Direct vs indirect corporate beneficial ownership in Tanzania

Direct beneficial ownership refers to a straightforward ownership structure where an individual or entity owns shares in a company directly in their own name. In this case, the owner is openly listed as the shareholder on the company's records, and they have full control and rights over those shares. (See section 2 of the Companies (Beneficial Ownership) Regulations, 2023.

For example, if Sarah buys shares in Company B and her name appears on the company's register as the shareholder, she is the direct beneficial owner of those shares. As the direct owner, Sarah is entitled to any dividends or voting rights associated with the shares. Direct beneficial ownership is more transparent and easier to identify compared to indirect ownership. It is the typical and simple ownership arrangement where individuals or entities openly hold shares in companies without any intermediaries or hidden ownership chains.

Indirect beneficial ownership refers to a situation where someone owns or controls shares in a company, not directly in their own name, but through another person or entity. This means that the true owner of the shares is hidden behind a chain of ownership, making it more difficult to identify them.

Let's use an example to understand better: Imagine Johnson wants to own shares in Company A, but instead of buying them in his name, he asks his friend Sarah to buy the shares and hold them for him. In this case, Sarah is the registered owner of the shares, but Johnson is the true owner behind the scenes - he benefits from any profits or losses related to those shares. John, in this scenario, is the indirect beneficial owner of the shares in Company A.

Indirect beneficial ownership can create challenges for regulators and authorities trying to combat illicit activities like money laundering. Since the ownership is not directly visible, it becomes harder to trace the ultimate owners and understand their interests in the company. This is why governments and financial institutions are increasingly focusing on beneficial ownership reporting regulations to shed light on these hidden owners and prevent potential misuse of companies for illegal purposes.

Beneficial ownership reporting is governed by Companies (Beneficial Ownership) Regulations GN. No. 478 published on. 21/7/2023