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

• Author: Hayath, I.
• DOI: https://doi.org/10.47348/JCCL/V8/i1a5
• Published date: 10 November 2022
• Date: 10 November 2022
• Pages: 67-85

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

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(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.

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