Company Law

South Africa has a modern economic structure. The complexity of the legislation governing business life is largely comparable to that of Western Europe.

The “new” company law came into force on May 1, 2011 (Companies Act No. 71 of 2008). The law that had been in force since 1973 had long been felt to be in need of overhaul. Since then, the new legislation has largely fulfilled the expectations placed on it.
The new law also distinguishes between companies that serve charitable purposes and those that are profit-oriented. With regard to the latter, the new law distinguishes between private companies, personal liability companies, state-owned companies and public companies. Existing close corporations may continue to operate, but no new ones may be founded.

This prohibition is based on the distinguishing feature of close corporations under the old law, namely that their formation required little effort and entailed only low administrative costs: this distinction is now obsolete, as the new law generally makes it much easier to form new companies. While the 1973 law was associated with considerable bureaucratic regulations, currently only one document needs to be submitted when forming a company.

In addition, the auditing costs are now lower for most companies. Under the previous law, unlike a close corporation, the company had to have its accounts audited annually by a licensed auditor, which was associated with corresponding costs. Now this audit is only mandatory for companies with a very high annual turnover and is not required at all if the directors are also the sole shareholders of the company.
The new law obliges directors to assume much greater liability than before.

Whereas under the old law, the directors of a company were only personally liable for the company's debts in narrow and clearly defined circumstances, the new law prescribes far more extensive conditions for personal liability. For example, directors may be required to reimburse the company for losses caused by their negligence.

One important innovation is the business rescue scheme. Under the previous law, a company in financial difficulties could apply to the court to get back into the black under the guidance of a manager appointed by the court. Now the employees can take the initiative together with the management to get the company back on its feet on their own initiative. If these proceedings are initiated, creditors can even be temporarily banned from collecting debts.

Clearly, the new law strengthens and protects the position of minority shareholders much more effectively than its predecessor. The extent to which it has actually enabled minority shareholders to assert themselves against the majority in practice is questionable. After all, for the first time, shareholders with a voting share of at least ten percent can now convene a general meeting of shareholders, which previously required an absolute majority.