A case for excluding foreign companies from the application of the Companies Act of 2008 is unconvincing

AuthorHayath, I.
DOIhttps://doi.org/10.47348/JCCL/V8/i1a5
Published date10 November 2022
Date10 November 2022
Citation(2022) 8(1) JCCL&P 67
Pages67-85
https://doi.org/10.47348/JCCL/V8/i1a5
67
A CASE FOR EXCLUDING
FOREIGN COMPANIES FROM THE
APPLICATION OF THE COMPANIES
ACT OF 2008 IS UNCONVINCING
Iram Hayath*
Attorney of the High Court of South Africa and
LLM Candidate (Wits University)
ABSTRACT
The approach adopted in the Companies Act 71 of 2008 (2008
Companies Act) is to significantly limit the regulation of foreign
companies conducting business (or non-profit activities) in South
Africa that meet the registration requirements of the Act.1 The
rationale behind this approach is understood as being s 7(c) of
the Act – to promote innovation and investment in South African
markets.2 This article argues that the general exclusion of external
companies from the 2008 Companies Act inadvertently impedes the
furtherance of several stated purposes of the Act – which, in turn,
adversely impacts the ability to achieve innovation and investment
in South African markets. This article also argues that external
companies are effectively excluded from certain provisions that may
benefit them (including corporate governance and business rescue
provisions). The current position also results in some uncertainty and
unpredictability in relation to the determination of whether a foreign
company is required to adhere to the registration requirements
in terms of s 23 of the Act, application of certain provisions, and
conflict of laws on matters that remain ungoverned by the 2008
Companies Act regarding external companies. The general exclusion
of external companies from the Act is a matter that requires future
reconsideration (in a manner that ensures that the stated purposes
of the Act are met and that the framework within which external
companies operate in South Africa is not disregarded).
* The author previously practised as an attorney at Cliffe Dekker Hofmeyr Inc.
whereafter the author practised as an internal legal advisor at Nedbank Limited
and subsequently, their Executive Head of Reputational Risk and Ethics until
December 2021. The author is currently completing her LLM in Business and
Commercial Law at the University of the Witwatersrand.
1 F H I Cassim, M F Cassim & R Cassim et al Contemporary Company Law 2 ed (2012)
97–8.
2 Ibid.
(2022) 8(1) JCCL&P 67
© Juta and Company (Pty) Ltd
68
(2022) 8(1) JOURNAL OF CORPORATE AND COMMERCIAL LAW & PRACTICE
https://doi.org/10.47348/JCCL/V8/i1a5
Keywords: foreign companies, external companies, purpose of the
Companies Act 71 of 2008
I INTRODUCTION
The Companies Act 71 of 2008 (2008 Companies Act) introduced
a significant shift in how the legislature treats foreign companies
doing business in South Africa in comparison to the position under
the Companies Act 61 of 1973 (1973 Companies Act).3 Aside from a
few provisions (discussed below), the 2008 Companies Act does not
generally apply to foreign companies doing business in South Africa.4
This article will argue that the case for such exclusion of foreign
companies doing business in South Africa from the application of the
2008 Companies Act is unconvincing. In doing so, this article will:
(i) outline the changes in the statutory approach under the 1973
Companies Act and the 2008 Companies Act;
(ii) analyse whether the rationale for the change in approach in the
2008 Companies Act has merit;
(iii) discuss issues relating to the application of the approach adopted
in the 2008 Companies Act;
(iv) discuss concerns from a corporate governance perspective; and
(v) set out matters for future consideration.
II CHANGES IN THE STATUTORY APPROACH
(a) The Companies Act 61 of 1973
Under the Companies Act 61 of 1973 (1973 Companies Act), a foreign
company that established ‘a place of business’ in South Africa was
required to register with the Companies and Intellectual Property
Commission.5 The term ‘place of business’ had a wide ambit and
included the place where the company:
(i) transacted business;
(ii) held itself out as transacting business;
(iii) held its share transfer or share registration office; and
(iv) acquired immovable property.6
3 Cassim et al op cit note 1 at 97.
4 Ibid.
5 Ibid at 95, and ss 1 and 322 of the 1973 Companies Act.
6 Ibid.
© Juta and Company (Pty) Ltd

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