10 February 2021 by

Revisiting the Companies Amendment Bill 2018 - should CIPC make details about private company share structures readily available to the public?

It is often assumed that details about private company share structures are intrinsically confidential. This is incorrect. Section 26(2) of the Companies Act 71 of 2008 (Act) provides any person with a right to inspect or copy the securities register of a private company upon the payment of a nominal fee.

Section 26(2) of the Act conveys an unqualified right. It is neither subject to the substantive or procedural requirements of the Promotion of Access to Information Act 2 of 2000, nor dependent on the motive behind the request (see Nova Property Group Holdings Ltd and others v Cobbett and another (MandG Centre for Investigative Journalism NPC as amicus curiae) 2016 (3) All SA 32 (SCA) (Nova)).

If a private company fails to provide access to its securities register pursuant to a request under section 26(2) of the Act, the person making the request is entitled to an order of court compelling the access sought. To paraphrase the Nova judgment, this is ostensibly a prioritisation by the legislature of the public’s right to access information over the right to privacy of private company security holders.

On 21 September 2018 a draft amendment Bill to the Act (Bill) was published for public comment. As at the date hereof, the Bill has not been passed into law.

The Bill represents the first set of substantive amendments to the Act since it came into effect on 1 May 2011. Relevantly, the Bill:

  • expands the categories of company records that can be accessed under section 26(2) of the Act to include, among others, a private company’s memorandum of incorporation, annual financial statements, and minutes of shareholder meetings; and
  • proposes a new section 33(1)(aA) that requires a company to submit to the Companies and Intellectual Property Commission (CIPC) a copy of its securities register simultaneously when filing its annual return.

It would be speculative to comment on the rationale for the proposed amendments to section 26(2) of the Act and the inclusion of the new section 33(1)(aA). It is however arguable that such amendments will precipitate increased transparency and strengthen corporate governance accountability.

Private company security holders (who comprise not only shareholders but also funders that hold preference shares, debt instruments and options) may raise concerns about potential infringements on their right to privacy. An argument on such grounds is inclined to fail. The Constitutional Court (CC) has held that the establishment of a private company is not a private matter and noted that it is a legal fiction that is recognised by society and funded by resources generated in the public sphere. Further, the CC stated that a person who conducts business through a private company enjoys certain rights but is also subject to accompanying responsibilities (including statutory obligations to disclosure of information). Consequently, there cannot exist a reasonable expectation of privacy over such information (see Bernstein and Others v Bester and Others NNO 1996 (2) SA 751 (CC)).

Considering the above, should CIPC publish details about private company share structures on its eServices platform?

Such a move would be consistent with international practice. Consider Australia and New Zealand which, like South Africa, are both Commonwealth jurisdictions. The Australian Securities and Investments Commission (ASIC) and the New Zealand Companies Office (NZCO) publish full details of private company share structures (including details about shareholders and ultimate holding companies) on their respective online platforms. Coupled with this, regulations require companies to notify ASIC and NZCO, within prescribed periods, if any changes to their share structures occur.

By emulating the approach of ASIC and NZCO, CIPC could reduce the barriers to accessing information under section 26(2) of the Act and simultaneously reduce the opacity of private company share structures.

The data collected by CIPC could be collated in a way that illustrates the interconnected relationships between companies, directors, and holders of securities. Without discounting the practicalities and associated costs of implementing this proposal, the incentives for the governmental agencies and the public are numerous and include, among other things:

  • improving tax collection;
  • combatting corruption; tender fraud and money laundering;
  • verifying broad-based black economic empowerment ownership structures;
  • tracing the ultimate beneficial owners of companies; and
  • facilitating good corporate governance.

On balance, the amendments to section 26(2) of the Act and the inclusion of the new section 33(1)(aA) under the Bill are positive developments. The question as to whether CIPC should make private company share structures readily available to the public would require more nuanced thought. However, on face value there appears to be a robust argument in favour of adopting this approach grounded on the potential public benefits that would be derived from greater transparency and easier access to information.

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