Gone are the days of using companies as fronts.
The Companies Amendment Bill was introduced in Parliament in 2018 and signed into law in 2019. The main aim is strengthening corporate governance, improving transparency, and promoting social and environmental responsibility.
Fundamental Changes introduced by the Companies Amendment Act:
Companies must maintain a register of their beneficial owners and disclose this information to the Companies and Intellectual Property Commission (CIPC).
Establishment of a social and ethics committee for specific categories of companies, including those with a public interest score of 500 or more, to monitor the company's compliance with social and ethical standards.
Enhanced requirements for directors to disclose conflicts of interest and act in good faith and the company's best interest.
Extension of the regulatory powers of the CIPC to include the ability to issue compliance notices and to impose administrative fines for non-compliance.
These regulations require changes for businesses currently operating in South Africa:
They will need to create and maintain a register of their beneficial owners, which includes individuals who ultimately own or control the company and to disclose this information to the CIPC. Companies must identify their beneficial owners and update the register as changes occur.
Certain companies will need to establish a social and ethics committee. Companies will need to determine whether they are required to establish a committee and appoint appropriate members to serve on the committee.
Directors must recuse themselves from decision-making processes where they have a conflict of interest. Companies must ensure that their directors know this requirement and have procedures to manage conflicts of interest.
Companies must comply with the enhanced regulatory powers of the CIPC. Companies must ensure they comply with the Act and respond to any compliance notices issued by CIPC.
Non-Compliance could result in the following:
Administrative Fines - The CIPC may impose administrative fines for non-compliance with specific provisions of the Act, including failure to maintain a register of beneficial owners or to disclose a conflict of interest.
Criminal Sanctions - Some provisions of the Act will be enforced through criminal sanctions, which may include fines or imprisonment.
Civil Liability - Companies that fail to comply with the Act may be liable for damages or civil liability brought by stakeholders or affected parties.
In addition to these penalties, non-compliance with the Companies Amendment Act may damage a company's reputation and negatively impact its relationships with stakeholders, customers, suppliers and investors.
Likely, South Africa will soon create its first-ever database of the shareholders of all registered companies – with details of the individuals hidden behind fronts and proxies for more significant shareholders.
How a Commercial Attorney can assist your business with the new Companies Amendment Bill:
Compliance - A Commercial Attorney can help companies comply with the Act's requirements, including maintaining a register of beneficial owners, establishing a social and ethics committee and disclosing conflicts of interest.
Reviewing Contracts and Policies: A Commercial Attorney can review a company's contracts and policies to ensure they are consistent with the Act's requirements and identify areas of non-compliance.
Advice on governance matters: A Commercial Attorney can advise companies on corporate governance matters, including the duties and responsibilities of directors and how to manage conflicts of interest.
Risk Management: A Commercial Attorney can help companies identify and manage legal and reputational risks associated with non-compliance with the Act.
Representation in legal proceedings: A Commercial Attorney can represent companies in legal proceedings related to non-compliance with the Act, including enforcement actions by the CIPC of civil liability claims by stakeholders.
Maybery Inc can assist your company with the new Companies Amendment Act by providing legal advice and support on compliance, governance, risk management and representation in legal proceedings.