The Conflict Between Director Reliance in the Companies Act and Director Liability in the JSE Listings Requirements

by | Oct 18, 2025 | BTCLQ, BTCLQ V16 I3

The Conflict Between Director Reliance in the Companies Act and Director Liability in the JSE Listings Requirements

Author: Siyabonga Nyezi

ISSN: 2219-1585
Affiliations: BCom (UCT), LLB (Unisa), Attorney of the High Court of South Africa
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 3, 2025, p. 15 – 22

Abstract

In the film The Pursuit of Happyness, the protagonist, Chris Gardner, juggles the challenges of fatherhood on the one hand, with his failing attempts at an entrepreneurial breakthrough on the other. Throughout the film, each keeps getting in the way of the other, almost as if they cannot coexist. A missive on a film about a struggling entrepreneur and father is perhaps not the most conventional way to start an article on delegation and reliance in company law; but the purpose of the anecdote is to emphasise the concept of two attempts at doing the right thing getting in the way of each other – a central theme in this article’s analysis of the Financial Service Tribunal ruling in Munro v Johannesburg Stock Exchange (JSE2/2023) [2024] ZAFST 36. More specifically, this article examines the incongruence between the reliance provisions in section 76(5) of the Companies Act 71 of 2008, and the provisions relating to director liability in the JSE Listings Requirements (‘Listings Requirements’).
In Munro, the Financial Services Tribunal (‘Tribunal’) had to determine, inter alia, whether a (financial) director was liable to be sanctioned for a contravention of the Listings Requirements, resulting from misstatements in the company’s financial statements, where the director relied on information provided to him by other employees of the company. This article asserts that the provisions of the Companies Act and the Listings Requirements result in parallel and conflicting treatment of reliant director conduct. The article further argues that there are instances where the JSE Listings Requirements may unduly impose liability on directors who have, in line with section 76(5), relied on information provided to them by other employees.

Equity Equivalent Programmes: A Tax Analysis

by | Oct 18, 2025 | BTCLQ, BTCLQ V16 I3

Equity Equivalent Programmes: A Tax Analysis

Author: Michael Rudnicki

ISSN: 2219-1585
Affiliations: Tax Executive, Bowman’s Attorneys
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 3, 2025, p. 23 – 29

Abstract

The concept of ‘Equity Equivalents’ in the context of BEE ownership rules and regulations is rearing its head once more. Foreign organisations seeking investable presence in South Africa are cautious about giving up true equity. Ownership points play a key role in the ‘BEE score card’ table. The Department of Trade, Industry and Competition has historically accepted an alternative basis to transfer equity to black owned small and medium organisations. The alternative is referred to as an ‘Equity Equivalent’ programme.
The programme typically envisages a percentage of turnover over a period of time (typically seven to ten years) to be deployed in qualifying beneficiaries or participants in categories of investment such as supplier development, training and research.
This article considers the tax deductibility of the EE expenditure in terms of section 11(a) of the Income Tax Act (’the Act’).
It is submitted that expenditure is ‘actually incurred’ not at the time of signing the framework agreement with the DTIC, but when the contractual obligation to pay beneficiaries arises.
The ‘in the production of income’ test focuses primarily on the act giving rise to expenditure. In the Warner Lambert case (see below for detail), the court concluded that expenditure incurred in respect of social responsibility obligations meets the ‘in the production of income’ test. It is submitted that BEE related expenditure incurred to retain and grow market share meets this test. So too, it is submitted, does expenditure incurred in respect of the EE programme meet this test. The purpose of concluding this programme is to maximise earnings covering existing and new markets.
The more sensitive issue in respect of EE related expenditure is the capital versus revenue nature of the expense. Generally, expenditure incurred in performing the income-earning operations of a business is revenue in nature. Expenditure incurred as part of the cost of establishing or enhancing or adding to the income-earning structure is capital in nature. Supplementary tests are the ‘once and for all test’ and the ‘enduring benefit’ test.
Warner Lambert, supra, considered the social responsibility expenditure in the context of capital and revenue. It concluded that the taxpayer’s income-earning structure had been erected long ago. The expenditure it incurred was to protect its earnings. Accordingly, the judgment concluded that the expenditure was revenue in nature. In the case of companies having erected their income-earning structure long ago, the EE related expenditure does not create an additional structure. Ownerships points are but one of the elements of the BEE scorecard. But the key feature of the expenditure is to maintain and improve market share, thereby protecting the entity’s earnings. As a result, it is submitted, such expenditure is not of a capital nature. The same conclusion should prevail, it is submitted, where a foreign organisation establishes presence in South Africa for the first time and seeks to maximise its market share. Using this income-earning structure to seek profitable business and as a result incur EE related expenditure, does not, it is submitted, label such expenditure capital in nature.

Going Concern(ed): Potential Challenges in Sale-of-Business Transactions

by | Jun 16, 2025 | BTCLQ, BTCLQ V16 I2

Going Concern(ed): Potential Challenges in Sale-of-Business Transactions

Author: Siyabonga Nyezi

ISSN: 2219-1585
Affiliations: Attorney of the High Court of South Africa
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 2, 2025, p. 1 – 8

Abstract

One of the fundamental tenets of any sale-of-business transaction is that the business to be transferred must be a going concern, and be transferred as such. Not only is the concept of a going concern given life in the provisions of a sale-of-business agreement, it is also found in various pieces of legislation that apply to the transfer of a business. Examples include the Value-Added Tax Act 89 of 1991, the Labour Relations Act 66 of 1995 and, to some extent, the Companies Act 71 of 2008. Each of these statutes contains provisions where the status of a business as a going concern is a key consideration. As such, one might expect that the term ‘going concern’ ought to be defined in each of these Acts. That assumption would be incorrect, as none of these statutes provide a direct and objective definition of the term ‘going concern’.
This article examines the absence of a definition for ‘going concern’ in South African legislation applicable to the transfer of a business, and the risks arising from the lack of legislative clarity. The article considers the relevant provisions of the aforenamed statues. Absent a legislative definition, the article examines the attempts made by the courts to defi ne the term ‘going concern’ in two cases, namely, Kopeledi (Pty) Ltd v Madontsela and Others (2009) 30 ILJ 158 (LC) and NEHAWU v University of Cape Town (2003) 24 ILJ 95 (CC), and the challenges resulting from those definitions.
Thirdly, the article also explores the approach taken in the International Accounting Standards (IAS), and discusses the challenges also present therein. The article submits that, despite being an internationally accepted set of standards, IAS is not particularly instructive to the present cause.
The article then delves into the potential impact of all these lacunae on sale-of-business transactions, and concludes with an attempt at legislative drafting, proffering a proposal for what a definition of ‘going concern’ might look like.

Rethinking Incentives in Africa Due to Pillar 2

by | Jun 16, 2025 | BTCLQ, BTCLQ V16 I2

Rethinking Incentives in Africa Due to Pillar 2

Author: Esther Geldenhuys

ISSN: 2219-1585
Affiliations: Partner, Bowmans Attorneys
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 2, 2025, p. 9 – 15

Abstract

It is well known that base erosion and profit shifting (BEPS) has adversely affected Africa over the years. If African countries do not participate in Pillar 2 it could again reduce African tax collection. Yet very few African countries have to date implemented or taken some form of measure to implement Pillar 2. This is despite the fact that a significant number of African countries signed either the first or the second joint statement of the OECD/G20 Inclusive Framework on BEPS to implement the two-pillar solution.
Pillar 2 aims to ensure that multinational enterprises within scope pay a minimum of 15% corporate tax in each jurisdiction in which it operates. The ground rules for Pillar 2 are set out in the Organisation for Economic Cooperation and Development Global Anti-Base Erosion Model Rules. These rules provide for three types of top-up taxes, being the income inclusion rule, the undertaxed payment rule (also known as the undertaxed profits rules) and the qualified domestic minimum top-up tax rule (also known as a domestic minimum top-up tax).
The African Tax Administration Forum strongly recommends that African countries immediately enact the qualified domestic minimum top-up tax rule as provided for under Pillar 2, to protect themselves from giving away taxing rights to other jurisdictions applying the top-up tax under Pillar 2 arising from tax incentives. However, not all tax incentives are affected by the GloBE Rules to the same extent. South Africa has various tax incentives and incentive regimes that may lower the effective tax rate to below 15%. This article considers some of these incentives in the context of the GloBE Rules.

VAT Apportionment: BGR 16 and Distributions from Trusts

by | Jun 16, 2025 | BTCLQ, BTCLQ V16 I2

VAT Apportionment: BGR 16 and Distributions from Trusts

Author: Des Kruger

ISSN: 2219-1585
Affiliations: N/A
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 2, 2025, p. 16 – 24

Abstract

A vendor engaged in making both taxable and non-taxable supplies may only claim input tax relief in respect of all the goods and services acquired by the vendor to the extent that such goods or services are utilised by the vendor to make taxable supplies. To the extent that the relevant goods and services are utilised by the vendor for the dual purpose of making taxable and non-taxable supplies, the vendor is required to apportion the input tax in accordance with the apportionment ratio prescribed by SARS. The apportionment ratio is prescribed by SARS in Binding General Ruling 16 (BGR 16).
Simply put, the ratio is the value taxable supplies divided by the value of all other supplies or non-supplies made by the vendor. The denominator specifically includes interest (exempt), dividends (out of scope) and capital gains derived on the supply of capital assets. BGR 16 provides for certain exclusions (capital gains derived on the supply of capital goods) and so-called adjustments in other cases, including in relation to interest and dividends. While capital gains are excluded entirely, interest must be included as follows, interest received/accrued × (prime rate – JIBAR), and dividends on the following basis, namely 3-year moving average of dividends received/accrued × (prime rate – JIBAR).
The crisp question is: how are distributions derived by a vendor qua beneficiary that comprise interest, dividends and capital gains to be dealt with for the purposes of applying BGR 16?
The premise of this article is that the conduit principal should be applied where income derived is distributed in the same year in which the income is derived by the trust and the receipts should be dealt with for the purposes of BGR 16 as if derived by the vendor qua beneficiary, that is, the receipts retain their characterisation as interest, dividends and capital gains. This is how such distributions are dealt with from an income tax and capital gains tax perspective.
SARS has seemingly adopted a different view and argue that the conduit principal does not apply to VAT and the distributions should fall to be dealt with for the purpose of BGR 16 on the same basis as profit shares derived by members/partners from joint venture or partnership arrangements. A profit share derived form a joint venture/partnership is required to be accounted for in the denominator of the prescribed apportionment ratio on the following basis: 3-year moving average of a profit share received/accrued during the year × (prime – JIBAR).

No Boardroom, No Debate: Resolving the Tension Between Round-Robin Resolutions and Company Law Democratic Principles

by | Apr 14, 2025 | BTCLQ, BTCLQ V16 I1

No Boardroom, No Debate: Resolving the Tension Between Round-Robin Resolutions and Company Law Democratic Principles

Authors: Matthew Blumberg SC and Matt Williams

ISSN: 2219-1585
Affiliations: N/A
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 1, 2025, p. 1 – 6

Abstract

The primary decision-making organ of a company is its board of directors. The board functions based on majority rule, but only once the minority has had an opportunity of ventilating their views. This is the basic democratic principle of our company law. Board decisions are normally made at board meetings, where the minority has a forum to ventilate their view. But board decisions can also be made through round-robin resolutions, where there is no meeting. Without a meeting, the minority has no forum to ventilate their views. There is therefore a measure of tension between (non-unanimous) round-robin resolutions and the basic democratic principle. In this article, we consider — following a recent High Court judgment on the topic — how this tension is to be resolved. We describe the basic democratic principle and demonstrate that it is also reflected in the provisions of the Companies Act 71 of 2008. We then explore the tension between (non-unanimous) round-robin decision-making and the basic democratic principle. We conclude — as did the court in the aforementioned judgment — that any potential tension is reconciled through the requirement of proper notice. In this way, round-robin resolutions strike a balance — between pragmatism and efficiency, on the one hand, and adherence to the democratic principle, on the other.