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South Africa's new Companies Act

21 April 2009

South Africa's new Companies Act aims to provide some recourse for companies in distress, reduce the cost of doing business in the country, promote corporate governance and transparency and empower shareholders.

According to the Department of Trade and Industry (DTI), the new Act - recently signed into law by President Kgalema Motlanthe - could not have come at a more opportune time given the current global economic situation.

"The new Act brings about a lasting mechanism to facilitate the rescuing of businesses that are in financial distress," the DTI's Zodwa Ntuli said in a statement this week. "It is aimed at ensuring that companies are saved before they reach a stage of insolvency and ultimate liquidation."

The new law will empower both companies and workers to initiate business rescue plans, where there are apparent signs of distress.

"This will ensure the efficient running of companies, while strengthening means of sustaining jobs in the economy. We want to promote efficiency and economic growth, retain efficient resources and save jobs," Ntuli said.

Cost of doing business

One of the key challenges facing small businesses in South Africa is that of the cost of doing business, and the new Act lends a helping hand to small businesses by reducing the regulatory burden placed on them.

While the new Act still requires all companies, both large or small, to prepare annual financial statements, this is largely intended to encourage sound financial management, as well as promote the sustainability of companies of all sizes.

"However, some enterprises will be exempted from having their financial statements audited or reviewed, depending on their size, workforce and nature of their activities," the DTI says.

Further, the Act introduces an approach that increases the focus on substance over procedural complexities in relation to the registration and maintenance of companies.

It offers a simplified framework on compliance issues, in respect of the structure, registration and maintenance of companies, so as to reduce the need for intermediaries, and save businesses time and money in the process.

Shareholder empowerment, activism

The new Act also promotes shareholder activism and empowerment, especially in relation to minority shareholders, some of whom may be foreign investors. In this regard, the required support for the calling of a shareholders meeting has now been reduced to 10%.

It also makes provision for an audit committee to be appointed by shareholders of a company, which entrenches the role of shareholders and the level of independence that should be maintained between audit committees and boards of companies.

In addition to this, more comprehensive corporate governance principles, to promote the effective functioning of companies, will henceforth be compulsory in terms of the new Act.

"This Act will go a long way in promoting sound corporate governance, transparency, and access to information, among other regulatory oversight improvements," Ntuli said.

"The country will also see a more effective and robust investigative approach to company complaints and the resolution thereof. The DTI will embark on a country-wide education and awareness campaign to ensure that the public and businesses are fully conversant with the new Act."

SAinfo reporter