- October 5, 2023
Finding hidden corporate owners: Beneficial ownership disclosure
Companies are legal entities used by natural persons to undertake business or pursue an object. However, it is not always the case that natural persons want to use companies for lawful activities or to be identified with the company. Natural persons may use companies as fronts for unlawful activities including terrorist financing, money laundering, and tax evasion: circumventing legal compliance requirements, among others. In light of this, it is important to have full information on the persons using a company to undertake business or pursue an object.
This has led to the requirement of beneficial ownership disclosure globally. Ghana adopted the disclosure requirement in 2016 through an amendment of the now repealed Companies Act, 1963 (Act 179), and has restated the requirement in the new Companies Act, 2019 (Act 992). This article discusses beneficial ownership disclosure in Ghana.
Background to beneficial ownership disclosure
Studies conducted by the Financial Action Task Force (FATF) (an international body that sets standards for anti-money laundering and counter-terrorist financing) in 2006 revealed that the lack of adequate, accurate and timely beneficial ownership information on companies in jurisdictions, including Ghana, allows money laundering and terrorist financing to flourish in those jurisdictions.
Consequently, the FATF recommended its Recommendations 24 and 25 on transparency and beneficial ownership of companies. In parallel, the Ghana Extractive Industry Transparency Initiative (GEITI), an initiative that monitors payments by extractive industry companies to governments and government entities, initiated a beneficial ownership transparency agenda to push for transparency in payments in the industry. FATF Recommendations 24 and 25 and the GEITI served as catalysts for Ghana to consider a beneficial ownership disclosure regime covering all companies.
Ghana implemented the requirement by amending the now repealed Act 179 through the passage of the Companies (Amendment) Act, 2016, (Act 920). Act 920 provided for a beneficial ownership disclosure regime by mandating the inclusion of names and particulars of beneficial owners in the register of members. The beneficial ownership disclosure reveals how companies are owned and controlled by their beneficial owners.
Act 920 and Act 179 were repealed by the Companies Act, 2019, (Act 992) which was passed in August 2019. However, it restated the beneficial ownership disclosure requirement and expanded on it.
Who is a beneficial owner?
A beneficial owner is a natural person who ultimately owns or significantly controls a company or materially benefit from the assets held by a company. The control can be exercised directly (holding a significant share in the company) or indirectly (influential in the running of the business) through a legal ownership interest or a significant percentage of voting rights. Act 992 defines the beneficial owner as the natural or artificial person that has a direct or indirect significant interest in or substantial control over a company. It characterises the 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;
Thus, persons who fall into any of the above categories are beneficial owners and their details must be disclosed to increase transparency in business transactions. Act 992 requires Ghanaian companies (incorporated or external company) to disclose their beneficial owner(s) to the Office of the Registrar of Companies (ORC).
When to report/disclose beneficial ownership?
Act 992 establishes a Central Register (‘Register’) that allows the Registrar to, in accordance with Recommendations 24 and 25 and the provisions of Act 992, obtain, verify and record beneficial ownership information. Consequently, companies have reporting obligations under the beneficial ownership regime. The following reporting requirements have been adopted under Act 992:
- Filing of beneficial ownership information with the ORC during incorporation/registration of a company. This involves the completion of the relevant Beneficial Ownership Declaration Form.
- Entry of details of beneficial owners in the Register of Members, and thereafter, submitting their particulars to the ORC within 28 days.
- Disclosure of beneficial owners in the annual returns forms.
- The Registrar may request for details of beneficial owners of companies when updating its Register.
The details required from the beneficial owner includes the personal details, percentage interest held, approved national identification, details of politically exposed persons and in the case of a foreign beneficial owner, their passport details. The reporting requirements helps the Registrar to have records of beneficial owners to track their activities.
Should everyone report?
Act 992 does not require everyone that has or controls interest directly or indirectly or receives benefits from a company to disclose. The Act qualifies the reporting thresholds with the words ‘significant’ or ‘substantial’. This is necessary to ensure that the Register contains details of persons who only hold significant or substantial interests. Pursuant to that, the Beneficial Ownership Declaration Forms sets out the thresholds for disclosure in the Register. The thresholds are dependent on the type/sector of the company and the type of beneficial owners involved. The prescribed thresholds are as follows:
- A natural person who has a direct or indirect interest of 20 percent interest or greater.
- Foreign politically exposed person in any company who holds 5 percent interest or greater.
- Domestic politically exposed person with any amount of shares or form of control.
- In a high-risk company (e.g., oil and gas), any person with an interest of 5 percent.
The thresholds provided under the law are to ensure that only significant and substantial ownership by beneficial owners is disclosed. This is to avoid the disclosure becoming an unnecessary burden for the acquisition of any interest or receiving any benefit, no matter how insignificant in a company.
What happens if you fail to disclose?
To ensure compliance with the disclosure requirements, Act 992 prescribes sanctions for non-compliance. Non-compliance with the reporting/disclosure requirements attracts payment of a fine or a term of imprisonment not exceeding 2 years or both. The prescription of sanctions for non-compliance in Act 992 is necessary as it serves as a check on companies hiding share ownership or control.
Additionally, where persons act as ‘fronts’ for beneficial owners per the terms of an undisclosed agreement, allowing the beneficial owner to use various means to control the actions of the front in the company; such an agreement will have no legal effect on the basis that it is unlawful.
It is therefore important that companies take necessary steps to comply with the disclosure requirements to avoid the prescribed sanctions.
Practical issues arising with implementation register
The disclosure requirement is not without faults. Concerns raised include:
- There are generally technical challenges related to the verification of information obtained on beneficial owners. Consequently, it is difficult for the ORC to verify the information on beneficial owners who are publicly listed companies. This has led to delays in filings by companies (especially foreign-owned companies) who have publicly listed companies as beneficial owners. The Registrar must issue a clear directive on how to proceed in respect of this matter.
- Under the regime, it is mandatory for beneficial owners who do not have a Tax Identification Number (TIN) to procure a TIN. Beneficial owners who are non-residents are reluctant to procure the TIN on the basis that it exposes them to tax liabilities in Ghana. Foreign beneficial owners must be made aware that tax liability does not arise just by the procurement of a TIN but only applicable on taxable activities.
- The Form allows companies to indicate if there are no beneficial owners who meet the prescribed thresholds. There is no requirement for an applicant to provide any supporting information for that statement. However, the ORC would only file such a form if it has supporting documentation. The form should be amended to include the provision of supporting information if there are no beneficial owners.
The beneficial ownership disclosure regime is being implemented to ensure best practices in business operations. Undoubtedly, there are issues associated with its implementation. However, businesses must comply with the requirements. For businesses to be compliant with the requirements, the following measures can be adopted:
- Procurement of TIN- beneficial owners must take steps to procure TINs. Having a TIN does not equate tax liability. Tax payment is generally triggered if the income is accrued in, derived from, and brought into Ghana.
- Submission of completed Beneficial Ownership Forms to the Registry (despite its non-filing by the Registry). This may reduce the compliance risk.
- Where a company does not have a natural person, listed company, or government entity as beneficial owner, provide the additional information/explanation with the application before submission.
- Registrar to develop its verification system to ensure accuracy of the data.