A non-profit company (“NPC“) is defined in the Companies Act, 71 of 2008 (“the Companies Act“) as a company:

  • incorporated for a public benefit or other object as required by item 1(1) of Schedule 1; and
  • the income and property of which are not distributable to its incorporators, members, directors, officers or persons related to any of them except to the extent permitted by item 1(3) of Schedule 1.

Just like any company, an NPC is registered with the Companies and Intellectual Properties Commission (“the CIPC“) and once registered, will typically have the characteristics and benefits of a private or public company. As mentioned above, an NPC is usually a company which has been incorporated to serve some kind of public benefit or other object aimed at furthering one or more cultural or communal interest, including but not limited to, community social welfare, community youth development, community health care services, community economic empowerment, community training, educational development and religious worship, just to name a few. Organisations that can be registered as NPC’s include churches, charities and educational organisations. The primary objective of an NPC is to benefit the public and not to make profit. 

Following from the above, you will see that a main feature of an NPC is that its income may not be distributed to the incorporators, members, directors or officers, except as reasonable compensation for services rendered by them. All of the NPC’s assets and income must be used to advance its stated objectives, as set out in its Memorandum of Incorporation (“MOI“). You will also notice that an NPC does not have authorised share capital as there are no shareholders to whom shares can be issued. 

An NPC may be registered with or without members. The members are akin to the “shareholders” of a company who have the final say with regards to the appointment of directors as well as other vital aspects to key decision-making. The members are the highest decision-making body and typically, have the final say on all strategic decisions relating to the NPC. It is possible for the NPC to have only directors (and no members) in which case all strategic decisions (as well as decisions relating to the day-to-day operations of the NPC) will be directed through the board. It is a legal requirement for the NPC to have at least 3 directors and if the NPC is to register for PBO status further down the line, then it is a good idea for the directors to be unconnected (i.e. not related to each other). The decision is therefore whether to incorporate the NPC with members and directors or directors only. Ultimately, it boils down to a question of control.


An NPO is defined in the Non-Profit Organisations Act, 71 of 1997 as a trust, company or other association of persons:

  • established for a public purpose; and
  • the income and property of which are not distributable to its members or office bearers except as reasonable compensation for services rendered.

As can be seen above, an NPO is a much wider construct which includes not only companies, but a trust or a voluntary association as well. An organisation will typically be required to register as an NPO in order to receive grants and donor funding from government. An NPO is registered with the Department of Social Development (“DSD“). In addition to the prescribed DSD application form, two copies of the organisation’s founding document (a constitution for a voluntary association, an MOI for a company, or a deed of trust for a trust) must be submitted to the Directorate for Non-Profit Organisations.


Registration as a public benefit organisation (“PBO“) is considered as a status rather than an enterprise. If you want your NPC to be approved as a PBO, application must be made by the directors or a registered tax practitioner on the NPC’s behalf to the South African Revenue Service (“SARS“). To qualify for approval as a PBO an organisation must be incorporated or established in South Africa as:

  • a non-profit company which has a memorandum of incorporation as a founding document;
  • a trust which has a trust deed as a founding document; or
  • an association of persons which has a constitution as a founding document.

It must be noted that the preferential tax treatment for a PBO is not automatic and organisations that meet the requirements set out in the Income Tax Act, 1962 (“the Income Tax Act“), must apply for this exemption with the Tax Exemption Unit (“TEU“). If the exemption application is approved by the TEU, PBO status will be granted and the entity will be assigned a special PBO reference code and will be exempt from income tax. 

The conditions for an entity to be granted PBO status are contained in section 30 of the Income Tax Act while the terms relating to how predetermined tax incentives for PBO’s work are contained in section 10(1)(cN) of the Income Tax Act. 

Importantly, approved PBO’s must continue to comply with the Income Tax Act and related legislation throughout their existence, which includes among other things, the submission of annual income tax returns. For more information on the process, please follow this link to the official SARS website:


The South African government has acknowledged that some PBO’s are reliant on donations and to incentivise this, has provided for certain allowable deductions to the donors under certain circumstances. If the entity concerned has been granted section 18A approval by the TEU then it will be allowed to issue tax deductible receipts to its donors, but the requirement is that the donations must be used to fund specific approved Public Benefit Activities. 

A taxpayer making a bona fide donation in cash or of property in kind to a section 18A-approved organisation, is entitled to a deduction from taxable income if the donation is supported by the necessary section 18A receipt issued by the organisation. The amount of donations which may qualify for a tax deduction is limited.

According to the basic guide issued by SARS, an application for approval under section 18A can be made simultaneously when an organisation applies for approval as a PBO under section 30 or as an institution, board or body under section 10(1)(cA)(i). If, however, a PBO subsequent to obtaining approval under section 30 or section 10(1)(cA)(i), wishes to apply for section 18A approval, it may do so by written request to the TEU. The following information and documentation must be provided:

  • The relevant PBAs in Part II for which approval is sought;
  • A detailed demonstration of how those activities are carried on; and
  • Relevant supporting documentation that may include the latest founding document and annual financial statements.


We hope this article explains the circumstances under which an NPC would be beneficial and clarifies the correct terminology, which in our experience is often used incorrectly. For example, an NPC can become an NPO but an NPO is not always an NPC. Furthermore, PBO is regarded as a status rather than denoting an entity. For more information and assistance with setting up an NPC and registration for PBO status, you are welcome to contact our Company Secretarial Department and we will gladly assist.




A central theme coming out of the Companies Act 71 of 2008 (“the Companies Act“) is the clear separation of powers between the shareholders of a company on the one hand, and the directors of such company on the other. In a number of our previous articles exploring the Companies Act, we touched on the idea that directors are given the statutory power to take responsibility of the effective management of a company and occupy a fiduciary position in this regard. Shareholders, on the other hand, are not legally obliged to observe any duties as their main aim is to ensure that the company is able to secure a profit from their investment. Since the Companies Act lays out a clear distinction between ‘management’ and ‘control’, shareholders sometimes elect their own directors to protect their interests and the interests of the company alike. Having said that, we are often asked what recourse is available if that relationship of trust subsequently breaks down and the director concerned is no longer able to carry out his/her duties in a manner that would best serve the interest of the company or shareholders. Can such director then be removed by the appointing shareholder or do all shareholders have to consent; what is the process; and do reasons need to be given for such removal? For the purposes of this article, we will focus specifically on the process of removing a director by the shareholders. The right of the board itself to remove a director will be discussed in our next article. 


Section 71(1) of the Companies Act states the following: 

Despite anything to the contrary in a company’s Memorandum of Incorporation or rules, or any agreement between a company and a director, or between any shareholders and a director, a director may be removed by an ordinary resolution adopted at a shareholders meeting by the persons entitled to exercise voting rights in an election of that director, subject to subsection (2).

Section 71(2) further reads:

Before the shareholders of a company may consider a resolution contemplated in subsection (1) –

(a) the director concerned must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive, irrespective of whether or not the director is a shareholder of the company; and

(b) the director must be afforded a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote.

Following from the above, it can be seen that a director can be removed as long as the majority of the shareholders entitled to exercise voting rights in the election of that director agree by ordinary resolution (i.e. 50% plus 1) provided that a duly constituted shareholders meeting is held (you can refer to some of our previous articles for the legal requirements for calling a shareholders’ meeting) and the director concerned is afforded a reasonable opportunity to make a presentation. Based on our interpretation of section 71(2) no particular grounds for removal need to be provided, but in practice, the notice of meeting itself will put forward a number of reasons which the director will then be able to answer to when making the presentation. 


It is a statutory right of shareholders to remove a director, but since the potential impact can be quite drastic, the Companies and Intellectual Property Commission (“the CIPC“) has prepared a guidance note (see Notice No. 42 of 2019) setting out the process requirements that need to be adhered to before it will amend the status of a director in this manner and remove him/her from the CIPC records, despite internal requirements of the company having been met. In order for the notice of removal of directors to meet the processing requirements of the CIPC, the following documents must be filed:

  • Notice regarding the meeting and the resolution, as well as proof that the director to be removed was awarded the opportunity to make a presentation; 
  • Statement setting out the reasons for removal; minutes of meeting or copy of the resolution by the shareholders; 
  • Proof that a quorum was reached at the meeting (i.e., attendance register); 
  • Proof of shareholding (certified copy of share register and share certificates); and
  • Notice of Change of Company Directors (i.e., CoR 39) reflecting the correct status change (i.e., removal).

In our experience, it is not enough to simply meet the legislative requirements for the removal of a director, since failure to meet the CIPC requirements can lead to a number of unnecessary queries and ultimately result in the application to be rejected. Practically, the CIPC requirements will need to be met in addition to what is prescribed by legislation.


The removal of directors is a seemingly simple process and even though the Companies Act does not prescribe that any reasons need to be provided, it is advisable that sufficient reasons are provided in advance so as to allow the director concerned to be afforded a “reasonable opportunity” to make a presentation.




In our previous cosec series, we talked about the role of the board of directors (“the Board“), and how it is often regarded as the management arm of a company. For the purposes of this article, we will focus on the role of a company secretary, which is often overlooked but equally as important to ensure accountability and good corporate governance in the context of South African company law. 


A company secretary is responsible for the legal administration of a company, often playing an advisory role to the Board on what its responsibilities are and to ensure that the Board carries out its duties effectively. The King Report on Corporate Governance for South Africa (“King III“), which is often regarded as the go-to authority for corporate governance guidance outside of the Companies Act 71 of 2008 (“the Companies Act“), states that the Board should always “be assisted by a competent, suitably qualified and experienced company secretary”. As the most senior administrative “officer of the company”, a company secretary must oversee the efficient administration and compliance of a company and is the primary source of advice on the conduct of the business (CIPC Guidance Note 1 of 2017: The Role of the Company Secretary in a Modern Company). 


Section 86(1) of the Companies Act makes it compulsory for a public company or a state-owned company to appoint a company secretary. It is not mandatory for a private company to appoint a company secretary, but the absence of this requirement does not mean that a private company is automatically exempt from observing the relevant requirements of the Companies Act from a governance perspective. 


Section 86(2) of the Companies Act states that every company secretary, irrespective of whether such appointment is a requirement in terms of the Companies Act or a company’s memorandum of incorporation (“the MOI“), must:

  • have the requisite knowledge of, or experience in, relevant laws; and
  • be a permanent resident of the Republic of South Africa and remain so while serving in that capacity.

If a public company or a state owned company (or, in the case of a private company, it elects in terms of its MOI to abide by the extended accountability provisions), appoints a company secretary, then such appointment may be made by the incorporators of the company or within 40 business days after the incorporation of the company by either the directors of the company or an ordinary resolution of the holders of the company’s securities (i.e., its shareholders). 

Section 87(1) of the Companies Act further states that a juristic person or partnership may be appointed to hold the office of company secretary, provided that:

  • every employee of that juristic person who provides company secretarial services, or partner and employee of that partnership, as the case may be, satisfies the requirements contemplated in section 84(5) (i.e., that person has not been disqualified as director); and 
  • at least one employee of that juristic person, or one partner or employee of that partnership, as the case may be, satisfies the requirements contemplated in section 86 (i.e., requirements to be appointed company secretary).


A company’s secretary is accountable to the Board and section 88(2) of the Companies Act states that a company secretary’s duties include, but are not restricted to, the following: 

  • providing the directors of the company collectively and individually with guidance as to their duties, responsibilities and powers;
  • making directors aware of any law relevant to or affecting the company;
  • reporting to the Board any failure on the part of the company or a director to comply with the MOI or rules of the company or the Companies Act;
  • ensuring that minutes of all shareholders’ meetings, board meetings and the meetings of any committees of the directors, or of the company’s audit committee, are properly recorded in accordance with the Companies Act;
  • certifying in the company’s annual financial statements whether the company has filed required returns and notices in terms of the Companies Act, and whether all such returns and notices appear to be true, correct and up to date;
  • ensuring that a copy of the company’s annual financial statements is sent, in accordance with the Companies Act, to every person who is entitled to it; and
  • carrying out the functions of a person designated in terms of section 33(3) (i.e., filing of annual returns).


As can be seen, the role of a company secretary is an extensive and important one, often to facilitate the Board in carrying out its duties. Even if it is not mandatory for your company to appoint a company secretary, it is advisable that such company delegates or outsources this responsibility to an appropriate person or organisation. Our firm has a dedicated Company Secretarial Department and even though we will not accept an appointment as company secretary, we do offer such services on an ad hoc basis. Please do get in touch if you require more information or how we can assist with your company secretarial needs.

Keeping your business afloat in the time of COVID-19 – tax and other considerations

Keeping your business afloat in the time of COVID-19 – tax and other considerations


The devastating impact of COVID-19 is being felt across all sectors of the economy in one way or another. Coming out of the hard lockdown, the South African government is taking a risk-adjusted approach, which seeks to balance between the continued need to limit the spread of the virus and the need to reinvigorate the economy.

According to the South African Reserve Bank, South Africa’s economy may contract by between 2% and 4% this year as a result of the pandemic. This figure ultimately depends on certain policy responses, for example whether the National Treasury will continue to commit more spending in line with its fiscal policy and how the private sector will respond.

To this end, government has promised a massive social relief and economic support package of up to R500 billion which amounts to around 10% of South Africa’s GDP, to mitigate against the blow of COVID-19 in our country. Government support towards businesses in this regard, forms part of the country’s three phase economic response to

(1) stabilise the economy;

(2) address the extreme decline in supply and demand and protect jobs; and

(3) to jumpstart the recovery of the economy as the country emerges from this pandemic.

So, let us examine what these measures are in a nutshell:


Certain legislative amendments will be required to implement the tax relief measures which were proposed by the government around late March. These come in the form of the Draft Disaster Management Tax Relief Bill, 2020 and the Disaster Management Tax Relief Administration Bill, 2020.

Some of the proposed relief measures apply only to small and medium sized enterprises or SMEs (for example the deferral of Pay-As-You-Earn or PAYE), while others apply to all taxpayers (for example the Employment Tax Incentive or ETI). The various tax relief measures are summarised immediately below:

  1. PAYE:

Tax compliant businesses with a turnover of less than R 50 000 000 will be allowed to delay 20% of their PAYE liabilities over the next four months (started 1 April 2020 and ending on 31 July 2020).

  1. Deferral of payment of provisional tax:

Deferral of a portion of the payment of the first and second provisional tax liability to the South African Revenue Service (SARS), without SARS imposing administrative penalties and interest for over the next six months.

The first provisional tax payment due from 1 April 2020 to 30 September 2020 will be based on 15% (rather than 50%) of the estimated total tax liability, while the second provisional tax payment from 1 April 2020 to 31 March 2021 will be based on 65% (rather than 100%) of the estimated total tax liability.

Provisional taxpayers with deferred payments will be required to pay the full tax liability when making the third provisional tax payment in order to avoid interest charges.

  1. Expansion of the Employment Tax Incentive (ETI):

The ETI programme was introduced in 2014 as an incentive aimed at reducing unemployment (particularly among the youth) by encouraging employers to hire young work seekers. The impact of COVID-19 on employment during this period may be far-reaching as the majority of the South African workforce is forced to stay at home.

In order to minimise the loss of jobs during this period and beyond, government proposes expanding the ETI programme for a limited period of four months, beginning 1 April 2020 and ending on 31 July 2020 as follows:

  • Increasing the maximum amount of ETI claimable during this four month period for employees eligible under the current ETI Act from R1 000 to R1 500 in the first qualifying twelve months and from R500 to R1 000 in the second qualifying 12 months.
  • Allowing a monthly ETI claim in the amount of R500 during this four month period for employees from the ages of (1) 18 to 29 who are no longer eligible for the ETI as a result of the employer having already claimed ETI in respect of those employees for 24 months; and (2) 30 to 65 who are not eligible for the ETI due to their age.
  • Accelerating the payment of ETI reimbursements from twice a year to monthly as a means of getting cash into the hands of tax compliant employers as soon as possible.

This expansion will, however, only apply to employers that were registered with SARS as at 1 March 2020. An employer is not eligible to claim the ETI if the employer is not compliant in respect of its tax obligations i.e. if the employer has any outstanding tax returns or an outstanding tax debt.  Furthermore, the current compliance requirements for employers under sections 8 and 10(4) of the ETI Act will continue to apply.

  1. The Unemployment Insurance Fund (UIF):

The government is exploring the temporary reduction or setting aside of employer and employee contributions to the Unemployment Insurance Fund (UIF) and to the Commissioner for Compensation for Occupational Injuries and Disease Fund (COIDA contributions). It is speculated that UIF obligations will be set aside for at least four months.

  1. Donations tax:

Donations tax is payable by tax residents of South Africa as follows:

  • a donations tax rate of 20% applies in relation to the donations not exceeding R30 million per year; and
  • a donations tax rate of 25% applies in relation to the donations exceeding R30 million per year.

During this period, any donation to registered public benefit organisations as well as the SOLIDARITY Fund shall be tax deductible.

Taxpayers would generally only be able to benefit from the tax stimuli if they are compliant. As a result, taxpayers would need to ensure that their tax affairs are up to date, in respect of all taxes. The Finance Minister is expected to flesh out further details on the tax-related announcements when he tables the adjusted budget at the time of writing this so additional tax relief measures are anticipated.


A new directive under the Disaster Management Regulations now offers relief to employers and employees who have been affected during the lockdown in the form of a COVID-19 Temporary Employee / Employer Relief Scheme (TERS). All employers and employees who contribute to the UIF had the opportunity to claim if they filled out an application before 30 April 2020.

The calculation of the benefit is based on the last payment made to the employee but capped at the maximum of R6 638.40. The benefit amount is then determined in line with the current sliding scale which ranges between 38% to 60% in terms of a formula. Please refer to the directives issued by the Department of Labour for more information and how the formula works.

We hope you found this article informative and wish you all the best during this period.

Key-man insurance policies vs buy and sell agreements: Which is more appropriate for your business?

Key-man insurance policies vs buy and sell agreements: Which is more appropriate for your business?


There is an important distinction between a key-man insurance policy and a buy and sell agreement. While they are both used in the context of ensuring the ongoing profitability and sustainability of a business in the event of the untimely death, severe disability or critical illness of a key business partner, their underlying purpose is different. We briefly unpack these differences below.


The value of a business is largely dependent on the input of key employees or partners in the business. The sudden loss of a key individual may put the business at serious risk. As such, a key person can be seen as someone whose absence (through death, disability or critical illness) will have a material adverse effect on the future of the business. What a key-man insurance policy seeks to do, is to protect the business in the event of the premature death of a key individual or if such key individual becomes disabled or critically ill. Such a policy is taken out and paid for by the company and upon the death, disability or critical illness of the key individual (who may or may not be a shareholder), the policy proceeds are paid to the company (rather than to the deceased estate in the case of a death of the individual). This provides the company with cash flow to enable the business to continue operations while a suitable replacement is found.


A buy and sell insurance policy is typically used to fund a buy and sell agreement. The buy and sell agreement itself contains several important provisions to facilitate the orderly transition of ownership of the business, should one of the owners die prematurely, become disabled or critically ill, which provisions may include (amongst others):

  • What events may trigger a buy-out by the remaining shareholders – will it only be the death, disability or critical illness of the shareholder concerned, or will it include other events such as retirement or bankruptcy?
  • What shares each of the remaining shareholders are entitled or required to purchase – all shares or only shares of a specific class?
  • In what proportions the remaining shareholders will purchase the shares – pro rata or in a specified proportion?
  • How the buy and sell agreement will be funded – by way of an insurance policy or other method?
  • How the shares of the company will be valued.

Where a company has numerous shareholders, a buy and sell agreement provides the mechanism to provide for the funds that the remaining shareholders will need to acquire the deceased shareholder’s shares. This has an important bearing on the sustainability of the business as it may not always be a good idea for these shares to be passed on to the heirs – they may not necessarily have the skill set nor the desire to work in the business.


The tax implications relating to the treatment of premiums paid and the proceeds received from a key-man policy are often overlooked. We discuss the various tax consequences briefly below.

Income Tax:

In terms of the Income Tax Act, 58 of 1962 (ITA), a company may be able to claim certain insurance premiums paid on the life of the key-person as a deduction. Whether the premiums could be deducted, will depend on whether the conditions and requirements as set out in the ITA have been met and in each case the particular policy wording will need to be reviewed in order to determine whether it is likely that a deduction will be allowed.

Estate Duty:

Section 3(3)(a) of the Estate Duty Act, Act 45 of 1955 (Estate Duty Act), includes the proceeds from a life insurance policy on the life of the deceased as “deemed property” of the deceased estate, if it meets the requirements of this section, irrespective of who the owner of the policy was or who paid the premiums. However, the full proceeds are not always included in terms of these deeming provisions. The section further provides that where the policy proceeds are not recoverable by the estate, but by the company, and the company also paid the premiums, only the amount by which the proceeds exceeds the total premiums paid plus interest thereon, is deemed to be the property of the deceased estate. However, section 3(3)(a)(ii) of the Estate Duty Act contains an estate duty exemption for these policies, resulting in them not being included as the deemed property of the deceased estate, provided all the requirements listed for the exemption to apply, have been met. If this is the case, no estate duty will be payable on the policy proceeds.

Capital Gains Tax (CGT):

In terms of paragraph 55 of the 8th Schedule to the ITA, the proceeds of key-man policies are exempt from CGT in the following instances:

  • where the person is the original beneficial owner of the policy;
  • where the person, whose life is insured, is or was an employee or director and any premiums paid by the person’s employer were deducted in terms of section 11(w) of the ITA;
  • where the policy is a risk policy with no cash or surrender value;
  • where the policy’s proceeds are exempt from income tax under section 10(1) of the ITA.


Income Tax:

If the policy to fund a buy and sell agreement meets the requirements of section 11(w) of the ITA, the premiums payable may be deductible and the proceeds may be subject to income tax, again depending on the nature of the receipt.

Estate Duty:

The insurance policy to fund a buy and sell agreement must have been taken out for the purpose of buying out the interest of the deceased person, or a part of the interest – otherwise the policy will not be exempt from the “deemed property” and will be included in the deceased estate.

The deceased must not have paid any of the premiums of the policy. If a deceased has paid premiums on a buy and sell policy, it is likely to be regarded as the deemed property of the deceased and in which case it may not qualify for the exemption referred to earlier.


If risk policies are used to fund the buy and sell agreement, the proceeds are exempted from CGT in terms of paragraphs 55(1)(a), (c) and (e) of the 8th Schedule to the ITA.

Any life insurance payments to the original beneficial owners and where no premiums were paid by the deceased, have always been exempted from CGT in terms of the 8th Schedule to the ITA.

If a deceased shareholder cedes his or her policy to a new shareholder, the policy ceded is a 2nd hand policy and historically gave rise to CGT consequences when the ceded benefit is eventually paid out, which is now alleviated by paragraph 55(1)(e) of the 8th Schedule to the ITA, subject to the policies being pure risk policies.


Replacement of a key individual or ensuring the orderly transition of ownership of a business (as the case may be) can take time. Although the memorandum of incorporation (MOI) or the shareholders’ agreement of the company may contain provisions on what should happen to the shares on the death or disability of a particular shareholder, they often do not take into account, the practical aspects involved. Additional funding and/or a separate buy and sell agreement is therefore required to ensure that all the necessary requirements and relevant processes are carefully set out and planned for. It’s important to note that, in terms of the Companies Act, 71 of 2008, no other agreement may supersede the shareholders’ agreement or MOI, so the company will need to ensure that if it is a buy and sell agreement they want to enter into, such agreement is properly aligned with the MOI and shareholders’ agreement.


Promotional competitions: When is a promotional competition regulated by the consumer protection act, 68 of 2008 (“The CPA”)

Promotional competitions: When is a promotional competition regulated by the consumer protection act, 68 of 2008 (“The CPA”)

If you are a promoter of a competition, then chances are that the CPA is likely to apply to that competition. It is important for the promotor to know when a promotional competition is regulated by the CPA and to comply with its requirements in order to avoid the risk of incurring penalties. This article will examine the relevant provisions in the CPA relating to promotional competitions and highlight the most important obligations placed on a promoter when running a promotional competition.


Section 36 of the CPA governs promotional competitions and defines a promoter as “a person who directly or indirectly promotes, sponsors, organises or conducts a promotional competition, or for whose benefit such a competition is promoted, sponsored, organised or conducted.”

A promotional competition is further defined in the CPA as “any competition, game, scheme, arrangement, system, plan or device for distributing prizes by lot or chance if:

  • it is conducted in the ordinary course of business for the purpose of promoting a producer, distributor, supplier, or association of any such persons, or the sale of any goods or services; and
  • any prize offered exceeds the threshold prescribed in terms of subsection (11) (currently R1.00),

irrespective of whether a participant is required to demonstrate any skill or ability before being awarded a prize.

Given the rather wide definitions in the CPA and the low value threshold, it is safe to say that the vast majority of competitions conducted in South Africa will be governed by the CPA.


Very importantly, a promoter of a promotional competition must not require any consideration to be paid by the participant (e.g. the participant should not be asked to pay for the opportunity to participate in the competition or participation in the competition should not require the purchase of goods and services at a price that is more than what is ordinarily charged without the opportunity of taking part in the competition) other than the reasonable costs for posting  or transmitting an entry form.

For the purposes of ensuring fairness, the CPA also requires that a promoter may not award a prize to any person who is a director, member, partner, employee or agent of, or consultant to, the promoter or to the supplier of any goods or services in respect of that competition.

Before each competition, the promotor must prepare a set of competition rules which should be made available to any participant upon request. Regulation 11(6) of the CPA also requires that a copy of the competition rules (together with certain important information) be retained for a period of at least three years.

A promotor must ensure that an offer to participate in a promotional competition must clearly state the following:

  • the competition or benefit to which the offer relates;
  • the steps required to participate in the competition or accept the offer;
  • the basis on which the results of the competition will be determined;
  • the closing date for the competition;
  • the medium through which the results of the competition will be made known; and
  • the person from whom, the place where and the date / time on which a successful participant may receive the prize.

The promoter must further ensure that an independent accountant, registered auditor, attorney or advocate oversees and certifies the conducting of the competition and must report this through the promoter’s internal audit reporting or other appropriate validation or verification procedures.

The CPA imposes a significant burden on promotors who wish to run a promotional competition, both from an administrative and financial perspective. It is therefore important for a promoter to be aware of and adhere to these requirements as far as possible to prevent non-compliance and possible punitive measures being taken against the promoter.

Let us know if you require any assistance in drafting promotional competition rules or overseeing and certifying the running of the competition.

Understanding electronic signatures in South Africa

Understanding electronic signatures in South Africa

As the commercial world moves towards greater levels of digitization, various organizations are starting to implement electronic and automated solutions with an attempt to catch up and reduce paper-based agreements. However, many organizations have expressed their concerns about the legality of electronic signatures and have remained sceptical in embracing a truly paperless solution. This article seeks to highlight the legal aspects of electronic signatures, examine what constitutes an electronic signature and whether documents signed in this manner are legally binding and enforceable.

The function of a signature

First and foremost, we need to understand that in commercial practice, the function of a signature is to provide evidence of (1) the identity of the signatory, (2) that the signatory intended the signature to be his signature, and (3) that the writing or text to which the signature is associated is adopted or approved by the signatory. Against this background a signature must, without evidence to the contrary, be capable of fulfilling all of its functional requirements in order to be considered valid. An electronic signature is no exception, as will be further explained below.

What is an electronic signature

Currently in South Africa, electronic signatures are regulated by both the common law and the Electronic Communications and Transactions Act, 25 of 2002 (“ECTA“). According to the South African common law, for a signature to be valid (1) the name or mark of the person signing must appear on the document, (2) the person signing must have applied it themselves, and (3) the person signing must have intended to sign the document. This premise has been carried over to electronic signatures and with the introduction of ECTA, South Africa followed a global trend in recognising the legality of electronic signatures, rendering the status of electronic signatures as a functional equivalent to traditional “wet” signatures. ECTA specifically states that an electronic signature is not without legal force and effect merely because it is in electronic form, clearly indicating that electronic signatures are legally recognised in South Africa.

An electronic signature is defined in ECTA as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. From this definition, it can be seen that for a signature to be recognised as a valid electronic signature, the signature must comply with the criteria of “intention” and “relationship” – there must be a relationship between the document and the signature and the person must have intended it to be his signature. Put differently, an electronic signature, being a piece of data attached to an electronically transmitted document, must be able to serve as verification of the sender’s identity and his/her intent to sign the document. In many instances, an electronic signature is capable of fulfilling these requirements perhaps better than paper-based solutions, as the electronic signature process creates an audit trail that clearly identifies any tampering with the signatures.

The different types of electronic signatures

According to ECTA, there are two categories of electronic signatures: (1) standard electronic signatures and (2) advanced electronic signatures.

Standard Electronic Signature:

These signatures include any digital or scanned signatures and are often referred to as non-secure signatures. A standard electronic signature suffices where a signature is required by the parties to an agreement and they do not specify the type of electronic signature to be used.  In this instance, ECTA provides that the electronic signature will be deemed to be valid where:

  • a method is used to identify the sender and to indicate the sender’s approval of the information communicated; and
  • having regard to all the relevant circumstances at the time, the method was reliable and appropriate for the purposes for which the communication was intended.

For most purposes, standard electronic signatures will suffice when signing a document electronically.

Advanced Electronic Signature:

According to ECTA, there are some instances where an electronic signature other than a standard electronic signature may be required and include circumstances where the law requires that an agreement or document must be in writing and signed. In such instances, the document can only be signed with an advanced electronic signature as defined by ECTA. In South Africa, an advanced electronic signature is required for: (1) a suretyship agreement and (2) signing as a Commissioner of Oaths.


There are some documents that are excluded entirely by ECTA. For example, ECTA excludes the following from being concluded electronically, whether or not an advanced electronic signature is used by the parties to sign:

  • agreements for the sale of immovable property;
  • long-term leases of land exceeding 20 years;
  • signing of a will; and
  • bills of exchange.


With the growth of e-commerce, the ability to be able to conclude agreements electronically becomes ever more important. The sooner organisations understand and begin to use electronic signatures correctly, the more likely they will be able to unlock the potential electronic solutions can offer in terms of improved efficiency and cost savings. ECTA can be seen as having opened the way for organisations to leverage the significant benefits associated with a paperless environment by granting legal status to electronic signatures thereby significantly reducing the legal risk.

When does a company need an auditor as opposed to an accountant?

When does a company need an auditor as opposed to an accountant?

The Companies Act, 71 of 2008 (“the Act“) contains a number of provisions relating to auditing and accounting requirements. However, unlike the old Companies Act of 1973 which required all companies to be audited, the Act is less onerous in the sense that only certain categories of companies will need to be audited and this also depends on whether the audit would be in the public interest to do so.

In terms of the Act, there are two main categories of companies, namely a profit company and a non-profit company. A profit company is further divided into four sub-categories, being a (i) private company, (ii) personal liability company, (iii) state-owned company and (iv) public company. In order to establish whether a company must comply with the requirement to be audited (by an auditor) or simply independently reviewed (by an accountant), will depend on the type of company concerned.

When will a company need to appoint an auditor

Not all companies require an auditor to be appointed and in terms of section 90 of the Act, only a public company or a state-owned company must appoint an auditor upon its incorporation and each year after that at the company’s annual general meeting.

In addition, the regulations to the Act (“the Regulations“) provide that companies which are not public or state-owned companies must have their financial statements audited if it is in the public interest to do so and if the company meets the criteria prescribed in the Regulations. In particular, Regulation 28 states that any company that falls within any of the following categories in any particular financial year, must have its annual financial statements audited by an auditor:

  • any profit or non-profit company if, in the ordinary course of its primary activities, it holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;
  • any non-profit company which was incorporated:
    • directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or
    • primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of the state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function; and
  • any other company whose public interest score in that financial year is 350 or more or is at least 100 (but less than 350) and whose annual financial statements for that year were internally compiled.

Any “non-public” company (in this case a private, personal liability or non-profit company) may also voluntarily elect, either by board / shareholder resolution, to have its annual financial statements audited or to include an audit requirement in the company’s memorandum of incorporation (“MOI“). In the event that the company voluntarily elects, by resolution, to have its annual financial statements audited, such company will not automatically be required to comply with the enhanced accountability requirements contained in Chapter 3 of the Act dealing with auditors, audit committees and company secretaries, unless the MOI of the company provides otherwise by specifically requiring Chapter 3 compliance.

It is important to note that if the MOI of any company requires compliance with certain or all of the provisions in Chapter 3 of the Act, then that company will be required to comply with the enhanced accountability requirements to the extent that the company’s MOI so requires.

When will companies require an independent review

Certain categories of private, personal liability and non-profit companies that are not subject to the audit requirements may rather be required to have their annual financial statements independently reviewed. The following companies will need to be independently reviewed (unless the exemptions apply):

  • private, personal liability and non-profit companies whose public interest score in that financial year is at least 100 (but less than 350) and its annual financial statements for that year were independently compiled; and
  • private, personal liability and non-profit companies whose public interest score in that financial year is less than 100.

It’s worth noting that in terms of section 30(2A) of the Act, if with respect to any particular company, every person who is a holder of, or has a beneficial interest in, any securities issued by that company is also a director of that company, then that company is exempt from the requirements to have its annual financial statements audited. Thus, if a company meets the requirements of this section and whose public interest score is less than the target, then the company need not be audited, but can be independently reviewed.


Many people are under the impression that their companies have to be audited but this is not always the case. If you are uncertain whether you need to have your company audited or reviewed or whether you need to comply with Chapter 3 of the Act, get in touch and we can assist with these concerns.

Observations on company names

Observations on company names

Choosing a name for your new company may seem simple, but what may not be clear is that you cannot call your company whatever you want, as South African law regulates what a company name can and cannot be. Section 11 of the Companies Act, 71 of 2008 (“the Companies Act“) sets out the criteria for company names. In essence, the name of your company may comprise of words in any language together with any words or letters / numbers / symbols and / or punctuation marks. However, the name of your company may not be the same (or similar to) the name of another company or close corporation, someone else’s defensive name (a name registered up to two years which is aimed at preventing trade marks from being included in the new company name), business name or registered trademark or a mark on any merchandise. Your company name must not falsely imply that the company is part of any other person / entity, is an organ of state, is owned by a person having any particular educational designation, who is a regulated person or is owned by any government or international organisation. Importantly, your company name must not include anything that may constitute propaganda for war, incitement of imminent violence or advocacy of hatred against any right entrenched in the Bill of Rights.

Registered vs trading names:

The registered name of a company is the name which has been reserved, approved and then registered with the Companies and Intellectual Property Commission (“the CIPC“). In terms of the Companies Act, a company is required to display its registered name (and registration number) on all forms, notices and correspondence with others and failure to do so constitutes an offence.

Despite that, it is common practice for entrepreneurs to acquire shelf companies or to register a company with a non-distinctive name and to simply trade under a different name. Although a trade name does not need to be registered, the assumption is that a reasonable level of investigation would have been conducted to ensure that a trade name is not already in use. In reality, this often leads to the infringement of third party trademarks or causes confusingly similar names to exist.

For the above reason, the Consumer Protection Act 68 of 2008 (“the CPA“) has introduced changes to the way in which “trading as” names (which the CPA calls “business names“) may be used. The provisions relating to business names are contained in sections 79 to 80 of the CPA, and will only come into effect upon a date to be determined by the Minister of Trade and Industry (“the Minister“) and published in the Gazette. This has not happened yet, but it is likely that when it does, the Minister will allow a certain amount of time after the published date for companies to comply with these new provisions.

The intention of the legislature in this regard, is to seek to enforce the consumer’s right to information concerning suppliers. The aim is to prevent a situation where a business would trade under one name but fail to disclose the identity of the actual entity behind the transactions, thereby frustrating the attempts by the consumers to seek redress in pursuing the correct entity.

What you need to know and the CPA’S requirements

In terms of section 79 of the CPA:

A person must not carry on business, advertise, promote, offer to supply or supply any goods or services, or enter into a transaction or agreement with a consumer under any name except:

  • the person’s full name as:
  • recorded in an identity document or any other recognised identification document, in the case of an individual; or
  • registered in terms of a public regulation, in the case of a juristic person; or
  • a business name registered to, and for the use of, that person in terms ofsection 80, or any other public regulation.

What the above means is that an individual or company (as the case may be) may not operate / carry on business with a business name unless it is registered in terms of the CPA. This information will then be publicly available on the business names register as maintained by the CIPC. The implication is that, should any business operate with any other name other than those as set out in section 79, the National Consumer Commission (“the NCC“) can issue a compliance notice and failure to comply will result in a fine or prosecution as a criminal offence.

As some assurance, however, the CPA provides a certain degree of relief for businesses which have been in trade before the business name provisions come into force – the NCC may not enforce the business name requirements against a business if it has been trading under the business name for a period of at least one year.


Section 80 of the CPA provides for the procedure in registering the business name of a company. As mentioned before, these provisions are not yet in force since the business names registry and the registration process have not yet been established.

When the provisions come into force, a person may file a notice with the CIPC to register any number of business names currently used by your entities. If the business, under which the business name has been registered does not carry on business for a period exceeding 6 (six) months, the CIPC reserves the right to cancel such business name.

Possible difficulties

These provisions may cause difficulties for franchises because there are normally multiple franchisees trading under the same name as the franchisor. However, the registered name for each franchisee, may be completely different. The new requirements therefore force each separate franchisee to register the same business name leading to multiple entries of the same name being reflected on the records of the CIPC. This could be somewhat counter-intuitive since the confusion that it creates may defeat the purpose of the consumers’ right to information in the first place. Furthermore, franchisors may not be happy allowing each and every franchisee incorporating what is effectively their “trade mark” as the franchisees business names.

Going forward

Although these provisions have not come into effect yet, in the interests of avoiding the rush of changing branding and registering new names at the CIPC, the provisions above should be duly considered when choosing a business name as the criteria will most likely need to be adhered to in the near future.

Are directors also employees?

Are directors also employees?


If you have a business of your own, then you will know that the role of a business owner is multi-faceted and often requires the wearing of many different hats. These relate to the roles of a shareholder, a director and an employee. Many business owners wear all three of these hats at once which can be quite challenging if they are not kept distinct and separate. As a shareholder, your attention should be focused on the return you are receiving from your business. As a director, your responsibility is to govern the business in a way that substantially delivers the return that shareholders expect. As an employee, your main obligation will be the tendering of personal services and to further the business interests of the employer. However, outside of the owner-managed scenario, the question arises as to whether a director can generally also be an employee? Let us examine this question in more detail below.


Generally speaking, there are usually two sources of a director’s remuneration: the one source flows from the fees that he receives for his services as director (example, fees for attending board meetings) and the other source flows from such director’s employment contract (if any) which would provide for the payment of a salary.

A director in his capacity as director is not necessarily an employee of the company and will not always be entitled to the standard rights flowing from an employment contract. It therefore follows that a director is not entitled to be remunerated for his services as a director simply because he has been appointed as a director. Granted, if such director enters into a contract of employment with the company, then he or she will be entitled to those rights that flow from an employment relationship and he would then stand in a position of both an employee and a director.

As a director only, he is not automatically entitled to be remunerated for his services as director. Under the Companies Act, 71 of 2008 (“the Companies Act“), a company may pay remuneration to a director for his services as director, unless it is prohibited by the company’s memorandum of incorporation (“MOI“). Should the MOI prohibit the payment of remuneration to a director, he will not be entitled to remuneration for his services, which is thought to stem from the rule that people in a fiduciary position are not entitled to use their office to profit themselves, unless they have the consent of the majority of the shareholders.

In terms of section 66(9) of the Companies Act, remuneration paid to directors for their service as director may only be paid in accordance with a special resolution approved by the shareholders within the previous two years. However, the words “service as directors” are ambiguous because it is not clear if approval is required only for directors’ services as directors or whether the words are broad enough to include remuneration paid to executive directors in terms of their employment contract.


The King IV offers some guidance. It embraces the underlying philosophy of ethical leadership, sustainability and corporate citizenship. On the issue of leadership, the board should ensure that all decisions and actions are based on the four values underpinning good corporate governance: responsibility, accountability, fairness and transparency.

As such, King IV differentiates between executive and non-executive directors. An executive director is involved in the day-to-day management of the company. He or she is normally in the full time salaried employ of the company and is generally under a contract of service with the company. A non-executive director, on the other hand, is a part time director who is not considered an employee of the company. Such non-executive director does not manage the company, but rather plays an important role in providing objective, independent judgement on various issues relating to the company. An executive director can therefore be an employee and a director at the same time.


Flowing from the above, there are obvious complications that present itself when a company wants to terminate an executive director’s services. Where the company wishes to remove a director from his office as director and as an employee of the company, the procedure is twofold and reference must be given to both the Companies Act as well as the Labour Relations Act, 66 of 1995 (“the LRA“)

In some instances, the employment contract with the director as employee contains an automatic termination clause which provides that if the director is removed from his office as director, his employment with the company will be automatically terminated or vice versa. In other instances, the MOI of the company will have an automatic termination clause.

However, in the case of Chilliebush v Commissioner Johnson & Others the court held that the insertion of an automatic termination clause into a company’s MOI is in direct contravention with the LRA. The reasoning provided for the court’s decision is that an employer is not at liberty to contractually negotiate the terms of an employee’s dismissal, despite that employee also being a director. Should a company rely on an automatic termination clause as its reasoning for the automatic termination of the director/employee’s contract of employment, such termination does not constitute a fair dismissal for purposes of the LRA. The director/employee will then be well within his rights to proceed to the CCMA on the grounds of unfair dismissal.

The decision is significant because in situations where a director holds two positions (one as a director and one as an employee) his rights as an employee will not be affected by the fact that he is also a director.