The role of beneficial ownership reporting obligations and the reckless trading provision to prevent front companies in terms of the South African companies act 71 of 2008
Date
2022
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
The corporate form has the potential to be abused by natural persons. A front company is an example of such abuse. A front company is an incorporated company that is used as a vehicle to conduct illegal activities. The natural persons controlling the company and that benefit from proceeds derived from the illicit conduct hide behind the company's separate legal personality to escape civil and criminal liability. Reports indicate that billions of rands are obtained through illegal activities perpetrated against the corporate form. This means that natural persons can successfully misuse the corporate form as a front. For this reason, it is imperative that a legal framework is in place to circumvent the formation and operation of front companies. This type of abuse is a company law issue and ought to be regulated by the Companies Act of 71 of 2008 ("Companies Act"). This research report demonstrates, however, that the Companies Act does not sufficiently guard against the formation and operation of front companies. The Companies Act must therefore be strengthened, by way of legislative amendment, to enhance corporate transparency and accountability. Four main areas in the Companies Act have been identified for possible legislative amendment. The anchoring argument that must be borne in mind with regards to any legislative amendment is that natural persons exert control over the corporate form and ultimately benefit from the company's activities. Further, comparative foreign law and domestic law will be used as a guide for the approach the legislature must adopt when amending the Companies Act. The first area of amendment is to expand the definition of beneficial interest to fully recognize beneficial ownership. The second area of amendment is to impose an obligation on natural persons to disclose their beneficial ownership in a company. The third area of amendment is to broaden the ambit of the reckless trading provision to apply to beneficial ownership. Lastly, the powers of the Companies and Intellectual Property Commission ("Commission"), the regulatory body of the Companies Act, must be enhanced to empower the Commission to institute legal proceedings against natural persons to cease abusing the corporate form as a front
Description
A research report submitted in partial fulfillment of the requirements for the degree of Master of Laws by Coursework and Research Report at the University of Witwatersrand, Johannesburg, 2022
Keywords
Front company, Trading, SOUTH AFRICAN COMPANIES, UCTD
Citation
Dhana, N.. (2022). The role of beneficial ownership reporting obligations and the reckless trading provision to prevent front companies in terms of the South African companies act 71 of 2008 [Master’s dissertation, University of the Witwatersrand, Johannesburg]. WireDSpace. https://hdl.handle.net/10539/38764