The concept of control in the juristic world

Disputes or issues around decision making in a company very often involve the question of control – and it’s likely that the decision maker is the one who controls the company.

September 28, 2021

The Companies Act 71 of 2008 does make provision for the protection of minority interests when it comes to the exercise of control over a company. That said, it’s important to consider the concept of control as defined by the Companies Act.

Section 2 of the Act stipulates that:

(2) A person controls a juristic person, and its business,

(a) in the case of a juristic person that is a company:  

  • If that juristic person is a subsidiary of that first person
  • Or that first person, together with any related or interrelated, person is directly or indirectly able to exercise or control the exercise of the majority of the voting rights associated with securities of that company, whether pursuant to a shareholder agreement or otherwise
  • Or has the right to appoint or elect or control the appointment or election of directors of that company who control a majority of the votes at a meeting of the board

(b) in the case of a juristic person that is a close corporation, that first person owns the majority of the members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation

(c) in the case of a juristic person that is a trust, that first person has the ability to control the majority of the votes of the trustees or to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust.

(d) Control is further qualified in terms of the Act to include a person who has the ability to materially influence the policy of the juristic person in a manner comparable to a person who in ordinary commercial practice would be able to exercise an element of control as referred to in the paragraphs above.

Section 2 of the Companies Act has been the subject of some criticism since its inception. For example, there’s the question of why the Act comments on other juristic entities such as closed corporations and trusts, which have their own legislation to contend with and adhere to.  

It’s clear from the above quoted section 2 that control can stem from a position of shareholding, directorship, members’ interest or trusteeship in terms of voting rights, or control can be exercised from a de facto or minority position. The prerequisite for control would, however, be a seat at the boardroom table or at least a minority stake in the juristic entity.

A further condition to the exercise of control, whether de facto or de iure, would be that control always comes with the necessary responsibility – which in turn invites accountability from the party holding or exercising such control. This accountability can relate to fiduciary duties, the duty of care and skill, and stakeholder responsibility and accountability in general.

In the case of trustees of a trust, the responsibility is that of the highest faith and therefore subject to the most severe form of judicial scrutiny.

Written by Wessel de Kock

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