Governance under the Companies Act 71 of 2008: Flexibility is the keyword

• Jurisdiction: South Africa
• Pages: 248-262
• Published date: 15 August 2019
• Author: Michael M Katz
• Citation: 2010 Acta Juridica 248
• Date: 15 August 2019

Governance under the Companies Act

71 of 2008: Flexibility is the keyword

MICHAEL M KATZ*

TRIBUTE TO PROFESSOR MICHAEL LARKIN

Professor Larkin was a friend and colleague for many years. In particular he

assisted me for nearly two decades in the presentation of the Higher Diploma

in Company Law course at Wits Law School, and his quiet and acute

observations added immeasurably to the quality and challenges of the course. I

miss him greatly and will continue to do so. It is my privilege to dedicate this

article in recognition of a very special person.

The new Companies Act will have signif‌icant implications for the governance

of companies. The most important implication f‌lows from the introduction of

two important new concepts which are def‌ined in the Act as ‘alterable’ and

‘unalterable’ provisions. By virtue of the ‘alterable’ provisions a great deal of

f‌lexibility is permitted to companies in regulating their own governance. This

has been Parliament’s response to the universal challenge that faces company

legislators, namely,how to regulate the biggest and smallest companies under a

single statute. Thus, a company may in its own constitution – the Memoran-

dum of Incorporation – regulate almost the entirety of the provision relating

to its governance. This would include, inter alia, the method of convening

meetings of directors and shareholders, the period of notice, the quorum

required, the majority required for the passing of different resolutions and

other issues relating to the domestic functioning of companies.

In addition, there is almost unlimited f‌lexibility, once again arising from the

concept of ‘alterable’ provisions, for a company to structure the f‌inancial

instruments which it issues. The various rights (including voting rights,

participation in income, participation in capital and the ranking thereof)

attaching to shares, whether a single share or class of shares, may be designed to

suit the particular circumstances and requirements of a company.

There is also greater f‌lexibility in the consideration for the issue of shares.

Flexibility also exists with regard to the allocation of power within the

company as between the directors and shareholders. This also applies to a large

extent in respect of the election and removal of directors.

The rights and duties of directors remain largely as exists in terms of the

current law notwithstanding the fact that directors’ duties have now been

codif‌ied. This arises from the basis on which codif‌ication has occurred,

namely, the description of directors’ duties summarises the existing position,

the determination of liability is based on common-law principles, and the

common-law position has not been substituted by the new Act.

* BCom, LLB (Witwatersrand University) LLM (Harvard Law School) LLD (hc) (Witwa-

tersrand University). Michael Katz is Chairperson of Edward Nathan Sonnenbergs Inc and

Honorary Professor of Law at the University of the Witwatersrand in Johannesburg, South

Africa.

248

2010 Acta Juridica 248

© Juta and Company (Pty) Ltd