Trade and Industry minister Ebrahim Patel has published the draft Companies Amendment Bill for public comment, promising a significant shake-up for businesses in South Africa.
First mooted in 2018, the bill proposes substantial changes to the South African Companies Act, including further disclosures around executive pay in the country.
In an attached explanatory memorandum, Patel said that the bill aims to make it easier to do business in South Africa and counter money laundering and terrorism by introducing transparency around ownership.
These proposed changes are outlined in more detail below.
Ease of doing business
Several changes are proposed to make South Africa’s company laws more user-friendly, consistent with well-established principles, and not be over burdensome on the conduct of business.
This is important not only for attracting foreign investors but also for the efficient and effective conduct of the domestic economy and the creation of jobs, Patel said.
“As will be seen from the explanations set out in this memorandum, in respect of many of the proposed amendments, they are technical in nature, and based on submissions received during the extensive engagement with interested parties, and are designed to ease the doing of business through providing legal certainty where these do not currently apply, providing greater flexibility to companies in certain circumstances, or removing unnecessary provisions in the Act.”
Notably, certain financial reporting requirements will not apply to small and medium enterprises with a public interest score below a certain level.
The bill aims to achieve equity between directors and senior management on the one hand, and shareholders and workers, on the other hand, Patel said. It is also aimed at addressing public concerns regarding high levels of inequalities in society, he said.
Amendments in the bill require that specific categories of firms disclose information on directors’ remuneration and prescribed officers.
Furthermore, it requires that companies disclose the average remuneration of all employees and the ratio between the total remuneration of the top 5% highest-paid employees and the total remuneration of the bottom 5% of the lowest-paid employees of the company.
Shareholder approval is also required for the company’s remuneration policy.
“Certain of the proposed amendments are designed to achieve better disclosure of senior executive remuneration and the reasonableness of the remuneration,” Patel said.
“These issues are addressed primarily in the proposed requirements of the Remuneration Report. These are issues that have raised similar concerns in other leading jurisdictions. The provisions relating to transparency on the pay gap and the reasonableness of remuneration provide an objective benchmark which will assist the public dialogue on this topic.”
“South Africa is part of an international effort by leading economies to address this concern. South Africa’s rating in the Mutual Evaluation Assessment of the country’s anti-money laundering and combating the financing of terrorism pointed to weaknesses in determining the true owner of shares in companies.
“To address this, the bill sets out proposed amendments relating to disclosure of ultimate beneficial ownership in the shares of a company,” Patel said.
The government’s efforts to counter money laundering and terrorism feature not only in the proposed amendments to the Companies Act but also in other legislation and administration areas.