Background:

On 27 December 2024, certain provisions of the Companies Amendment Act No. 16 of 2024 and the Companies Second Amendment Act No. 17 of 2024 (collectively the “Amendment Acts”) came into effect, both of which amended certain provisions of the Companies Act No. 71 of 2008 (“Companies Act”) (“Amendments”).

The most pertinent Amendments in respect of private companies are briefly outlined in this article below.

Amendments to the Effectiveness of Memorandum of Incorporations:

Prior to the Amendments, an amendment to a memorandum of incorporation would become effective on the date and time that the notice of amendment had been filed with the Companies and Intellectual Property Commission (“CIPC”), or such later date as set out in the notice of amendment.

Since the Amendments, an amendment to a memorandum of incorporation becomes effective 10 (ten) business days after receipt of the notice of amendment by the CIPC, unless endorsed or rejected with reasons by the CIPC earlier or such later date as may be set out in the notice of amendment.

Financial assistance:

For purposes of a company providing financial assistance, which includes providing a loan out of the ordinary course of business, guaranteeing a loan or other obligation or securing any debt or obligation, but excludes an accountable advance to meet certain expenses, to a director, prescribed officer, related or inter-related company, or person related to any of them, the following is required: (i) a special resolution of shareholders adopted within the previous 2 (two) years; and (ii) the board of the company concerned is to be satisfied that the company will be solvent and liquid, and that the terms of the financial assistance are fair and reasonable.

Since the Amendments, the above requirements will not apply if a company provides financial assistance to any of its South African subsidiaries.

Share Buy-backs:

Previously a decision by the board to have the company reacquire issued shares in the company had to be approved by way of a special resolution of the shareholders of the company if the shares had been acquired from a director or prescribed officer or person related or inter-related to any of them or if it had involved the acquisition by the company of more than 5% (five percent) of the issued shares of any class of shares of the company. In the latter case, the procedural requirements for a ‘scheme of arrangement’ in terms of section 114 and 115 of the Companies Act had to be met, resulting in shareholders having been afforded appraisal rights, the requirement for a shareholders’ meeting to be convened to adopt the special resolution and an expert report having been required.

As a result of the Amendments, all decisions by the board to have the company reacquire issued shares in the company must be approved by a special resolution of the shareholders of the company, except if the company acquires the shares in terms of a pro rata offer to all shareholders or a class of shareholders. For such reacquisitions, appraisal rights to shareholders no longer apply, shareholders’ meetings are no longer required, nor is an expert report now required.

Social and Ethics Committee:

Since the Amendments:

• a social and ethics committee is not required where a company is a subsidiary of another company that has a social and ethics committee;
• the social and ethics committee must comprise of at least 3 (three) members, and at least 3 (three) members must be directors or prescribed officers of the company, with at least 1 (one) of whom who must be a director who is not involved in the day-to-day management of the business for the previous 3 (three) financial years;
• a social and ethics committee must be appointed annually by the board; and
• where a vacancy arises on the social and ethics committee, the board must fill the vacancy within 40 (forty) days.

Auditors:

Persons who held certain capacities in the company (such as director, prescribed officer, or employee involved in bookkeeping) during the previous 5 (five) financial years of the company could previously not act as auditor of the company. This 5 (five) year period has now been amended to 2 (two) years.

ESOPs:

An employee share scheme (“ESOP”) in terms of the Companies Act has been extended by the Amendments to now include a purchase of shares, and not only a subscription of shares as was previously the case, thereby widening its definition in terms of the Companies Act.

Directors’ Liability Time Bar:

Before the Amendments, a strict time bar of 3 (three) years existed against claiming damages from directors for breach of their fiduciary duties. This time bar remains the same but may now be extended by a court on good cause shown.

For bringing an application to declare a director delinquent, a time bar of 2 (two) years had applied, but this has been amended to 5 (five) years, which may be extended by a court on good cause shown.

These new time bars also apply to director misconduct which occurred prior to 27 December 2024.

Conclusion:

The above summarises the key Amendments to the Companies Act that should be noted and implemented by private companies.

It is important to note that whilst the above Amendments become effective on 27 December 2024, there are various other amendments to the Companies Act set out in the Amendment Acts which have not yet become effective. These include provisions allowing the public access to annual financial statements of specific categories of private companies, changes to the definition of a ‘regulated company’ to which the Takeover Regulations apply in concluding certain transactions and a new provision allowing any interested party to apply to court to retroactively regularise irregular share creations, issues or allotments, on good cause shown.

VDMA’s team of experts is at your disposal for any assistance that you or your business may require in relation to the recent Amendments to the Companies Act.

Published 10 January 2025