of constantly keeping the registrar of companies apprised of changes in the shareholding of a listed company, it is usually necessary for reporting thresholds and parameters for listed companies and private companies whose beneficial owners are listed companies to be provided,” reads an excerpt from a statement by S&L Advocates.
Beneficial ownership percentage thresholds, according to the advocates are generally in line with global norms set by the Financial Action Task Force, the global money laundering and terrorist financing intergovernmental watchdog, for what is considered “significant influence or control”.
“However, even in cases where there is cosmetically or deceptively low shareholding, the rules may require the disclosure and registration of persons who have a right to or actually exercise significant influence or control over a company. Therefore, for Ugandan law compliance purposes, this implies that companies are currently required to disclose and register every ultimate individual beneficial owner irrespective of the level of shareholding. It may be the case that in future, the registrar of companies will issue additional guidelines setting both objective and subjective qualifying conditions for a person to be disclosed and registered as a beneficial owner.”
Who is required to maintain a register of beneficial owners?
The following types of companies would be expected to comply:
i)a private company limited by shares including a single member company;
ii)a public company, including companies that are listed on a recognised stock exchange in Uganda;
iii)a company limited by guarantee; and
iv)a company registered as a foreign company or a branch
What information must be included in the register of beneficial owners?
The register of beneficial owners must contain the following particulars:
i)name, national identification number, occupation, postal address, mobile telephone number, tax identification number and email address of each beneficial owner;
ii)number of shares held by each beneficial owner;
iii)amount paid/unpaid on the shares held by the beneficial owner;
iv)summary of the activities in which the beneficial owner is engaged;
v)date on which the beneficial owner is entered on the register; and
vi)the immigration status, passport and visa details, work permit status, where the relevant beneficial owner is foreigner resident in Uganda.
Companies are required to maintain a register of beneficial owners in addition to the registers that are already required to be maintained under the Companies Act.
It is noteworthy that the registrar of companies is also an accountable person under the Anti-Money Laundering Act 2013 (as amended) and must specifically enforce the requirement for a register of beneficial owners. The registrar may cooperate with government agencies and other international bodies in the exercise of his mandate.