Legislative developments during 2011 and their impact on business

During 2011, the Companies Act and the Consumer Protection Act were enacted, symbolising some of the most drastic legislative change.

There were also several amendments to the Broad-Based Black Economic Empowerment (“B-B BEE” / also referred to as “BEE”) legislation and regulations, which previously predominantly impacted businesses transacting with government. However, as a social and national imperative for long term economic sustainability, ensuring compliance and implementing B-B BEE strategies has become an important part of doing business in South Africa regardless of industry.

These developments all have a major impact on how we do business. They should be carefully considered in the context of every business, to optimise institutional growth and profits.

During the course of this year, we have discussed the implications of the new Companies Act 71 of 2008 (“Companies Act”) and the Consumer Protection Act 68 of 2008 (“CPA”) in some detail. Since then we have noted some additional aspects worth mentioning.

Employee share schemes

Section 40 of the Companies Act now allows for shares to be issued on a partly paid basis. It also allows payment for the shares to take the form of money, services or other benefits to be provided to the company by the shareholder. After issue the shares are transferred to a trustee and held under a trust arrangement until they are fully paid up. Only then are the shares released to the shareholders.

In addition, to qualify for points under B-B BEE ownership scoreboards, current legislation states that the trust deed must meet criteria imposed by the Codes of Good Practice. In particular, trustees may not have discretion over the selection of beneficiaries and their proportionate entitlements to trust distributions.

Tender procedures and the CPA

The new Preferential Procurement Regulations 2011 require that all BEE scorecard elements must be considered. In addition, procuring bodies have the option of adding functionality or delivery capacity as an express criterion in evaluating tenders.

Aside from price and functionality, the new tender criteria will ensure that tenders are given preference according to their level of compliance with all the BEE transformation objectives. The new regulations should put an end to so-called ‘tenderpreneuring’, in which tenders are awarded to companies who have black co-ownership but do not have substantial delivery capacity and who subcontract their delivery obligations to non-BEE compliant enterprises. In a more competitive marketplace, it will become imperative for companies to have both a good BEE score and also proven functionality with a focus on service delivery.

In addition to the B-B BEE requirements mentioned earlier, the Consumer Protection Act regulates service delivery and the delivery of goods and services, among other considerations. As a law of general application, every business must observe and implement these conditions, regardless of their B-B BEE status.

It is essential that businesses are aware of these changes. They should consult with their attorneys to implement them most effectively.

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