Beneficial ownership disclosure as good corporate practice

For a company to exist as a legal entity, it must be set up by an individual, a group of individuals, or another entity. Every company needs an individual or an entity to underpin its existence, and such a person or entity is often regarded as the legal owner of the company.

The inherent legal personality of companies endows them with an identity distinct and separate from their owners. This distinctness allows certain entities to exploit legal personalities to veil the true identity of their beneficial owners. In the absence of transparency, these companies serve as conduits for illicit transactions, evade responsibilities, and engage in unethical conduct that runs counter to the principles of sound corporate governance.

It is important to differentiate the meaning of legal ownership and beneficial ownership. A legal owner is a person who holds the legal title under his name, whereas a beneficial owner is a person who enjoys the benefits of ownership even though the title may be in another name. A beneficial owner also refers to a real or natural person who exercises significant control or ownership in a company or substantially benefits from the proceeds and assets of the company.

Legal ownership in a company is vested in persons or entities who have subscribed to the memorandum and articles of association of the company and are described as members of the company. The legal owners of a company are usually listed on the company’s profile as the owners of the shares issued by the company.

While an individual can serve as the legal owner of a company, it is possible that such an individual is not the beneficial owner. As a result, the identity of persons who ultimately control or profit from the business of a company can be concealed behind the identity of the legal owner.

Presently, one of the most effective methods of ensuring transparency and accountability in an organisation is through the disclosure of beneficial ownership which is now recommended by corporate governance best practices.

Organisations like Open Government Partnership (OGP), Extractive Industries Transparency Initiative (EITI), Open Ownership, Financial Action Task Force (FATF), Organization for Economic Co-operation and Development (OECD), Nigeria Extractive Industries Transparency Initiative (NEITI), Ghana Extractive Industries Transparency Initiative (GHEITI) have championed this cause and dedicated time and efforts to create guidelines and policies to assist nations.

The release of the Panama Papers also necessitated global attention on the risk and dangers of anonymous companies especially in developing African Countries.

The practice of beneficial owners maintaining anonymity has given rise to illegal activities as some beneficial owners exploit the anonymity to take advantage of intricate financial pathways which enables them to transfer huge sums of money through corrupt transactions without detection.

When a company discloses its beneficial owners, such company demonstrates its commitment to transparency, informs the public of its principled operations, bolsters law enforcement endeavors, and effectively curtails secretive business practices.

Due to the rights, responsibilities, and obligations that emanate from a company to different stakeholders, disclosing the beneficial owner of a company will help to identify the persons who ultimately own and control the company, and who should be held accountable.
Overview of beneficial ownership disclosure under Nigeria’s Companies and Allied Matters Act

On August 7, 2020, the Companies and Allied Matters Act 2020 (“CAMA 2020”) which repealed the Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 (“CAMA 2004”) was signed into law.

CAMA 2020 introduced some new changes in Nigeria’s corporate regime by enabling the ease of doing business and facilitating business expediency.

The Corporate Affairs Commission (CAC) is the body responsible for the registration, regulation, and management of companies in Nigeria. Under the old Companies Act, Section 94 of the CAMA 2004 limited the obligations to disclose beneficial interests to public companies only. Despite the limited application of the old Act, the concept of lifting the veil of a corporation could still be activated to identify the individual(s) behind a company. This is however mostly done when the company misconducts itself or violates its statutory obligations.

Under CAMA 2020, all companies are now required to disclose the beneficial owners behind the company. CAMA 2020 describes beneficial owners as “persons with significant control”.

To be continued tomorrow

Odunayo is a Corporate and Commercial lawyer.