Employment Equity Act, 1998
R 385
Competition Act, 1998 (Act No. 89 of 1998)NoticesGuidelines on Minority Shareholder Protections5. Minority Shareholder Protections |
| 5.1. | Minority Shareholder Protections are generally understood as measures that are put in place to safeguard the rights and interests of shareholders who generally own less than 50% of the share interest of a company or firm.9 The rationale for such protections for minority shareholders stems from the notion that a company’s affairs operate generally by way of majority rule.10 |
| 5.2. | Minority Shareholder Protections include, but are not limited to, veto rights relating to the strategic matters of the firm(s) such as budgets, business plans, appointment and removal of managers or directors of the firm(s).11 Minority protections may be necessary to protect the investment made by the minority shareholder(s) in the company.12 Not all minority protections however confer control. The test whether minority protections are necessary to protect investment and whether they affect matters of strategy is a factual and legal assessment determined on case by case basis. |
| 5.3. | In terms of the European Commission Consolidated Jurisdictional Notice13 (“EC Jurisdictional Notice”), a merger (concentration) may occur on a legal or a de facto basis and may take the form of sole or joint control either extending to the whole or parts of one or more undertakings.14 |
| 5.4. | The EC Jurisdictional Notice provides that veto rights which confer joint control must be related to the “strategic decisions on the business policy of the company” and they must go beyond the veto rights normally accorded to minority shareholders in order to protect their financial interests.15 The EC Jurisdictional Notice asserts that veto rights which typically confer joint control include decisions on issues such as the budget, the business plan, major investment or the appointment of senior management.16 |
| 5.5. | In addition, the EC Jurisdictional Notice makes it clear that in order to acquire joint control, it is not necessary for a minority shareholder to have all the veto rights mentioned above.17 |
| 5.6. | Generally, minority protections serve as a safeguard for minority shareholders in order to ensure that significant changes which affect a company’s corporate structure and solvency, which may potentially have ramifications on their financial interest or investment in the company, will not be taken without their consent. |
| 5.7. | The Commission will therefore examine each case on its own merits to determine whether the particular minority protection right in the context of the business of the company confers control. As mentioned above, the test of whether minority protections are necessary to protect investment or matters of strategy is a factual and a legal assessment. |
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9 https://www.albaraka.co.za/blogs/legalease-1-2023/protection-of-minority-shareholders-in-southafrica-a-brief-overview-of-section-163-of-the-companies-act-71-of-2008
10 Section 65(5) of the Companies Act No.17 of 2008 and Maleka Famida Cassim ‘Shareholder remedies and minority protection’ in FHI Cassim (ed) Contemporary Company Law 2ed (2012) 757–758.
11 European Commission Consolidated Jurisdictional Notice (EC) No. 139/2004 on the control of concentrations between undertakings paragraph 67.
12 European Commission Consolidated Jurisdictional Notice (EC) No. 139/2004 on the control of concentrations between undertakings paragraph 66.
13 European Commission Consolidated Jurisdictional Notice (EC) No. 139/2004 on the control of concentrations between undertakings.
14 European Commission Consolidated Jurisdictional Notice (EC) No. 139/2004 on the control of concentrations between undertakings para 6.
15 European Commission Consolidated Jurisdictional Notice under council Regulation (EC) No.139/2004 on the control of concentrations between undertakings, paragraph 66
16 European Commission Consolidated Jurisdictional Notice under council Regulation (EC) No.139/2004 on the control of concentrations between undertakings, paragraph 67
17 European Commission Consolidated Jurisdictional Notice under council Regulation (EC) No.139/2004 on the control of concentrations between undertakings, paragraph 68
