The Companies Act 71 of 2008 – topic 1
A new approach:
• SA has had 3 Companies Acts:
o 1926
o 1973 and
o 2008 (current).
• Almost every year after 1973, amendments were made with some changes being more significant.
• Amendments ensured = SA company law remained updated with changing business trends and developments.
• Why did the Companies Act Change?
o Significant political changes in SA: new Constitution.
o Global changes in how businesses function.
o Need for higher standards of corporate governance.
o Rise in international trade and foreign investment.
• The UK also introduced a new companies act = found existing features to be outdated.
• UK law heavily influenced SA law.
Purpose of the Companies Act (s 7):
• Encourage business activity and entrepreneurship by providing a flexible environment that eases the
regulatory burdens on those who wish to take advantage of incorporation.
• It recognises the need for sufficient regulation to make a company and its office bearers accountable to
relevant stakeholders.
• There is an emphasis on: stimulating growth, business activity and entrepreneurship while achieving a balance
of no regulation and over regulation.
• These issues were not discussed in Companies Act of 1973.
• Companies Act 2008 = make the formation of a company a right of all persons and not a privilege.
• New act ensures, as far as possible, the rescue of failing companies.
• Decided a new Act was needed instead of amending and building on the old Act.
• Companies Act of 2008 allows free expression of new ideas and concepts as well as a critical evaluation of
existing provisions.
The Close Corporations Act 1984:
• Introduced with the Companies Act 1973.
• New form = Close Corporation.
• Facilitate the incorporation of smaller business entities.
• Key principle underlying the Act:
o simple and inexpensive entity.
• Restricted to 10 members of natural persons.
• Corporate membership was excluded:
o prevent large companies from using CCs as a subsidiary vehicle.
• No restriction on size, turnover, no. of employees or nature of business activities.
• Simplify business and to get rid of complicated legal concepts applied to companies.
• In terms of the Companies Act 2008:
o CCs that were in existence before the Companies Act 2008 = allowed to continue.
• No new CCs can be formed after the Companies Act 2008.
• The Close Corporation Act = still applies to close corporations.
• Certain provisions of the Companies Act 2008 are also specifically applicable to CCs (business rescue
provisions).
,Background to the Companies Act 2008:
• Many different processes, forums, discussions, and concerned interested parties played important roles in the
lead-up to the drafting of the Companies Act 2008.
1. Government policy paper published in 2004.
2. Formal agreement reached in The National Economic Development and Labour Council
3. Pressure from the trade union movement to expand the rights of company law.
The Department of Trade and Industry's policy paper of 2004:
Guidelines for Corporate Law Reform:
• 2004: the Department of Trade and Industry (DTI) published a policy paper:
o "South African Company law for the 21st Century: Guidelines for Corporate law reform".
• Primary objective:
o ensure new legislation that would be appropriate, to the legal, economic and social context of SA as a
constitutional democracy and an open economy.
o Paper promised significant development and reform of company law, while facilitating a consistent
regulatory environment.
o Proposed that company legislation should promote both competitiveness and development of SA
economy by encouraging entrepreneurship and enterprise development.
o Paper promised a law in which the procedure for forming companies should be simplified and costs should
be reduced significantly.
o Promoted innovation and investment in SA markets and companies by providing for flexibility in the
design and organisation of companies and for a more predictable and effective regulatory environment.
o Argued that law must promote efficiency, transparency and high standards of corporate governance.
• Common law principles of a company that have been built up over many years = continues to apply unless
they contradict certain provisions in Companies Act 2008.
• Some common laws were still abolished.
• Reform process then moved from the policy document to negotiations between govt, business and labour at
NEDLAC.
The National Economic Development and Labour Council:
• NEDLAC = set up to provide form for organised business and organised labour to meet with govt. at a national
level to reach consensus on issues of social and economic policy.
• Company law falls within this scope.
• 5 key objectives for corporate law reform in SA were agreed at NEDLAC:
Objectives: Explanations:
Simplification: 1. Law should provide for a company structure reflecting the
• Simplifying procedures for characteristics of CC as one of the available options.
forming companies 2. Law should est. a simple and easily maintained regime for non-profit
• Reduction in costs of company companies.
formation and costs 3. Cooperatives and partnerships should not be addressed in the
reformed company law.
Flexibility: 1. Company law should provide for 'an appropriate diversity of
• Providing for flexibility in the corporate structures'.
design and organisation of 2. The distinction between listed and unlisted companies should be
companies retained.
Corporate efficiency: 1. Company law should shift from a capital maintenance regime based
on par value to one based on solvency and liquidity.
, • Promoting the efficiency of 2. There should be clarification on board structures and director
companies and their responsibilities, duties and liabilities.
management 3. There should be a remedy to avoid locking minority shareholders
into inefficient companies.
4. The mergers-and-takeovers regime should be reformed so that the
law facilitates the creation of business combination.
5. The judicial management system for dealing with failing companies
should be replaced by a more effective business recue system.
Transparency: 1. Company law should ensure the proper recognition of director
• Encouraging transparency and accountability and appropriate participation of other stakeholders.
high standards of corporate 2. Public announcements, information and prospectus should be
governance subject to similar standards for truth and accuracy.
3. The law should protect shareholders rights, advance shareholder
activism, and provide enhanced protection for minority
shareholders.
4. Minimum accounting standards should be required for annual
reports.
Predictable regulations: 1. Company law sanctions should be decriminalised where possible.
• Company law should be 2. Company law should remove or reduce opportunities for regulatory
compatible and harmonious arbitrage.
with best-practice jurisdictions 3. Company law should be enforced through appropriate bodies and
internationally mechanisms, either existing or newly introduced.
4. Company law should strike a careful balance between adequate
disclosure (in interest of transparency) and over-regulation.
Corporate law reform and the stakeholder question:
• For whose benefit does a company exist?
1. The traditional shareholder-oriented model (classic model):
o Only the interests of shareholders are considered as the focus of corporate activity.
o Other stakeholders, including employees, are excluded.
2. The enlightened shareholder value approach:
o Directors can consider the interests of other stakeholders, such as the interests and rights of
employees, but only if it ultimately promotes the success of the company for the benefit of the
shareholders.
3. The pluralist approach:
o Considers the interests of all stakeholders, and a company has to balance the interests of all
stakeholders and to prefer the interests of one stakeholder above those of another only where it
is in the best interests of the general body of stakeholders to do so.
• The SA policy doc. went through a process of analysis.
• Authors of policy doc = under pressure from trade union movement to adopt pluralist model
o Increasing the scope of key stakeholders in whose direct interests a company operates.
• Ultimately the policy doc preferred the enlightened shareholder value approach as a guide to directors when
they consider how to act in the best interests of the company.
o Term "company" to be associated primarily with the shareholders, with the possibility of others being
included if their interests promote the interests of shareholders.
o Ensures directors are obliged to promote the success of the company + interests of the shareholders.
o Foster relationships with employees, customers, and suppliers.
o Take responsibility for long and short term actions.
, The enlightened shareholder approach in the Companies Act 2008:
• Gives remedies and rights to employees and minority shareholders.
• Holding directors responsible.
Purpose and interpretation of the Companies Act 2008:
The purpose of the Companies Act 2008 (s 7):
• Promote compliance with the Bill of Rights
• Promote the development of the SA economy by:
o Encouraging entrepreneurship and enterprise efficiency.
o Creating flexibility and simplicity in the formation and maintenance of companies.
o Encouraging transparency and high standards of corporate governance.
• Promote innovation and investment in SA markets.
• Re-affirm the concept of the company as a means of achieving economic and social benefits.
• Enhance economic welfare.
• Encourage productivity.
• Balance the rights and obligations of shareholders and directors
• Encourage efficient and responsible management.
• Provide for the efficient rescue and recovery of companies.
• Balance the rights and interests of all relevant stakeholders in rescues.
Flexibility and the importance of a company's Memorandum of Incorporation:
• Founding document of a company = MOI.
• Replaces Memorandum and the Articles of Association that were required for the formation of a company in
terms of the Companies Act 1973.
• Important feature of CA 2008 = emphasis on flexibility.
• MOI = provides the flexibility.
• A single Companies Act applies to ALL companies (private, public, listed, unlisted, etc..)
• Companies are different from each other = contents of company's MOI:
o Distinguish one company from another.
o Determine public, private, other.
o Rights of shareholders and duties of directors
o What body has power in a company in respect of any transaction?
• Content of MOI = critical in determining the nature of the company, rights, and duties of stakeholders.
• Each provision of a company's MOI = is consistent with the Act and is VOID if contravenes.
Structure of the Companies Act 2008:
• 9 Chapters and 5 schedules
1. Interpretation, purpose, and application
2. Formation, administration, and dissolution of companies
3. Enhanced accountability and transparency
4. Public offerings of company securities
5. Fundamental transactions, takeovers, and offers.
6. Business rescue and compromise with creditors
7. Remedies and enforcement
8. Regulatory agencies and administration of Act
9. Offenses, miscellaneous matters, and general provisions
A new approach:
• SA has had 3 Companies Acts:
o 1926
o 1973 and
o 2008 (current).
• Almost every year after 1973, amendments were made with some changes being more significant.
• Amendments ensured = SA company law remained updated with changing business trends and developments.
• Why did the Companies Act Change?
o Significant political changes in SA: new Constitution.
o Global changes in how businesses function.
o Need for higher standards of corporate governance.
o Rise in international trade and foreign investment.
• The UK also introduced a new companies act = found existing features to be outdated.
• UK law heavily influenced SA law.
Purpose of the Companies Act (s 7):
• Encourage business activity and entrepreneurship by providing a flexible environment that eases the
regulatory burdens on those who wish to take advantage of incorporation.
• It recognises the need for sufficient regulation to make a company and its office bearers accountable to
relevant stakeholders.
• There is an emphasis on: stimulating growth, business activity and entrepreneurship while achieving a balance
of no regulation and over regulation.
• These issues were not discussed in Companies Act of 1973.
• Companies Act 2008 = make the formation of a company a right of all persons and not a privilege.
• New act ensures, as far as possible, the rescue of failing companies.
• Decided a new Act was needed instead of amending and building on the old Act.
• Companies Act of 2008 allows free expression of new ideas and concepts as well as a critical evaluation of
existing provisions.
The Close Corporations Act 1984:
• Introduced with the Companies Act 1973.
• New form = Close Corporation.
• Facilitate the incorporation of smaller business entities.
• Key principle underlying the Act:
o simple and inexpensive entity.
• Restricted to 10 members of natural persons.
• Corporate membership was excluded:
o prevent large companies from using CCs as a subsidiary vehicle.
• No restriction on size, turnover, no. of employees or nature of business activities.
• Simplify business and to get rid of complicated legal concepts applied to companies.
• In terms of the Companies Act 2008:
o CCs that were in existence before the Companies Act 2008 = allowed to continue.
• No new CCs can be formed after the Companies Act 2008.
• The Close Corporation Act = still applies to close corporations.
• Certain provisions of the Companies Act 2008 are also specifically applicable to CCs (business rescue
provisions).
,Background to the Companies Act 2008:
• Many different processes, forums, discussions, and concerned interested parties played important roles in the
lead-up to the drafting of the Companies Act 2008.
1. Government policy paper published in 2004.
2. Formal agreement reached in The National Economic Development and Labour Council
3. Pressure from the trade union movement to expand the rights of company law.
The Department of Trade and Industry's policy paper of 2004:
Guidelines for Corporate Law Reform:
• 2004: the Department of Trade and Industry (DTI) published a policy paper:
o "South African Company law for the 21st Century: Guidelines for Corporate law reform".
• Primary objective:
o ensure new legislation that would be appropriate, to the legal, economic and social context of SA as a
constitutional democracy and an open economy.
o Paper promised significant development and reform of company law, while facilitating a consistent
regulatory environment.
o Proposed that company legislation should promote both competitiveness and development of SA
economy by encouraging entrepreneurship and enterprise development.
o Paper promised a law in which the procedure for forming companies should be simplified and costs should
be reduced significantly.
o Promoted innovation and investment in SA markets and companies by providing for flexibility in the
design and organisation of companies and for a more predictable and effective regulatory environment.
o Argued that law must promote efficiency, transparency and high standards of corporate governance.
• Common law principles of a company that have been built up over many years = continues to apply unless
they contradict certain provisions in Companies Act 2008.
• Some common laws were still abolished.
• Reform process then moved from the policy document to negotiations between govt, business and labour at
NEDLAC.
The National Economic Development and Labour Council:
• NEDLAC = set up to provide form for organised business and organised labour to meet with govt. at a national
level to reach consensus on issues of social and economic policy.
• Company law falls within this scope.
• 5 key objectives for corporate law reform in SA were agreed at NEDLAC:
Objectives: Explanations:
Simplification: 1. Law should provide for a company structure reflecting the
• Simplifying procedures for characteristics of CC as one of the available options.
forming companies 2. Law should est. a simple and easily maintained regime for non-profit
• Reduction in costs of company companies.
formation and costs 3. Cooperatives and partnerships should not be addressed in the
reformed company law.
Flexibility: 1. Company law should provide for 'an appropriate diversity of
• Providing for flexibility in the corporate structures'.
design and organisation of 2. The distinction between listed and unlisted companies should be
companies retained.
Corporate efficiency: 1. Company law should shift from a capital maintenance regime based
on par value to one based on solvency and liquidity.
, • Promoting the efficiency of 2. There should be clarification on board structures and director
companies and their responsibilities, duties and liabilities.
management 3. There should be a remedy to avoid locking minority shareholders
into inefficient companies.
4. The mergers-and-takeovers regime should be reformed so that the
law facilitates the creation of business combination.
5. The judicial management system for dealing with failing companies
should be replaced by a more effective business recue system.
Transparency: 1. Company law should ensure the proper recognition of director
• Encouraging transparency and accountability and appropriate participation of other stakeholders.
high standards of corporate 2. Public announcements, information and prospectus should be
governance subject to similar standards for truth and accuracy.
3. The law should protect shareholders rights, advance shareholder
activism, and provide enhanced protection for minority
shareholders.
4. Minimum accounting standards should be required for annual
reports.
Predictable regulations: 1. Company law sanctions should be decriminalised where possible.
• Company law should be 2. Company law should remove or reduce opportunities for regulatory
compatible and harmonious arbitrage.
with best-practice jurisdictions 3. Company law should be enforced through appropriate bodies and
internationally mechanisms, either existing or newly introduced.
4. Company law should strike a careful balance between adequate
disclosure (in interest of transparency) and over-regulation.
Corporate law reform and the stakeholder question:
• For whose benefit does a company exist?
1. The traditional shareholder-oriented model (classic model):
o Only the interests of shareholders are considered as the focus of corporate activity.
o Other stakeholders, including employees, are excluded.
2. The enlightened shareholder value approach:
o Directors can consider the interests of other stakeholders, such as the interests and rights of
employees, but only if it ultimately promotes the success of the company for the benefit of the
shareholders.
3. The pluralist approach:
o Considers the interests of all stakeholders, and a company has to balance the interests of all
stakeholders and to prefer the interests of one stakeholder above those of another only where it
is in the best interests of the general body of stakeholders to do so.
• The SA policy doc. went through a process of analysis.
• Authors of policy doc = under pressure from trade union movement to adopt pluralist model
o Increasing the scope of key stakeholders in whose direct interests a company operates.
• Ultimately the policy doc preferred the enlightened shareholder value approach as a guide to directors when
they consider how to act in the best interests of the company.
o Term "company" to be associated primarily with the shareholders, with the possibility of others being
included if their interests promote the interests of shareholders.
o Ensures directors are obliged to promote the success of the company + interests of the shareholders.
o Foster relationships with employees, customers, and suppliers.
o Take responsibility for long and short term actions.
, The enlightened shareholder approach in the Companies Act 2008:
• Gives remedies and rights to employees and minority shareholders.
• Holding directors responsible.
Purpose and interpretation of the Companies Act 2008:
The purpose of the Companies Act 2008 (s 7):
• Promote compliance with the Bill of Rights
• Promote the development of the SA economy by:
o Encouraging entrepreneurship and enterprise efficiency.
o Creating flexibility and simplicity in the formation and maintenance of companies.
o Encouraging transparency and high standards of corporate governance.
• Promote innovation and investment in SA markets.
• Re-affirm the concept of the company as a means of achieving economic and social benefits.
• Enhance economic welfare.
• Encourage productivity.
• Balance the rights and obligations of shareholders and directors
• Encourage efficient and responsible management.
• Provide for the efficient rescue and recovery of companies.
• Balance the rights and interests of all relevant stakeholders in rescues.
Flexibility and the importance of a company's Memorandum of Incorporation:
• Founding document of a company = MOI.
• Replaces Memorandum and the Articles of Association that were required for the formation of a company in
terms of the Companies Act 1973.
• Important feature of CA 2008 = emphasis on flexibility.
• MOI = provides the flexibility.
• A single Companies Act applies to ALL companies (private, public, listed, unlisted, etc..)
• Companies are different from each other = contents of company's MOI:
o Distinguish one company from another.
o Determine public, private, other.
o Rights of shareholders and duties of directors
o What body has power in a company in respect of any transaction?
• Content of MOI = critical in determining the nature of the company, rights, and duties of stakeholders.
• Each provision of a company's MOI = is consistent with the Act and is VOID if contravenes.
Structure of the Companies Act 2008:
• 9 Chapters and 5 schedules
1. Interpretation, purpose, and application
2. Formation, administration, and dissolution of companies
3. Enhanced accountability and transparency
4. Public offerings of company securities
5. Fundamental transactions, takeovers, and offers.
6. Business rescue and compromise with creditors
7. Remedies and enforcement
8. Regulatory agencies and administration of Act
9. Offenses, miscellaneous matters, and general provisions
