New laws bringing big changes for businesses in South Africa – what you need to know
Trade and Industry Minister Ebrahim Patel has tabled the new Companies Amendment Bill before parliament, kicking off the process of making the changes for businesses in South Africa law.
One of the key changes being introduced in the bill – which was published for public comment in 2021 – is to force listed companies in the country to disclose the ratio of the top-paid to the bottom-paid 5% of workers in their reporting.
Patel previously said that the bill will help to address South Africa’s inequality issues.
South Africa currently ranks as one of the, if not the most unequal countries in the world, with massive gaps in wealth distribution among top and bottom earners.
High levels of executive pay have become a contentious issue the world over, but stands out in a country like South Africa where some top executives earn over R500,000 a day, compared to the average of R800 a day, or the poverty line of R25 a day.
In recent years, there has been a significant spike in shareholders of listed companies voting against high executive pay at Annual General Meetings, particularly in the finance sector.
In terms of the new proposed laws, on top of the current remuneration reporting requirements, companies in South Africa will have to include the following in their reporting:
- The company’s remuneration policy, which must be set out in a separate part of the remuneration report;
- An implementation report containing details of remuneration and benefits received by each director or prescribed officer;
- The total remuneration – including all salary and benefits, including employer contributions to benefit funds, short-term incentives or bonuses and long-term incentives – of an employee with the highest total remuneration. This is not limited to the CEO, it can be any other executive or prescribed officer.
- The total remuneration – including all salary and benefits, including employer contributions to benefit funds and incentives or bonuses – of an employee with the lowest total remuneration in the company;
- The average remuneration of all employees, median remuneration of all employees and the remuneration gap reflecting the ratio between the total remuneration of the top 5% highest paid employees and the total remuneration of the bottom 5% lowest paid employees of the company.
The new remuneration report with all these details must be approved by the board of the company and presented to the shareholders at the annual general meeting where it must be voted on by the shareholders for approval.
The new laws don’t only focus on pay, however, they also put a spotlight on other factors like beneficial ownership of a company and cutting red tape.
The department wants to improve the ease of doing businesses in South Africa by cutting “unnecessary red tape” and making regulations clear, user friendly, consistent with well-established principles and not be over burdensome on the conduct of business.
Another major focus of the proposed laws is greater disclosure of the ultimate owners of shares in a business. This is part of the state’s wider push to combat corruption and money laundering and came as a result of the General Laws Amendment Act that was passed at the end of 2022.
By implementing the amendments, the government hopes to attract investors and also make the local economy more effective and efficient so it can create more jobs.
The amendments aim to:
- Insert certain definitions and amend the definition of ‘‘securities’’;
- Clarify when a Notice of Amendment of a Memorandum of Incorporation takes effect;
- Provide for the Commission to publish, as prescribed, the notice of the location of a company’s records;
- Differentiate where the right to gain access to companies’ records may be limited;
- Provide for the preparation, presentation and voting on companies’ remuneration policy and directors’ remuneration report;
- Provide for the filing of a copy of the annual financial statement;
- Empower the court to validate the irregular creation, allotment or issue of shares;
- Clarify that shares which are not fully paid are to be transferred to a stakeholder and dealt with in terms of a stakeholder agreement;
- Exclude the subsidiary company from the requirements relating to financial assistance;
- Provide for instances where a special resolution is required for the acquisition by a company of its own shares;
- Provide for a social and ethics committee report and remuneration report to also be presented at an annual general meeting of a public company;
- Provide for the circumstances under which a private company will be a regulated company;
- Provide for the publication of the application for exemption from the requirement to appoint a
social and ethics committee;
- Deal with the composition of the social and ethics committee;
- Provide for the preparation by the social and ethics committee of a social and ethics committee report, as prescribed, to be presented at the annual general meeting or shareholders meeting, as the case may be;
- Provide, in respect of a private company, personal liability company or non-profit company, for the appointment of an auditor at a shareholders’ meeting if such appointment is a requirement in terms of the Act;
- Extend the definition of an employee share scheme to include situations where there are purchases of shares of a company;
- Provide for post-commencement finance for unpaid amounts that are due to the landlord during business rescue proceedings;
- Provide for the Commission to substitute a contested name of a company under certain circumstances;
- Provide for mediation, conciliation and arbitration by the Companies Tribunal only in respect of relief or complaints in terms of the Act; to further provide for the operation and governance of the Companies Tribunal;
- Provide for pronouncements that may be issued by the Financial Reporting Standards Council.
The full bill can be found below:
Read: 5 new laws being finalised for South Africa – including changes to taxes and pensions
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