Certain provisions of the long-anticipated Companies Amendment Act, 16 of 2024 and the entire Companies Second Amendment Act, 17 of 2024 (the “Acts”) have now come into force, introducing significant changes aimed at improving corporate governance, transparency, and efficiency in business operations. These amendments to the Companies Act, 71 of 2008, effective as of 27 December 2024, will have a direct impact on businesses operating in South Africa, requiring stakeholders to adjust their compliance strategies accordingly.
KEY AMENDMENTS NOW IN EFFECT
Memorandum of Incorporation (“MOI”) Amendments – The amendments now provide clarity on when MOI amendments take effect. Previously, uncertainty led to transactional delays. Now, MOI amendments will take effect 10 business days after submission to the CIPC unless endorsed or rejected sooner. This change simplifies corporate governance procedures and allows for smoother implementation of changes.
Shares issued for delayed consideration – Shares issued for future consideration are now required to be transferred to a third-party independent “stakeholder”, such as an attorney, under a written “stakeholder agreement” which will regulate the transfer of the shares.
Financial Assistance within Group Companies –The requirements for financial assistance within group companies have been relaxed. Holding companies providing financial assistance to subsidiaries are now exempt from passing special resolutions, a solvency and liquidity and fair and reasonable board resolution, and notice to shareholders and trade unions. However, this exemption does not apply to foreign subsidiaries, which means that companies engaging in cross-border financial assistance must carefully structure these transactions to ensure compliance.
Share Buybacks –Companies are now required to pass a special resolution for all share buybacks unless they are executed through a stock exchange or a pro-rata offer to all shareholders. The removal of reference to the section 114 and 115 requirements eliminates the need for independent expert reports and appraisal rights, significantly streamlining the share repurchase process while maintaining necessary shareholder protections.
Social and Ethics Committees (“SEC”) –Public and state-owned companies must now elect SEC members at AGMs rather than appoint them through the board. Additionally, the majority of SEC members must be non-executive directors who have not been involved in the company’s management for the past three financial years. The SEC report must also now be presented at AGMs as a mandatory agenda item, reinforcing corporate accountability.
Auditor Appointments –Changes to auditor appointments include a reduction in the “cooling-off” period from five years to two years. Furthermore, private companies required to be audited can now appoint their auditors at a shareholders’ meeting instead of at an AGM, increasing flexibility in auditor selection processes.
Employee Share Schemes –The definition of an employee share scheme has been expanded to include share purchases in addition to issuances and subscriptions. This ensures broader regulatory oversight and requires companies offering employee share schemes to reassess their compliance obligations under the revised statutory definition.
Director Liability and Accountability –Courts now have the discretion to extend the three-year limitation period for director liability claims where good cause is shown. Additionally, the timeframe for declaring a director delinquent has been extended from two to five years after they cease to hold office. These amendments apply retrospectively and strengthen director accountability.
Business Rescue and Landlord Protections – The amendments provide enhanced protections for landlords in business rescue proceedings. Utility charges and similar claims are now classified as post-commencement finance, ranking above pre-commencement claims. This ensures landlords receive higher priority when recovering outstanding amounts from distressed businesses.
Definition of Securities –The definition of “securities” has been refined to include only shares and debentures, removing the reference to “other instruments”. This change removes ambiguity and ensures clearer application of securities regulations.
KEY AMENDMENTS NOT YET IN FORCE
Shareholder Approval of Remuneration Policies & Reports –Public and state-owned companies will soon be required to submit remuneration policies and reports for shareholder approval. The “two-strike” rule will apply, meaning that non-executive directors must stand for re-election if shareholders reject the remuneration report at consecutive AGMs.
Public Access to Private Company Financials – A major transparency-related change will grant third parties access to the annual financial statements of private companies that meet certain public interest thresholds. This will introduce new compliance obligations for affected companies.
Takeover Regulations for Private Companies – Private companies meeting specific shareholder and financial thresholds will soon be classified as “regulated companies” for takeover purposes. This change will subject them to stricter compliance requirements when engaging in transactions that alter ownership structures.
Court Powers to Validate Irregular Share Issues – Courts will soon be empowered to retroactively validate invalid share issuances where it is deemed just and equitable. This provides a mechanism for companies to correct inadvertent errors in share issuances without requiring drastic remedial actions.
Social & Ethics Committee – New requirements will introduce prescribed qualifications and experience criteria for SEC members. The SEC report will also be required at all shareholder meetings, ensuring enhanced corporate oversight and accountability.
COMPLIANCE CONSIDERATIONS FOR BUSINESSES
To ensure compliance with the amendments, businesses should take proactive steps, including –
- Reviewing and updating MOIs to align with the new amendment timelines.
- Reassessing governance policies, particularly regarding share buybacks, SEC operations, and director liability.
- Preparing for the implementation of future remuneration reporting obligations.
- Understanding the implications of upcoming takeover regulations and share issuance rules.
- Evaluating financial assistance structures to determine whether they qualify for intra-group exemptions.
CONCLUSION
The Acts represent a significant evolution in South African corporate law. They reinforce governance frameworks while reducing administrative burdens in several key areas. While some provisions are already in effect, others remain pending, requiring businesses to prepare for their eventual implementation. Companies must stay informed, adapt to the new requirements, and seek professional legal guidance to ensure compliance and a seamless transition under the revised Companies Act.
