15 BENEFICIAL INTEREST IN SECURITIES
In South Africa there has been a long-standing business practice to register a share where one person holds the shares for the benefit of another person whose name was not entered into the share register. It was a method used to get around the group areas act where certain members of society where not allowed to own property in certain areas.
The new act defines this as a relationship between the registered holder of a security and the holder of the beneficial interest in the security.
Essentially let’s say Mr. A wants to buy a building but he does not want to disclose this. He puts up the money and puts everything in the name of Mr. B. The building is registered in the name of a company and Mr. B is entered into the share register. A and B enter into an agreement to regulate their arrangement.
In terms of Section 57(1) a shareholder means the holder of a share issued by a company and who is entered as such in the certificated or uncertificated securities register as the case may be. A registered shareholder or the equivalent of a member under the 1973 Act holder is not defined. The distinction in the old Act between the shareholder and the member has been replaced by the distinction between the holder of a beneficial interest and a shareholder as defined in Section 1.
Section 56(1) allows this practice except to the extent that a company’s MOI provides otherwise. A company’s issued securities may be held by one person for the beneficial interest of another person. The Act retains the right that a company must respect the rights of the shareholder, the owner of a registered security to exercise votes. It is therefore necessary to regulate this relationship.
Beneficial interest when used in relation to a company’s securities means the right or entitlement of a person, or ownership, agreement, relationship or otherwise a loan or together with another person to;
a. Receive or participate in any distribution;
b. Exercise or cause to be exercised in the ordinary course or all of the rights attaching to a company security, or
c. Dispose or direct the disposition of a company securities of any part of a distribution in respect thereof.
Section 56(2) increases the range of persons who have a beneficial interest in a security issued by a public company even further. For the purpose of this discussion we are not going to go into detail, just be aware that you need to look at this section if you are handling the affairs of a public company.