By Jaco de Klerk, Associate – Corporate and Commercial Law
When considering a private company’s composition, there is a general misconception that any information regarding the shareholding of a private company is privileged. Although not placed in the public domain, section 26(2) of the Companies Act 71, of 2008 (the “Companies Act”) provides that any person has the right to inspect or copy, inter alia, the share register of a private company upon formal request, subject to payment of a nominal fee.
As it stands, it is difficult to reconcile the right of access to private company records and the right to confidentiality enjoyed by the related shareholders. That being said, the second draft of the Companies Act Amendment Bill, published during October 2021 (the “Draft Amendment Bill”), proposes to expand the right of access to a private company’s so called confidential information.
The Draft Amendment Bill proposes to amend the current section 26(2) of the Companies Act, where in addition to a private company’s share register, a member of the public may request documentation and information such as a private company’s Memorandum of Incorporation, director records, audited financial statements and register of disclosure of beneficial interest. The latter in principle intends to illuminate the ultimate beneficiary / owner of securities in a private company, which is a new concept introduced by the Draft Amendment Bill, although not covered in this article.
Section 26 is extended through the introduction of a rather ambiguous proposed amendment provided for in 26(2A). Said provision aims to limit a non-shareholder’s right to inspect i) reports to annual meetings; ii) annual financial statements; iii) notices and minutes of annual meetings; and iv) communications to shareholders. Apart from a non-shareholder’s right to inspect annual financial statements (proposed by the Draft Amendment Bill), this amendment is equivocal as non-shareholders do not have a current / proposed right to inspect aforesaid reports, notices, minutes or communications of a private company.
Furthermore, aside from the aforesaid expansion of company records, which may be requested by a non-shareholder, the Draft Amendment Bill introduces sections 33(1)(aA) and 31(1)(aB), providing that:
- 33(1) – “Every company must file an annual return with the Commission in the prescribed form with the prescribed fee, … in that return-
- "(aA) - a copy of the company’s securities register as required in terms of section 50;
- (aB) a copy of the register of the disclosure of beneficial interest as required in terms of section 56, and (b) any other prescribed information.”
The effect of the aforesaid introduction is that, in addition to the existing obligation of a company to file its annual return with the Companies and Intellectual Property Commission, it will be obliged to file:
- a copy of its securities register; and
- a copy of the register of the disclosure of beneficial interest,
Should the Draft Amendment Bill be enacted, the working of these proposed clauses will place a private company’s shareholding information in the public domain. Currently, such unregulated exposure is not inflicted upon private companies.
This obligation may dilute the sense of privacy enjoyed by stakeholders in the private equity industry prior to its introduction. Although any person may currently request access to a private company’s share register (as per section 26), it provides a sense of regulation as the formal request is not unanimous, leaving the disclosing company less vulnerable.
When considering the aforesaid proposed amendments along with several other proposed amendments of the Draft Amendment Bill (albeit not discussed herein), a prominent theme is the enhancement of corporate transparency.
The second draft of the Draft Amendment Bill was published during October 2021 and invited the public to share their comments within thirty days. The current status of the Draft Amendment Bill is unknown. This may be a result of ambiguities (such as those noted in this article) identified by stakeholders and other commentators during the consultation process. We may see a revised Bill once these discrepancies have been ironed out by the Department of Trade and Industry.