The commencement of the Companies Act 71 of 2008 (“the Act”) in May 2011 saw the introduction of legislation which was aimed at amongst other things, promoting growth and investment in South Africa. Previous legislation was found limiting in this regard.
The Act addresses certain statutory corporate governance obligations for South African Companies.
Corporate governance subject matter in the Act includes obligations relating to the Constitution and Registration of Companies and Company records; Appointment of Directors, Officers and Auditors, Board Meetings, Appointment and Functions of Board Committees, Board, Directors’ and Officers’ Duties, Disclosure, Shareholder Relations and Reporting, Disclosures, Stakeholder Relations and Reporting, Takeovers, Business Rescue and Dispute Resolution & Special Approvals.[1]
What is the aim of the Act?
The Act aims
- ‘to provide for the incorporation, registration, organisation and management of companies, the capitalisation of profit companies, and the registration of offices of foreign companies carrying on business within the Republic;
- to define the relationships between companies and their respective shareholders or members and directors;
- to provide for equitable and efficient amalgamations, mergers and takeovers of companies;
- to provide for efficient rescue of financially distressed companies; to provide appropriate legal redress for investors and third parties with respect to companies;
- to establish a Companies and Intellectual Property Commission and a Takeover Regulation Panel to administer the requirements of the Act with respect to companies, to establish a Companies Tribunal to facilitate alternative dispute resolution and to review decisions of the Commission;
- to establish a Financial Reporting Standards Council to advise on requirements for financial record keeping and reporting by companies;
- to repeal the Companies Act, 1973 (act No.61 of 1973), and make amendments to the Close Corporations Act, 1984 (Act No 69 of 1984), as necessary to provide for a consistent and harmonious regime of business incorporation and regulation,…”[2]
Further, the Act has its purposes, to “7(b) promote the development of the South African economy by—
- (iii) encouraging transparency and high standards of corporate governance as appropriate, given the significant role of enterprises within the social and economic life of the nation;
- (c) promote innovation and investment in the South African markets;
- (d)reaffirm the concept of the company as a means of achieving economic and social benefits;
- (e)continue to provide for the creation and use of companies, in a manner that enhances the economic welfare of South Africa as a partner within the global economy;
- (f)promote the development of companies within all sectors of the economy, and encourage active participation in economic organisation, management and productivity;
- (g)create optimum conditions for the aggregation of capital for productive purposes, and for the investment of that capital in enterprises and the spreading of economic risk;
- (h)provide for the formation, operation and accountability of non-profit companies in a manner designed to promote, support and enhance the capacity of such companies to perform their functions;
- (i)balance the rights and obligations of shareholders and directors within companies;
- (j)encourage the efficient and responsible management of companies;
- (k) provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders; and
- (l) provide a predictable and effective environment for the efficient regulation of companies.”
Certain of the purposes listed above overlap with the benefits of adopting good governance practices such as to promote investment.
Legislative and Regulatory Framework for Corporate Governance in South Africa
The legislative and regulatory framework of South Africa to address corporate governance includes:
- the Act;
- the JSE Listing Requirements;
- the King IV Report on Corporate Governance™
The latter two not being statutory obligations for all Companies in South Africa.
The King IV Report on Corporate Governance™ (“King IV Report”)
The Institute of Directors in July 1993 requested retired Supreme Court of Appeal judge Mervyn E. King to chair a committee on Corporate Governance.[3]
The Report is currently in its 4th iteration.
The King IV report is to be implemented on an “apply and explain” basis. Namely one applies the good governance principles and explanation of that application is then based on a narrative account of the processes which have been adopted to support the principles.
Compliance with the King IV Report is mandatory for companies listed on the Johannesburg Stock Exchange.
It is also good governance practice for other organisations to implement the King IV Report. The most recent iteration, includes Sector Supplements to provide guidance on interpretation and implementation of the King IV Report within various sectors.
The sectors include:
- municipalities;
- non-profit organisations;
- retirement funds;
- small and medium enterprises;
- state owned entities;
How can we assist with Company Law & Corporate Governance?
Boogaard Attorneys assists in:
- drafting of various documents and agreements including resolutions, MOIs, sale of shares, share option agreements;
- advising on various aspects of the Companies Act 71 of 2008;
- advising on legislative corporate governance obligations under the Act;
- advising on obligations under the King IV Code of Corporate Governance & JSE Listing Requirements;
- assistance with preparation of written Briefs on Corporate Governance for the Board; Governing Body Code of Conduct; Organisational Codes of Conduct; Ethics Policy; Risk Management Action Plan for discussion purposes and completion by management; Legal Compliance Action Plan; Board Resolutions for delegation of authority; Board Resolutions for Establishing Committees; Written Disclosures of Interest.
We can service Clients in various areas in Johannesburg including Bryanston, Dainfern, Fourways, Midrand, Sandton to name a few and we also can facilitate online meetings at client’s convenience.
By L Boogaard
Boogaard Attorneys
6/02/2022
Bibliography
Naidoo, Corporate Governance An Essential Guide for South African Companies (3rd Edition, 2009, Lexis Nexis)
The King IV Report on Corporate Governance™
https://www.gov.za/documents/companies-act
https://en.wikipedia.org/wiki/King_Report_on_Corporate_Governance
Legislation
The Companies Act 71 of 2008
[1] Naidoo, Corporate Governance An Essential Guide for South African Companies (3rd Edition, 2009, Lexis Nexis)
[2] https://www.gov.za/documents/companies-act
[3] https://en.wikipedia.org/wiki/King_Report_on_Corporate_Governance