A NEW company law which came into force last year must be amended to enhance transparency in the ownership of corporations, according to Veritas, a legal think-tank.
Under the Companies and Other Business Entities Act, companies registered in Zimbabwe must maintain a register with identification numbers and other key personal information of shareholders controlling at least 20% stakes.
But Veritas said at a benchmark of 20%, information about many stockholders of influence will not be captured at the Registrar of Companies.
It suggested the benchmark be reduced to 5% shareholding, which is in line with requirements under the Banking Act.
Generally, disclosure of shareholders gives investors an opportunity to understand who controls companies before making investment decisions.
“Disclosure enables journalists, investigators and members of the public to find out who controls the companies and cartels that have allegedly taken over large sections of the country’s economy,” Veritas, which commented as the Registrar of Companies sent out notices asking companies to comply with the law.
“There is a good argument for saying that as a matter of policy the figure should be 10% rather than 20%. Under the Banking Act no one is allowed to acquire a ‘significant interest’ in a bank without permission from the Registrar of Banking Institutions – and a significant interest is a holding of more than 5% of the bank’s shares,” the think-tank said.
“In the case of banks therefore the legislature considered that people with only a 5% shareholding could influence their banks to such an extent that they needed to be controlled. Perhaps in the interest of greater transparency and accountability Section 72 of the Act should be amended to require the same disclosure specified in the Banking Act i.e. disclosure for shareholders holding 5% or more of a company’s shares.”
The issue of accurate wealth disclosures has gained traction worldwide in the past decade.
In Zimbabwe, public officers have been asked to disclose their assets before taking up office.
Experts say this ensures that authorities do not influence decisions that benefit companies in which they control.
However, the Registrar said those to be included in the register must control at least 10% shareholding.
Veritas said this was a violation of the Act.
“The notice suggests that beneficial owners, whose particulars must be recorded in a register of beneficial owners, are individuals who own or control more than 10% of a company’s shares. That is not quite accurate,” Veritas said.
“Section 2 of the Act defines the term ‘beneficial owner’ in relation to a company as a natural person, i.e. a human being, who ultimately owns or controls rights or benefits to property (presumably shares) or who exercises ultimate effective control over the company, and more specifically, who; directly or indirectly holds more than 20% of a company’s shares or voting rights; or directly or indirectly has the right to appoint or remove a majority of a company’s directors. So, the figure given in the notice does not conform to the Act,” Veritas noted.