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South African Companies Act, 2008 recognises “related”/”interrelated” relationships between persons

Writer: Priyesh ModiPriyesh Modi

The South African Companies Act, 2008 recognises “related”/”interrelated” relationships between persons. Briefly, entities are related/interrelated to one another if one controls the other or they have a common controller. Both words are descriptive of the same concept and are used interchangeably.


The rationale for such recognition appears that if a company transacts with another person and is related/interrelated, it might not act at arms-length or could act to the detriment of the company and its creditors and/or members by letting its guard down because it is contracting “within the family”.


Being related/interrelated brings about the applicability of several important provisions of the Companies Act dealing with, for example, financial assistance, the issuance of shares, conflicts of interests and the regulation of group companies.


The concept “related”/“interrelated” is broad and may not always be as clear-cut to determine, especially in complex group structures.


If there is uncertainty about whether the parties to a transaction may be related/interrelated, then the preferable approach would be to err on the side of caution.


 
 

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