Concept and development / Konsep en ontwikkeling : caput 1

• Published date: 01 January 2010
• Pages: 1-57
• DOI: 10.10520/EJC74119
• Date: 01 January 2010

1

CAPUT 1

CONCEPT AND DEVELOPMENT /

KONSEP EN ONTWIKKELING

1.1 Reforming corporate law to stimulate economic growth*

1.1.1 Introduction

Small enterprises play a valuable role in particularly in a country where

the unemployment level is high by creating new job opportunities,

pro viding stability, eliminating poverty, improving competitiveness,

promoting the development of labour skills and ensuring economic

growth.1 It was estimated in 1996 that small to medium enterprises

in South Africa employed approximately 20% of economically active

South Africans; more than 90% of South Africa’s formal business

entities could be classif‌ied as small to medium businesses; small to

medium businesses provided jobs to approximately 7 million South

Africans; and small to medium enterprises contributed almost 45% of

the South African GDP.2

Clearly, small enterprise development should be encouraged in South

Africa.3 In particular, it is imperative that4 legislation should ensure

* See especially also Henning “Reforming business entity law to stimu-

late economic growth among the marginalized: The modern South African

experience” 2003 Kentucky Law Journal 773-827.

1 South African Chamber of Business Developing the Small Business

Sector in South Africa (1999) 3-4; Commission of the European Commu-

nity First Annual Implementation Repor t – European Charter for Small

Enterprises (2001) 2 [a copy of this document can be downloaded from

http://europa.eu.int/comm/enterprise/enterprise_policy/charter/com2001-

122_en.pdf]; Commission of the European Community: Report on the

Imple mentation of the Action Plan to Promote Entrepreneurship and

Compe titiveness (2000) 7 [a copy of this document can be downloaded

from http://europa.eu.int/comm/enterprise/enterprise_policy/best/doc/sec-

2000-1825vol1_en.pdf; Commission of the European Community: Report

on the Implementation of the European Charter for Small Enterprises

(2002) 4 [a copy of this document can be downloaded from http://eu-

ropa.eu.int/eur-lex/pri/en/dpi/cnc/doc/2002/com2002_0068en01.doc]. See

also O’Neill et al Small Business Development (1987) 43-45; Burns and

Dew hurst Small Business and Entrepreneurship (1996) 1-19.

2 See the debate in the National Assembly (1/11/1996) 1996 Hansard 5101.

3 Commission of the European Community First Annual Implementa-

tion Report. European Charter for Small Enterprises 2.

4 Commission of the European Community First Annual Implementation

Report. European Charter for Small Enterprises 2; Commission of the

European Community Report of the Business Environment Simplif‌ica-

tion Task Force – Vol 1 (1998) 5 [a copy of this document can be down-

2

that the start-up of small enterprises are cheap, fast and easy; the

regulatory framework for small businesses are improved by ensuring

that legislation applicable to small enterprises are clear and simple;5

top-class small business support are available; the creation of small

enterprises is promoted by removing all legislative stumbling blocks;

the right business environment is created to ensure that those enter-

prises that do have the capacity to grow and develop have the right

conditions for doing so; and there is a continuing reform programme

fostering entrepreneurship. It is of paramount importance that an

enabling environment should be created where these types of en-

terprises can thrive, especially by ensuring that small entrepreneurs

have a choice of appropriate business forms at their disposal.

In 1984 South Africa became the f‌irst country with a British derivative

company law system to take a large step forward in providing effec-

tively for the reasonable entrepreneurial legal needs and expectations

of the typical small businessman in by way of separate legislation.

The recognition of the fact that the small business sector forms the

very backbone of a market orientated economy, gave added impetus

to the introduction of the Close Corporations Act 69 of 1984.6

The Act introduced a new form of incorporation for closely-held

enterprises with several unique and innovative features and which

combines some of the attributes of partnership with the corporate

attributes of legal personality and limited liability.7 It provides a sim-

ple, inexpensive and f‌lexible form of incorporation for the enterprise

consisting of a single entrepreneur or small number of participants,

designed with a view to his or their needs and without burdening him

loaded from http://europa.eu.int/comm/enterprise/enterprise_policy/best/

doc/best1en.pdf]; Commission of the European Community: Fostering

Entrepreneurship in Europe: Priorities for the future (1998) 1 [a copy of

this document can be downloaded from http://europa.eu.int/comm/enter-

prise/library/lib-entrepreneurship/doc/com98-222/f‌inalen.pdf].

5 As the Commission of the European Communities correctly notes:

“A diff‌icult or complex regulatory environment can discourage entre-

preneurship and the creation of new business”. See Commission of

the European Community Commission Recommendation on improv-

ing and simplifying the business environment for business start-ups

(1997) 4 [a copy of this document can be downloaded from http://

forum.europa.eu.int/irc/sme/euroinformation/info/data/sme/en/library/int-

comen.pdf].

6 Venter “Die ontstaan en eienskappe van die Wet op Beslote Korporasies,

1984” 1984 Journal for Juridical Science 110.

7 See in general Naudé “The South African close corporation” 1984 Jour-

nal for Juridical Science 119; Henning et al “Close corporations” in The

Law of South Africa vol 7 part 3 (First re-issue) (1996) 497-500; Hen-

ning and Bleimschein “Die neue Unternehmensform der Close Corpo-

ration in Südafrika” 1990 Recht der Internationalen Wirtschaft 627.

3

or them with legal requirements that would not be meaningful in his

or their circumstances.8

The Close Corporations Act has proved to be one of the most

remark able innovations in South African company law.9 Its example

has been followed by legislative developments in several jurisdic-

tions aimed at the introduction in various guises of new legal forms

for small business.

Attention will be given f‌irst to initiatives for small businesses and the

the evolution of the close corporation in the Republic of South Africa,

then to developments Southern Africa and then to events in a few

other jurisdictions of relevance.

1.1.2 South African initiatives

1.1.2.1 Strategies for empowerment

In 1997 the South African National Small Business Act 10 came into

force. This Act established two government bodies namely the Na-

tional Small Business Council and the Ntsika Enter prise Promotion

Agency in order to provide guidelines for organs of state on national,

provisional as well as local level in promoting small business in South

Africa;11 provide business advice to small businesses;12 assess wheth-

er legislation and government policies impose legal barriers to small

and medium businesses in South Africa;13 contribute to policy for-

mulation at a national level;14 and analyse the impact of social and

economical factors on small and medium businesses.15

These government bodies provide non-f‌inancial services to the small

business sector and advocate the needs of small and medium busi-

nesses.16 Therefore, this Act “represents [the South African] Govern-

ment’s commitment to creating an enabling environment for small

business in South Africa as the mechanism for delivering support to

small, medium and micro enterprises.”17

8 Naudé 1984 Journal for Juridical Science 117-119.

9 See Jordan Review of the Hong Kong Companies Ordinance – Con-

sultancy Report (March 1997) 2-18.

10 Act No 102 of 1996. See in general Henning and Snyman “A salutory new

dispensation for small businesses” 1996 Journal for Juridical Science 132.

11 Section 3(1).

12 Section 3(1) read with s 10(1)(c).

13 Section 10(2). See also the debate in the National Assembly (1/11/1996)

1996 Hansard 5098.

14 See the debate in the National Assembly (1/11/1996) 1996 Hansard 5105.

15 See the debate in the National Assembly (1/11/1996) 1996 Hansard 5099.

16 See the debate in the National Assembly (1/11/1996)1996 Hansard 5098-

5099.

17 See the debate in the National Assembly (1/11/1996) 1996 Hansard 509 9.