Finding Space for the B Corporation Within the South African Legal Landscape

Abstract

South African law has traditionally only recognised the corporate form as either a means of achieving shareholder wealth maximisation or pursuing non-profit objectives—these two purposes being mutually exclusive. The radically overhauled Companies Act of 2008 sought to, inter alia, reaffirm the concept of the company as a means of achieving both economic and social benefits, and provides some flexibility for directors of a profit company to actively pursue social objects although the board is ultimately mandated to act in the best interests of the company’s present and future shareholders. This chapter surveys the South African legal landscape of social enterprise regulation, and evaluates it from the perspective of the benefit corporation model, identifying impediments to the operation of entities with such dual profit and philanthropic purposes within the existing framework.

1 Introduction

To date, South African law has dealt with “for-profit” entities and “non-profit” entities as two distinct concepts. The former could generally take the shape of an unincorporated partnership or could be an incorporated company, either public or private.¹ On the other hand, an entity with a social benefit objective that did not operate primarily to make a profit, could operate as an unincorporated voluntary association, or take the form of either a universitas personarum with separate personality under the common law or a non-profit company (“NPC”) under company legislation.

The South African Companies Act 71 of 2008 (“Companies Act 2008”) keeps the traditional distinction in place.² While it is permissible for a non-profit company to generate profit from income-producing operations, any such profit may not be paid to members as dividends or otherwise.³ Although an NPC is permitted to pay remuneration to directors and employees,⁴ the existing framework does not make substantive provision for the needs of the type of companies that would traditionally be associated with B corporation status.⁵ The two forms of profit companies made available by the Act are also not ideally suited to the B corporation model in that the legislation does not expressly accommodate profit ventures with social benefit objectives, leading to predictable stumbling blocks.⁶

Given the unique context of the South African legislation and the role of the Constitution⁷ in the interpretation of the Act, however, a policy argument could certainly be advanced in support of an interpretation of the existing legislation in a manner that might effectively accommodate and support a B corporation type entity.

This chapter will briefly consider the context within which South African company law has regulated non-profit entities and offer an overview of the approach to regulating profit companies. It will then discuss whether the current legal framework in South Africa would allow for a company to operate according to the model of a benefit corporation, or whether legislative intervention would be necessary.

2 Historical Perspective on Social Enterprises

Since long before the advent of statutory corporations, the South African common law has recognised the voluntary association in the sense of the legal relationship arising from an agreement akin to that of a common law partnership. Although also conceptually rooted in Roman-Dutch law,⁸ this relationship is distinct from that giving rise to a partnership in that the common object of such association of persons is primarily one “other than the making and division of profits”.⁹ Where such an association does not obtain the separate personality of the Roman universitas personarum, the law is somewhat unclear on the instance of contractual liability where members purport to act as agents of the association.¹⁰

In the second half of the 19th century, the economic development in South Africa necessitated recourse being had to the more developed and readily accessible provisions of English Company Law,¹¹ resulting in strong similarities between the South African system of corporate governance and English law.¹² The Companies Act 46 of 1926 provided for the registration of voluntary associations, granted them separate legal personality, and brought them within the regulatory framework applicable to companies. A more nuanced regulation of so called “non-profit” companies, established under the general company legislation, only emerged more recently, in the second half of the 20th century.¹³ A non-profit association could thus in principle, by registration, obtain statutorily recognised separate legal personality, and enjoy the benefits of limited liability, as well as minority protection, and certain tax exemptions.¹⁴

3 Current Regulatory Framework

A review of company law, taking up almost the entire first decade of the 21st century, culminated in a new piece of legislation to govern all South African corporate entities: the Companies Act 2008.¹⁵ The Act made sweeping changes, and broke ranks with English law in several respects, choosing instead to borrow concepts from jurisdictions such as Australia, and the United States.¹⁶ The current legislation expressly recognises a “non-profit company” as a distinct category of company,¹⁷ and provides for a modified application of the Act in respect of NPCs, specifically to exclude parts dealing with capitalisation, securities registration and transfer, and certain provisions relating to audit and shareholder rights.¹⁸ There is no further distinction drawn between charitable organisations and those which achieve a “primary social or environmental mission using business methods”.¹⁹ Since it is the latter category that would typically fall to be regulated as benefit corporations,²⁰ it can be said that the South African framework lacks any direct regulation of social enterprise.

The Companies Act 2008 has at its foundation several public benefit goals. The purposes of the Act expressly include “promot[ing] compliance with the Bill of Rights as provided for in the Constitution, in the application of company law”,²¹ and “reaffirm[ing] the concept of the company as a means of achieving economic and social benefits”.²² These purposes equally apply to NPCs and to profit companies, and, while NPCs by their nature focus on the achievement of social benefits, one may anticipate that economic and resultant social benefits would ensue generally to some extent, given the application of the enlightened shareholder value approach to the governance of profit companies.

On a reading of the provisions of the Act, however, a lack of concrete handles for achieving these goals is apparent. Although there may be room for a court to interpret its provisions permissively to allow for the development of a more stakeholder-inclusive corporate law jurisprudence, more concrete parameters for the exercise of managerial discretion may be necessary, considering that strategic decisions taken in the furtherance of public benefit objects fall within the scope of such discretion. Arguably, the directors of a for-profit benefit corporation should be guided and supported by clearly formulated rules of law. If this is not the case, they may find themselves hamstrung by litigation and other remedial procedures which may frustrate efforts to give effect to the company’s public benefit objectives. This would especially be the case for companies attempting to convert from a more traditional, profit driven objective to one that also includes public benefits.

Although “public benefit organisations” (“PBOs”) are provided for in tax legislation,²³ for an entity to enjoy the associated tax advantages, it must meet a few stringent requirements. For a South African entity²⁴ to obtain PBO status under the legislative definition, it must first be either an NPC under the Companies Act 2008, or “a trust or an association of persons that has been incorporated, formed or established in the Republic”.²⁵ Second, “the sole or principal object” of such entity must be the carrying on of “one or more public benefit activities,²⁶ where—(i) all such activities are carried on in a non-profit manner and with an altruistic or philanthropic intent; [and] (ii) no such activity is intended to directly or indirectly promote the economic self-interest of any fiduciary or employee of the organisation, otherwise than by way of reasonable remuneration payable to that fiduciary or employee”.²⁷ Furthermore, the “public” nature of a PBO is broadly construed by requiring that “each such activity carried on by that organisation [be] for the benefit of, or … widely accessible to, the general public at large, including any sector thereof (other than small and exclusive groups)”.²⁸

Although the restriction on financial self-interest of insiders appears to be limited to the controllers of the entity, notionally leaving open the possibility of returns for investors, one of the requirements for a PBO to obtain approval from the Commissioner is that it submits “a copy of the constitution, will or other written instrument under which it has been established and in terms of which it is … prohibited from directly or indirectly distributing any of its funds to any person (otherwise than in the course of undertaking any public benefit activity) and is required to utilise its funds solely for the object for which it has been established”.²⁹ It therefore appears that, even to the extent that the South African framework may allow for the operation of a B corporation, such an entity would be excluded from enjoying tax advantages as a PBO, as currently defined. Perhaps most notably, if a for profit entity were to register as a PBO, it would only be entitled to the concomitant tax benefits if no more than 5% of its revenue is generated through trading.³⁰

South Africa’s Competition Act³¹ applies to “economic activity”, as opposed to profit making, which occurs or has an effect within the country.³² As such, the Act will regulate the activities of both profit companies and non-profit companies alike.³³ Although public interest considerations are included in the stated purposes in the Act,³⁴ the potential for the application of the competition law public benefit doctrine to social benefit corporations has perhaps been exaggerated. Although Section 2(c) does make provision for the advancement of social and economic welfare, most of the stated purposes speak more towards inclusivity and the redress of historic injustices. The doctrine thus finds only limited direct application: first, public interest considerations are relevant in the context of the substantive analysis of mergers and acquisitions only, and what constitutes public interest is also specifically defined.³⁵ Arguably, some of the beneficial impact that a B corporation might have would be relevant, but not more so than for any other firm. Statutory grounds that the courts will consider make reference to only some of the many issues that a typical B corporation may face.³⁶ Second, public interest considerations play an indirect part in determining whether certain conduct should be exempted from regulation.³⁷ Yet again, here the ambit of application is limited and narrowly defined.³⁸ In most cases, therefore, a B corporation could behave in a manner that would traditionally be considered anti-competitive, and it is unlikely that it there will be any viable defence centred in its status as a public benefit company.

From a regulatory perspective it must finally be noted that South African regulators have embraced a scheme similar to that adopted in the United Kingdom, in the form of a voluntary Code of Governance principles: the King Report and Code (“King IV”).³⁹ Although King IV states that it applies to all entities (regardless of type and size), it is only enforced indirectly (in the case of listed entities) as part of the Johannesburg Stock Exchange’s Listing Requirements.⁴⁰ The only direct reference to it in the South African companies legislation is contained in the regulations to the Act,⁴¹ which require that a prospectus include a narrative statement setting out how the company has applied the principles of the King Report and Code⁴² and any reasons for a failure to apply them.⁴³

The King committee has grappled continuously with issues surrounding the appropriate application and enforcement of the Codes. South African courts have also increasingly been making statements in obiter that may imply an indirect application of the codes in proceedings seeking to hold company directors personally liable for breaches of their statutory and common law duties.⁴⁴ Such references to the King Code in the cases decided to date have been cursory and the courts do not give any clear indication of the extent of the interaction between the statutory and common law provisions and the governance code. King IV refers expressly to these decisions and developments in emphasising the code’s importance and application outside the traditional sphere of the listed company.⁴⁵ The code also contains so-called “sectoral supplements”, that are clearly not aimed at listed companies.⁴⁶ There is no special provision for the governance of profit companies with public benefit objects, which is unsurprising considering that this type of vehicle is not envisaged in the primary companies legislation.

The interplay between the judicial attitude towards directors’ duties and the legislative agenda relating to corporate governance will be discussed later before a final assessment of the South African regulatory framework’s potential to support public benefit companies to the same effect as the B corporation model of regulation.

3.1 Available Statutory Vehicle

Beyond providing for a corporate structure appropriate to the governance needs of non-profit companies, there has been no attempt made at the specific regulation of incorporated social enterprises. While the idea was considered during the drafting phase of the Companies Act, it was ultimately rejected—possibly due to the fact that the addition of another corporate form contradicted one of the key aims of the legislation: simplifying the regulatory regime.⁴⁷ Although one of the purposes of the Act is to “provide for the formation, operation and accountability of non-profit companies in a manner designed to promote, support and enhance the capacity of such companies to perform their functions”, there does not appear to be any significant focus on the governance of the NPC as a vehicle for social enterprise. The question is whether the existing framework allows for a “hybrid” model of governance that would support a benefit corporation with dual objectives.

The most suitable vehicle for the adoption of a model analogous to a benefit corporation under the Act would not be the NPC, but rather the ordinary profit company (whether public or private). The legislation does not, however, envisage that such companies would be used for any purpose beyond the ordinary corporate objective of generating profit for shareholders. Although directors are obliged in some cases to consider other stakeholders,⁴⁸ the traditional approach of requiring directors to consider the interests of shareholders when acting in “best interests of the company” remains. This aspect will be dealt with in more detail below.

The structure most similar to that of a benefit corporation available in South Africa is probably the (unincorporated) “business trust”, which may operate either for profit or not for profit. The operation of trusts is primarily regulated by the common law, with legislation in place to deal with matters ancillary⁴⁹ to the core principles of trusts law that were inherited from English law.⁵⁰ Aside from regulating certain administrative aspects of trusts,⁵¹ this legislation imposes some basic substantive obligations on trustees,⁵² and provides for the resignation and removal of persons so appointed. The analysis of the South African framework, however, will be directed towards the incorporated entities available for furthering public benefit objects, and comparisons with trusts law are therefore of limited value for present purposes.

Finally, it must be noted that it is also possible to make use of cooperatives, and while there have been interesting developments in this context, a cooperative is generally a “small-scale legal form used for community development, usually at local level”.⁵³

A recent report prepared by the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business, highlighted four main ways in which for profit entities in South Africa can operate “like social enterprises”. First, it is suggested that the company “establish a board to safeguard the social mission”; secondly, the company could “change the Memorandum of Incorporation to reflect the dual mission and how profits will be reinvested in the business”; thirdly the company could “get an international accreditation as a social enterprise [or] use international rating systems to measure the impact”;⁵⁴ and finally the company could “openly share financial statements and social impact reports”.⁵⁵ While there are a number of companies registered in South Africa which have obtained B corps certification, an analysis of a sample of the Memoranda of Incorporation of the registered B corporations, curiously, showed no reference to any social benefit objectives.⁵⁶ This may seem to be a potentially critical oversight, in view of the significance of the objects clause, as discussed below.

3.2 Requirements as to Purpose: Public Benefit Object (Clause)

One of the significant changes brought about by the recent reform of the South African companies legislation is the abolition of the external consequences of the historical ultra vires doctrine.⁵⁷ While a company was previously required to include an objects clause in its constituent document, rendering any action falling outside of the scope of such a clause void for being ultra vires, objects clauses are no longer mandatory.⁵⁸ An expression of a South African company’s objects in its memorandum of incorporation (“MOI”)⁵⁹ will have no effect on the validity of transactions with third parties—although shareholders are empowered to prevent a director from breaching any term of the MOI by causing the company to act ultra vires (subject to a claim for damages that arises where a bona fide third party is adversely affected).⁶⁰ Moreover, each shareholder of a company has a claim for damages against any person who fraudulently or due to gross negligence causes the company to do anything inconsistent with the Act; or a limitation, restriction or qualification contained in the MOI (unless ratified).⁶¹ The Act does not allow for contractual variation of the obligations of directors.⁶²

A public benefit corporation would therefore have two options. It could choose not to include an objects clause at all, in which case the discretion of the board would have to be exercised “in the best interests of the company”. Alternatively, a public benefit aim could be included in the objects clause; however, the legislation does not expressly provide for this to alter the application or interpretation of the duty to act in the best interests of the company. The prevailing definition of “the company” in this context will inevitably require a prioritisation of shareholder interests.⁶³ This creates an interesting tension, given that a company can legally include, and give effect to, an objects clause allowing for reinvestment to effect a public benefit.⁶⁴

The effect of including a public benefit object on that duty would remain open to judicial interpretation, leaving directors in an unenviable position where liability remains uncertain. As the discussion below will highlight, South African courts have tended to interpret the phrase “in the best interests of the company” with an emphasis on shareholder interests. In both cases (in the absence of an objects clause and where an objects clause with a public benefit objective is inserted) directors would face further practical impediments given that the legislation offers no solution to shareholder actions such as the removal of directors, or exercising other shareholder remedies that could undermine the board’s attempts at achieving any public benefit object.⁶⁵ Although the Act, in principle, allows for public benefit objects, the practical ability of a company to actively pursue such object will, at least to some extent, be dependent upon the flexibility of the legislation in allowing for management’s responsibilities to be towards stakeholder groups specified in an objects clause.

3.3 Responsibilities of Management/Duties of Directors

The Act has partially codified⁶⁶ the South African common law principles relating to directors’ duties and does not entirely supersede existing common law. This is not least because the duties under the Act are described in very broad terms, and the common law will still impact their interpretation. On the core obligation of the ordinary director who, by virtue of his or her position vis-à-vis the company, is required to act in the interests of the latter⁶⁷ and to exercise good faith in doing so, South African law has been relatively settled in its approach.⁶⁸

Under the statutory formulation of this duty, a director of a South African company is required “when acting in that capacity, [to] exercise the powers and perform the functions of director … in the best interests of the company…”.⁶⁹ Neither the meaning of “interests”, nor “the company” has been defined in the Act to require consideration of a broader range of stakeholders, and nor does the Act make any express reference to stakeholder interests as part of its stated aims—apart from the interests of stakeholders in the context of financial distress and business rescue.⁷⁰ There are some indications elsewhere in the legislation that the Act embodies a more progressive, and enlightened approach to stakeholder interests, but mostly this conclusion can be inferred from its aims and legislative context rather than any express provisions.

In this regard, the courts have conceded on various occasions that “the interests of the company” remains “as unprecise a phrase as any, [which] is at times misunderstood, and [which] may have slightly different meanings depending on the context”.⁷¹ Requiring a board of directors to act “in the best interests of the company” may necessitate the alignment of their strategies with any one or more of a number of interests—interests that may conflict. From this perspective, the central question becomes about whose interests should be on the mind of a company director making a strategic decision. A profit company with a public benefit object presents a challenge insofar as the existing jurisprudence emphasises the interests of shareholders where any conflict with other stakeholders’ interests exists.

The relevance of the stakeholder debate to this discussion is that its current formulation potentially constrains directors of profit entities where they apply company funds to further public benefit objects. As mentioned, even if a company were to choose not to include an objects clause that allows for such expenditure by stating the furtherance of a social benefit as one of the company’s objects, a conservative approach to the directors’ duty to act in the best interests of the company would effectively tie the board’s hands, or—at the very least—leave board members open to liability, takeovers, or objections and legal action by shareholders.⁷² Where the objects clause is included, the board would ostensibly be on a more solid footing but likely still subject to a restrictive interpretation of any such clause.

Although societal and legal norms have been moving slowly in a more stakeholder-centric direction, the existing legal position still focusses on the interests of the company’s shareholders and maximising wealth and shareholder return remains the dominant corporate objective.⁷³

King IV aims—inter alia—to promote a more stakeholder-inclusive approach to corporate governance. As already mentioned, the code is only mandatory for listed companies, but designed to be applicable to all governing bodies. It may therefore be that certain governance principles contained in King IV would facilitate a governance framework more conducive to the B corporation model than the existing hard law framework. The more pluralist approach to corporate governance inherent in the notion of “corporate citizenship”, enshrined by the code, will be explored in more detail as an alternative mechanism for stakeholder inclusion, along with the so-called “social and ethics committee” envisaged by the Act, which is also only mandatory for certain companies.

4 Mechanisms for Stakeholder Inclusion

4.1 The Social and Ethics Committee

Perhaps the most notable step that the legislature took towards facilitating stakeholder-inclusive governance under the Companies Act 2008 is the creation of a mandatory social and ethics committee for certain companies.⁷⁴ Under the Act, the Minister may prescribe by regulation that a category of companies “must each have a social and ethics committee, if it is desirable in the public interest”.⁷⁵ This must be done having regard to annual turnover, the size of the company’s workforce, or the “nature and extent of the activities of such companies”.⁷⁶

The social and ethics committee has a broad mandate and is required to (inter alia) monitor compliance with legislation, codes of best practice, and mechanisms such as the UN Global Compact Principles. It must also monitor activities related to good corporate citizenship, which consider employee relations and environmental impact amongst other matters and criteria.⁷⁷

The committee is thus poised to consider how the company affects a broad number of constituencies and stakeholders, and to liaise with and advise the board on these matters. The legislation also mandates that the committee reports back to the shareholders which creates some measure of accountability. Although this is clearly an attempt to encourage companies to focus beyond the immediate interests of shareholders and the financial bottom line, it stops short of being an official embrace of stakeholder theory. The matters listed are similar to those that boards of directors in the United Kingdom are required to consider under Section 172 of the UK Companies Act 2006, although under that Act, they are not included in the context of directors’ duties but are instead introduced by means of an advisory committee.

Although such a committee may facilitate corporate accountability, “the benefit corporation derives its moral legitimacy from the values of its owners and the oversight of a third-party evaluator”,⁷⁸ and accountability to an independent body—even an independent advisory committee—would not equate to certification by a truly independent body which is uninvolved with the company’s management; notwithstanding that such accountability may go some way to vouch for the values of corporate owners.

4.2 King IV

King IV advocates expressly for a more pluralist approach to the interests of the company,⁷⁹ Part 5.1 of the Code being devoted to “leadership, ethics and corporate citizenship”, and providing—inter alia—that “[t]he governing body should ensure that the organisation is and is seen to be a responsible corporate citizen”.⁸⁰ The recommendations that support this principle emphasise that it is the responsibility of the governing body to “ensure that the organisation’s responsible corporate citizenship efforts include compliance with the Constitution of South Africa (including the Bill of Rights), the law, leading standards, and adherence to its own codes of conduct and policies”.⁸¹ This corresponds to the loftily framed purposes of the Act,⁸² drawing corporate law back towards the values enshrined in the Constitution.

Specifically, it is recommended that “[i]n the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time”.⁸³ To give effect to this, it is recommended that the governing body exercise “ongoing oversight of stakeholder relationship management” and that it should oversee that this gives rise to methodologies by means of which stakeholders and stakeholder groupings can be identified—particularly so-called “material stakeholders”, based on the extent to which they either affect or are affected by the company’s activities, outputs, and outcomes.⁸⁴

5 Judicial Enforcement of Legislative Agenda?

One of the problems that arise when trying to position B corporations within the existing South African legal framework, is the apparent disconnect between the applicability and the legal force of soft law principles in determining the scope of directors’ duties—particularly insofar as these duties may be owed to external stakeholders.

Since the earliest decisions considering where the focus of the board should be, opinion has shifted, and there has been some evolution in both judicial attitude and the legislative agenda. The so-called “stakeholder debate” has generated extensive literature. Perhaps one of the most contentious questions in company law has been, and continues to be, the extent to which company directors should consider stakeholders other than the company’s shareholders, and particularly, which stakeholders ought to be considered. Given the potential impact that a company’s activities may have, it is perhaps this second part of the inquiry that is the most vexing of all. It is less contentious to accept that there may be some duty owed to the company’s creditors (especially in instances where the company faces financial difficulties). In the context of the somewhat conservative current legislative framework, it is harder to make the case for directors being required to consider other potential stakeholders such as the environment or the communities within which the company operates.⁸⁵

It is apparent, even at face value, that the principles and recommendations of King IV make far more onerous demands than the relevant statutory provisions or common law insofar as the directors’ responsibilities to act in the company’s best interests are concerned. Its (arguably) progressive ethos has certainly not yet been fully embraced by black letter law, even though the legislature had the clear opportunity to do so when drafting the most recent Companies Act of 2008. Indeed, several of the recommendations contained in King III were included in the 2008 Act, and yet—in spite of a general commitment to good governance in the stated purposes contained in Section 7 of the Act—the legislature chose not to more inclusively define the phrase “best interests of the company”, and nor did it include a provision similar to Section 172 of the UK Companies Act 2006 to give guidance on specific matters for consideration by the board in making stakeholder-inclusive corporate decisions.⁸⁶

When interpreting the legislation, one must therefore weigh two competing principles: on the one hand, there is clear mandate that the principles underlying the Constitution should inform all interpretation, whether this be of the common law or statute. On the other, one must be mindful of the fact that the purpose of the legislative provisions in question was apparently not to mandate a pluralist approach to interpretation by the directors of a company. Consequently, the judicial interpretation of directors’ duties, particularly insofar as the ultimate beneficiaries of such duties are concerned, will inevitably tend towards a construction that excludes external stakeholders. This is not to say that the courts have been obdurate in the application of governance principles, and indeed, heed has been taken of the prescripts of the King Code in a number of decisions, particularly where the subject of the litigation is a listed company.⁸⁷ However, without obligations to external stakeholders being more clearly defined in the primary legislation, a company with a social enterprise as its primary object would run, in principle, against the grain of the Act—at least technically, if not philosophically. In the case of a private company, a court would be hard pressed to find a firm basis in law to require compliance with voluntary principles unless it is prepared to circumvent existing interpretations and precedent and accept a radically different interpretation of the phrase “best interests of the company”. Klaaren summarises the current legislative position as follows:

The result is that only a weak and non-distinctive form of incorporation as a benefit corporation is available in South Africa. It is non-distinctive because it is in form not distinguishable from the dominant for-profit traditional corporation. It is weak because the public benefit mission cannot be irrevocably designed – cannot be ‘hard-wired’ – into the corporation.⁸⁸

6 Assessment of Governance Framework

South African law allows company boards to engage in altruistic activities to attract prospective shareholders who are socially conscious, and the constitution of a profit company may include an altruistic object; but in the context of the restraints of shareholder primacy, this may seem like little more than corporate virtue signalling for the sake of profit. The board, in principle, remains duty-bound to act in furtherance of the financial interests the shareholders.

Although there does not currently appear to be any binding authority that changes the common law definition of the “best interests of the company”, given the persuasive impact of King IV, the objects of the Act, and the imperatives of the Constitution, it is likely that a court will—at the very least—acknowledge that the legislation moves beyond shareholder value and implements an enlightened shareholder value approach. Nevertheless, courts would still require the interests of shareholders (traditionally associated with profit maximisation) to trump the interests of other stakeholders should there be a conflict of interests. This may impede the board of a company following the B corporation model. It is unlikely that it would be legally tenable for a court to use King IV as a basis to justify a fully pluralist approach.⁸⁹ It is also unlikely that a fully pluralist approach could be introduced based on an interpretation of the Act in the light of the Constitution, but it is possible that the common law might be developed in this way.⁹⁰

The framework leaves room for a director to positively act in furtherance of a social objective, and a carefully worded objects clause would make this legally tenable. The legislation however puts no substrata in place to practically support and/or facilitate the operation of such entities. Existing shareholder remedies do not carve out any exceptions for instances where a company decides to pursue a public benefit object, and dissent by even a small minority of shareholders could impede any attempts to do so. It is also apparent that the South African legislative environment more broadly does not make any special attempt to make corporate ventures with public benefit objects more attractive to investors. There are no tangible benefits under the tax law regime and competition law would not excuse conduct otherwise considered anti-competitive simply because a company is operating in furtherance of a public benefit objective.

South Africa’s unique legislative framework, constitutional dispensation, and interactions between hard law and soft law norms make it an interesting case study. While the legal landscape is well poised to accommodate a B corporation type structure, it is clear that certain legislative amendments would be necessary for such an entity to function optimally within the existing formal legislative framework.