The statutory framework governing corporate activity in South Africa has undergone significant reform with the promulgation of the Companies Amendment Act and the Companies Second Amendment Act. These legislative instruments introduced several substantive changes to the Companies Act 71 of 2008 (“the Companies Act”), reflecting a broader effort to modernise corporate governance, clarify procedural mechanisms, and address legal ambiguities that had emerged in practice.
This analysis provides an overview of the notable amendments that have been brought into effect and discusses their implications for companies, directors, shareholders, and regulatory authorities.
Amendments Introduced by the Companies Amendment Act
The principal set of revisions was introduced by the Companies Amendment Act, which came into force in late 2023. These amendments target various aspects of corporate operations, including governance, financial assistance, regulatory oversight, and the functioning of corporate structures.
Amendments to the Memorandum of Incorporation
In terms of section 16 of the Companies Act, amendments to a company’s Memorandum of Incorporation (MOI) now take effect 10 business days after submission to the Companies and Intellectual Property Commission (CIPC), unless the Commission issues a notice of rejection or endorsement within that timeframe. The provision allowing companies to specify a later effective date in the Notice of Amendment remains unaltered.
Clarification of Share Issuance for Future Consideration
The revised section 40(5) and (6) introduces terminological precision by substituting “trust” with “stakeholder agreement” and “third party” with “stakeholder.” These changes aim to better reflect the contractual nature of arrangements involving the deferred payment of consideration for shares. Importantly, the section retains the principle that shares need not be fully paid upon issue, subject to compliance with statutory conditions.
Financial Assistance to Subsidiaries
A notable relaxation of regulatory constraints is reflected in the amendment to section 45, which now explicitly excludes intra-group financial assistance to wholly-owned subsidiaries from the general approval requirements. This adjustment alleviates administrative burdens on corporate groups and supports operational flexibility within corporate families.
Share Repurchase Provisions
Amendments to section 48 alter the approval process for companies acquiring their own shares. Where such acquisitions are conducted on a pro rata basis among all shareholders or through a regulated exchange, the procedural requirements under sections 114 and 115 no longer apply. However, if the acquisition involves a director or a related party and does not fall within the aforementioned exceptions, shareholder approval by special resolution remains mandatory.
Shareholder Meetings and Committee Reports
The revised section 61(8) introduces new disclosure requirements for public companies. Both the social and ethics committee report and the remuneration report must now be presented at the annual general meeting (AGM). These requirements are intended to enhance shareholder engagement and accountability in relation to environmental, social, and governance (ESG) practices and executive remuneration.
Exemptions and Requirements for Social and Ethics Committees
Changes to section 72 regulate the exemption process for establishing social and ethics committees. Specifically, section 72(5) mandates that companies seeking exemption must publish a notice of their intention to apply to the Companies Tribunal. Section 72(6A) introduces a structural exemption: a subsidiary is not required to constitute its own committee if a parent company’s existing committee effectively performs those functions. New subsections detail procedural rules regarding committee composition and operation, thereby ensuring standardisation.
Auditor Appointments
Section 90 has been amended to clarify that companies subject to mandatory audit requirements must appoint an auditor at the meeting where such obligation first arises, and annually thereafter. This provision ensures continuity and regulatory compliance in financial reporting.
Employee Share Schemes
The amendment to section 95 extends the permissible mechanisms for establishing employee share schemes to include the purchase of shares, in addition to the issue of shares or granting of options. This allows for greater flexibility in structuring employee incentives.
Post-Commencement Finance in Business Rescue
A revision to section 135 provides that rent and other charges payable to landlords during business rescue proceedings now qualify as post-commencement finance. This inclusion ensures that landlords are afforded priority status in the repayment hierarchy, thereby encouraging continued cooperation during restructuring efforts.
Company Name Disputes
The CIPC’s powers under section 160(5) have been expanded, enabling the Commission to enforce compliance with name change directives where companies have failed to amend their registered names following a ruling. This provision strengthens the enforcement regime surrounding intellectual property and name reservation disputes.
Appointment of Companies Tribunal Officials
Section 194(1A) has been amended to provide clarity on the appointment procedures and remuneration policies for members of the Companies Tribunal, thereby enhancing transparency and operational independence.
Role of the Financial Reporting Standards Council
Amendments to section 204 confer on the Financial Reporting Standards Council the authority to issue binding financial reporting standards, aligning South African corporate governance frameworks with global trends in integrated and financial reporting.
Amendments Introduced by the Companies Second Amendment Act
The Companies Second Amendment Act introduces two key changes aimed at extending the legal timeframes available for pursuing claims against directors and prescribed officers for breaches of duty.
Extended Period for Delinquency Applications
Section 77(7) has been amended to extend the limitation period for applying to court to declare a director delinquent or place them under probation. The prescribed period has been increased from three years to five years (60 months), granting stakeholders more time to identify and initiate action in response to misconduct or dereliction of duty.
Judicial Discretion to Extend Prescriptive Periods for Director Liability
A revision to section 162 now empowers courts to extend the three-year period for instituting proceedings against directors or prescribed officers where good cause is shown. This provision acknowledges the practical difficulties that often arise in identifying and proving fiduciary breaches, particularly in complex corporate structures.
Conclusion
These legislative developments reflect an evolving corporate law landscape in South Africa, marked by efforts to refine regulatory processes, clarify statutory obligations, and promote corporate transparency. While several of the amendments aim to reduce administrative burdens and enhance procedural efficiency, others impose new duties of disclosure and accountability, particularly in relation to shareholder rights and committee governance.
As these reforms continue to be interpreted and applied by practitioners, companies must take proactive steps to assess their internal governance structures, update compliance procedures, and ensure that corporate conduct aligns with the amended statutory regime. The amendments reinforce the necessity of vigilance, good faith, and legal literacy in corporate leadership.
