The dtic tries to make doing business in SA easier, by changing Companies Act

The Department of Trade, Industry and Competition (dtic) is trying once again to change the Companies Act, three years after its previous attempt in 2018, which led to a three-year back and forth between government and interested parties

The department published the Companies Amendment Bill on Friday for public comment after discussion between government and stakeholders.

The earlier version of the Bill dealt with administrative bottlenecks identified during the implementation of the Act since May 2011, and the latest version is a redraft with significant changes.

According to the dtic, the changes or amendments in the latest Bill are aimed at improving ease of doing business regarding certain provisions of the Act, providing greater transparency on wage ratios at firm level, and addressing true or beneficial ownership of companies to overcome money laundering challenges.

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Making it easier to do business

Economists and other experts in the business world have been warning that it is too difficult to do business in South Africa, which is scaring away investors who are needed to help the economy grow. Investors want company law to be clear, user friendly, consistent, with well-established principles.

They also do not want company law that overburdens business conduct.  This is not only important to attract foreign investors, but also the efficient and effective conduct of the domestic economy and jobs creation.

Business associations, firms, lawyers and investor groups proposed various changes to the Act to improve the ease of doing business based on submissions received during the extensive engagement with stakeholders.

The changes are designed to make it easier to do business by providing legal certainty where necessary and provide greater flexibility to companies in certain circumstances. Some unnecessary provisions are also removed.

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Greater transparency on wage differences

Some changes in the Bill are aimed at clarifying responsibilities between directors and senior management on the one hand, and shareholders on the other hand, as well as handling public concerns about high levels of inequalities in society.

Excessive pay, especially at the top levels of a company is of great concern internationally and in South Africa. Therefore, the changes respond to shareholder concerns about excessive executive pay by requiring greater disclosure requirements in annual reports and improved shareholder rights regarding remuneration policies.

According to the amendments in the Bill, certain categories of firms are required to disclose information on the pay of directors and prescribed officers. Companies also have to disclose the average remuneration of all employees and the difference between the total pay of the top 5% of highest paid employees and the total payment of the bottom 5% of the lowest paid employees. Shareholders have to approve the company’s remuneration or pay policy.

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True or beneficial ownership to overcome money laundering challenges

Establishing true or beneficial ownership forms a critical part of global efforts to confront and overcome money laundering, corruption and financing of terrorism.

The Bill proposes new provisions on beneficial ownership that places an obligation on companies to know and disclose the identity of their true shareholders who hold a beneficial interest of 5% or more.

Who proposed the changes to the Companies Act?

The changes are a response to concerns raised by social partners and interested parties after a series of extensive consultations with the public, interest groups and stakeholders, as well as the National Economic Development and Labour Council (Nedlac), the Specialist Committee on Company Law (SCCL), the Johannesburg Stock Exchange, the SA Institute of Chartered Accountants, the Institute of Directors in Southern Africa, the Helen Suzman Foundation and Amabhungane.

“We are releasing this Bill for public comment before cabinet considers it for approval. The amendments seek to update the Companies Act in light of developments in the field, to respond to public concerns and improve the ease of doing business,” Ebrahim Patel, minister of trade, industry and competition says.

According to prof. Michael Katz, chairman of the SCCL, a number of deficiencies have manifested since the implementation of the Act, which have caused unnecessary costs of compliance and slowed down the efficient and effective conduct of business. 

The Bill aims to eliminate, as far as possible, these deficiencies. Certain unintended consequences of the existing legislation have also adversely impacted on the conduct of business and the Bill aims to remedy these problems as well. 

All of these remedial measures take into account best practice which has arisen during the intervening period since the drafting of the existing Act.