Small companies and regulatory tiering: a legal and economic analysis of Zambia's new regime

• Jurisdiction: South Africa
• Date: 01 June 2023
• Pages: 107-124
• Author: Christopher Phiri
• Published date: 01 June 2023
• DOI: 10.17159/2225-7160/2023/v56a8

Legal and economic analysis of Zambia’s new regime 107

Small companies and regulatory tiering: a

legal and economic analysis of Zambia’s

new regime

Christopher Phiri

LLB (UNZA), MBA (Nicosia), LLM (Lund)

Doctoral Researcher, Faculty of Law, University of Turku

SUMMARY

In 2017, Zambia adopted a new Companies Act. The main purpose of the

new Act is to promote the development of Zambia’s economy through

efficient regulation of companies. This article focuses on the small

companies regime that the new Act introduces. More specifically, the

article explores the extent to which the new small companies regime is fit

for purpose by conducting a comparative analysis of that regime with the

United Kingdom’s (UK’s) small companies regime in light of relevant

literature, particularly literature in the field of regulatory economics.

Overall, the analysis suggests that Zambia’s small companies regime is

largely inapt to achieving its intended purpose. The article’s main

argument in this connection is threefold. First, the new Act is somewhat at

odds with its intended purpose insofar as it requires small companies to

appoint a secretary. Exempting small companies from this requirement, as

does the UK Companies Act of 2006, could better serve the purpose of the

new Act. Second, whilst the exemption of small companies from the

requirement to appoint auditors may be desirable, the 50 per cent

shareholding threshold required for shareholders to demand an audit could

inhibit controlling shareholder accountability and thus undermine the

purpose of the new Act. A lower threshold such as the one applicable

under the UK Companies Act, that is to say, ten per cent, could better serve

the purpose of the new Act. Third, the lack of any special treatment for

small companies as such vis-à-vis bookkeeping and financial reporting

requirements could undermine the purpose of the new Act. Imposing

lighter bookkeeping and financial reporting requirements on small

companies, as does the UK Companies Act, could better serve the purpose

of the new Act.

1Introduction

On 17 November 2017, the Zambian Parliament adopted a new

Companies Act (the new Act or the Act)1 which repealed and replaced the

1994 Companies Act (the repealed Act).2 The new Act came into force on

15 June2018.3 According to the Preamble thereto, the new Act seeks “to

promote the development of the economy by encouraging

entrepreneurship, enterprise efficiency, [and] flexibility and simplicity in

1 Companies Act 10 of 2017 (new Act).

2 Companies Act 26 of 1994 (repealed Act). See s 376 of the new Act.

3 Companies Act (Commencement Order) SI 47 of 2018.

How to cite: Phiri ‘Small companies and regulatory tiering: a legal and economic analysis of Zambia’s new

regime’ 2023 De Jure Law Journal 107-124

http://dx.doi.org/10.17159/2225-7160/2023/v56a8

108 2023 De Jure Law Journal

the formation and maintenance of companies” in Zambia. In other

words, the main purpose of the new Act is to promote the development

of Zambia’s economy through efficient regulation of companies. Whilst

it replicates most of the provisions of the repealed Act, an Act which drew

on English company law as part of the colonial heritage, the new Act does

transform Zambia’s company law in various respects.

Some of the notable reforms which the new Act introduces include the

following. First, the new Act prescribes the qualifications for

appointment to the office of company secretary and codifies the duties

of company directors and company secretaries alike.4 Second, where

applicable, the new Act requires shareholders to disclose the beneficial

owners of the shares they hold in a company at the time of incorporation

and henceforth requires companies to maintain a (share and) beneficial

ownership register and to notify the Registrar of Companies of any

changes made to the register.5 Third, the new Act provides for

mandatory audit firm rotation following the appointment by a company

of one audit firm for a continuous period of six years.6 Fourth, the new

Act introduces a small companies regime with a view to lessening the

regulatory burden on small companies.7

Whether the new Act is indeed apt to promote the development of the

country’s economy through efficient regulation of companies is,

however, still open to question. Even leaving aside the general

drawbacks of the transformative provisions that it introduces,8 the new

Act is laden with apparent drafting errors which could render compliance

difficult and costly as only company law experts may be able to help

companies get around some of those errors.9 This article does not,

4 Part VII of the new Act.

5 Ss 12(3)(e), 21(3), 30, 123, and 195 of the new Act, read together with the

Companies (Amendment) Act 12 of 2020.

6 S 257(3) of the new Act.

7 Ss 82(6), 253(5), 263, and 264 of the new Act.

8 See generally Cameran, Negri and Pettinicchio “The Audit Mandatory

Rotation Rule: The State of the Art” 2015 Journal of Financial Perspectives 1;

Sayne, Westenberg and Shafaie “Owning Up: Options for Disclosing the

Identities of Beneficial Owners of Extractive Companies” 2015 https://

resourcegovernance.org/sites/default/files/nrgi_Beneficial%20Owners2015

0820.pdf (last accessed 2023-05-26); Lakhani “Imposing Company

Ownership Transparency Requirements: Opportunities for Effective

Governance of Equity Capital Markets or Constraints on Corporate

Performance” 2016 Chi.-Kent J Int’l & Comp L 122.

9 For example, ss 29(1)(a), and 81 of the new Act refer to an office called the

“registered records office”, and yet the Act itself requires companies only to

have a “registered office” (s 28). Ss 3, 157, 188, 196, 197, and 199

similarly refer to the “share register”, and yet the Act itself does not require

companies to maintain such a register. Rather, it requires companies to

maintain several registers bearing rather duplicative names, including the

“register of members”, “register of beneficial owners”, and “share and

beneficial ownership register” (ss 30, 195, and 196). S 61(8) also

erroneously refers to sub-s (6) instead of sub-s (7). S 188 similarly makes a

wrong cross-reference to s 194 instead of s 195(3). Worse, s 70 is

unintelligibly ungrammatical.