IS THE NEW KING IV DRAFT REPORT RELEVANT TO ALL TYPES AND FORMS OF SOUTH AFRICAN BUSINESS ENTITIES?

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Centre for Comparative Corporate
Governance Research Notes
(abbreviated as CCC-G-RN)
RESEARCH NOTE NO. 5
(Accepted October 2016)
IS THE NEW KING IV DRAFT REPORT
RELEVANT TO ALL TYPES AND FORMS OF
SOUTH AFRICAN BUSINESS ENTITIES?
CG KILIAN*
Research Fellow, Deakin Law School, Deakin University
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

I Introduction
The South African King Report(s) have been relevant to the corporate landscape for the past 22
years. The first King or commonly referred to as King I was published in 1994, the second King
in 2002, and the latest relevant King III in 2009.1 The next anticipated King IV will be published
early in November 2016.2 The main, or overriding, purpose of all the King reports is to establish
a corporate governance structure that regulates all aspects of good corporate governance
principles.3 For example, the composition of the board of directors, regulation of the human
capital of the directors and/or the employees of the company as well as the accounting practices
relevant to non-financial indicators, i.e. the number of non-executive directors serving as
directors on the board.4 Initially, the first King report was applicable to certain types of
companies; the follow up reports are revolutionary in that they proposed the relevance of the
King report to all forms and types of companies or business entities. The question raised in this
note is whether the King III and King IV are truly relevant to all forms of business entities
enjoying legal personality in South Africa. By so doing, this note focuses on the various King
reports, ending with the conclusion that perhaps a certain kind of business entity (irrespective of
whether it has legal personality) has been overlooked by the South African Institute of Directors
for the past 22 years.
II King I Report and the Companies/business Organisations Subject to the Report
1 The Institute of Directors in Southern Africa, King I Report (1994); The Institute of Directors in Southern Africa,
King II Report (2002); The Institute of Directors in Southern Africa, King III Report (2009); The Institute of
Directors in Southern Africa, King IV Report (online), 16 June 2016 <http://adamsadamsip.com/wp-
content/uploads/2016/05/King_IV_Report_draft.pdf>.
2 Mrs Liana Viljoen, a librarian at the University of Pretoria indicated this date on the basis of prior consultation with
Professor Piet Delport of the University of Pretoria.
3 See in general, Jean Jacques du Plessis Anil Hargovan, Mirko Bagaric and Jason Harris, Principles of
Contemporary Corporate Governance (Cambridge University Press, 2nd edition, 2005) preface, 7.
4 Ibid 7, 8, 38.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

There is no need to define a company in this note since the definition of what a company is can
easily be found in various pieces of legislation in South Africa and /or other jurisdictions. What
is of interest is that the King I limited its regulatory reach to the following business entities in
South Africa:
a) All companies listed on the Johannesburg Stock Exchange;5
b) Large public entities as defined in the Public Entities Act;6
c) Banks and insurance entities as defined in the various Financial Services Acts;7
d) Large unlisted companies;8
e) Large quasi-state companies; and9
f) Co-operative companies. 10
The above terminology used by the King Report is in reference to the application of the report to
various business entities subject to the principles of corporate governance. Problematic to
understand is exactly what the ‘public entities’ denoted. Reporting by the Public Entities
Amendment Act 1997 (South Africa), included a new definition for public entities which reads as
follows:
Public Entity means an institution that operates a system of financial administration
separate from the provincial [i.e. Gauteng Legislature] and local spheres of government
[i.e. Municipalities] and in which the State has a material financial interest.
The passage is very well-defined. A contemporary example of such a public entity would be
SASRIA (Ltd) which is a registered public company in South Africa. In terms of the Companies
Act 2008 (South Africa), any state owned company must use the acronym SOC. This is to
indicate to all parties that the company is owned by the state or, in other words, whether the state
has a financial interest in the company: hence, SASRIA SOC Ltd (‘SASRIA’). SASRIA is
incorporated in terms of the Companies Act 1973 (South Africa) and therefore the following
5 The Institute of Directors in Southern Africa, King I Report (1994) 5.
6 Ibid 5.
7 Ibid 5.
8 Ibid 5.
9 Ibid 5.
10 Ibid 5.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

terminology, ‘directors’ and ‘board of directors’ and so on, is relevant to this form or type of
business entity.
Another problematic aspect of the King I Report is that of co-operatives. Co-operatives have
been regulated as statutory business entities since the inception of the Co-Operatives Act 1981
(South Africa) (hereinafter Co-operative Act). They are therefore registered in terms of this Act:
not as a company but as a co-operative.11 This form of business entity also uses the words
‘directors’, ‘board of directors’ and/or ‘members’ as shareholders.12 Although the Co-operative
Act refers to burial societies and so forth, these societies are not required to register as friendly
societies in terms of the Friendly Society Act 1956 (South Africa) (hereinafter Society Act).13
However, it is possible to register a society under the Society Act to conduct the business of a
burial society, which is similar to that of a co-operative. It is also possible for a stokfair (derived
from the term ‘stockfellow’ in South Africa) to conduct the business of a ‘burial society’ without
registering the business entity in terms of the Society Act, Co-Operative Act or any other
financial services Act.14 Clearly, King I was limited in its application.
III King II Report and the Companies/Business Organisations that are Subject to the
Report
The King II report, compared to that of King I, represented an enormous development within the
corporate governance landscape.15 The first report consisted of approximately 20 pages in
comparison to 283 pages in King II. The regulation of affected companies or companies
subjected to the King II report is also more comprehensive than King I. For example, King II
lists the following business entities as being subject to corporate governance principles; in
summary they are:16
11 Co-Operatives Act 1981 (South Africa). See the section 1 list of definitions.
12 Co-Operatives Act 1981 (South Africa) s32.
13 See Friendly Society Act 1956 (South Africa) Part 3, Section 5.
14 See in general, DHC van der Merwe, ‘Die Stokvel ‘n Ondernemingsregtelike Studie’ (1996) 26 Transactions of
the Centre for Business Law 4.
15 The Institute of Directors in Southern Africa, King II Report (2002).
16 Ibid 21.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

a) All JSE listed companies;17
b) Banks, financial and insurance entities as defined in various items of legislation;18
c) Public sector/entities including any state department or state administration on national or
provincial level, including municipalities or other local government entities; 19 and
d) All companies and or state companies. 20
The King II Report recognises local government and local state departments or municipalities as
being subject to the principles of good corporate governance, which was not part of the King I
report. The King II report introduces additional principles relevant to the board of directors or
directors. For example, the business judgment rule as well as separate chapters on risk
management principles, internal audit principles, sustainability reporting principles, accounting
principles and compliance principles, none of which were part of King I.21 These principles,
however, fall outside the scope of this note. Nonetheless, King II does not mention co-operatives,
largely because of point b) above. King 1 does not refer to friendly societies because these were
part of the ambit of the Financial Services Acts.22 For this reason, specific reference to co-
operatives is excluded in King II.
The King II report employs the word entities since not all business entities are registered in terms
of the Companies Act 1973 (South Africa); for example, co-operatives or friendly societies. A
company, co-operative or friendly society share a common characteristic: they are each an
association of persons, either known as a company or a co-operative and so forth. This in turn
raises the question of whether it is or was possible to have associations of persons in South
Africa subject to King that are or were not required to register as a business entity or are or were
17 Ibid 21.
18 Ibid 21.
19 Ibid 21.
20 Ibid 21.
21 The Institute of Directors in Southern Africa, King II Report (2002) 70; See in general, Jean Jacques du Plessis et
al, Principles of Contemporary Corporate Governance (Cambridge Press, 2005) preface, 262, 263, 274.
22 Co-Operatives Act 1981 (South Africa); Friendly Society Act 1956 (South Africa); Financial Advisory
Intermediary Services Act 2002 (South Africa).
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

not regulated by any financial services Act (or by other legislation). Taking the various financial
services Acts into consideration, it is obvious that no legislation contains a definition for a
stockfair.23 This business entity is discussed later in this note. It is clear that a stockfair is or was
not subject to King I or II’s corporate governance rules.
IV King III Report and the Companies/Business Organisations that are Subject to the
Report
The King III report was released on 1 September 2009 and came into effect on 1 March 2010. It
repealed the previous King I and II reports. What is interesting to note is that approximately 123
people were involved in the preparation of the King III report to ensure that the report remained
at the forefront of corporate governance internationally. 24 King III definitively states that the
principles of good corporate governance should be relevant and applicable to all entities,
regardless of the manner and form of incorporation or establishment, irrespective of whether in
the public, private or non-profit sectors.25 It seems that King III is also relevant to stockfair
business entities and furthermore seems relevant to all forms and types of business entities, i.e.
partnerships and the like. Although it may be an improvement on King II, to include stockfair
business entities, it seems once again that corporate governance is not applicable to stockfairs
because King III uses or relies on other pieces of legislation to give meaning to corporate
governance principles. For example, the term ‘company’ as an association of persons, is a
general term in the King III report: any reference to ‘company’ includes co-operatives, hence the
general terminology should be adopted by a co-operative (or any other entity registered in terms
of specific legislation) to comply with the provisions of the King III report.26
Generally, if a business entity is not regulated or defined in legislation it would be very difficult
for the entity to comply with the King III report relevant to management, officials, directors, and
23 DHC van der Merwe, ‘Die Stokvel ‘n Ondernemingsregtelike Studie’ (1996) 26 Transactions of the Centre for
Business Law 4.
24 The Institute of Directors in Southern Africa, King III Report (2009) 3.
25 Ibid 16.
26 Ibid 19.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

trustees. For example, King III stipulates that every director should ensure they comply with
their legislative duties as a director.27 In addition, the report declares that directors must adhere to
these duties.28 However, it is further stated that companies (or co-operatives, friendly societies
and the like) should adhere to all applicable laws.29 A stockfair is not regulated by any
legislation, making the interpretation of their ‘directors’ duties impossible, which makes it
impossible to determine when a ‘director’ is in breach of the law. The next section focuses on the
characteristics of a stockfair in light of the above.
A The Stockfair Business and its Background
The stockfair or stockfellow (or stockfel or in Afrikaans, stokvel) as a business entity is very
popular in South Africa, especially amongst the lower income groups.30 As intimated, the reason
is that no legislation is applicable to this form of business and there are hardly any common law
requirements regulating this type of business. A stockfair is not a partnership business since the
number of partners is limited to 20. A stockfair can consist of 2 persons up to any number of
people willing to pool their money together to pay a specific member a certain amount of money
when a certain or uncertain event occurs, for example, a lump sum of money in the event of the
death of a member. The latter purpose is therefore similar to that of burial friendly societies or
burial co-operatives. One is also not required to register a stockfair as a burial society in terms of
the Co-Operative Act or Society Act or any other financial services Act.31 It is also not considered
to be the business of insurance; a proper motivation would be required as to why a stockfair is
not conducting the business of insurance in order to avoid statutory registration as an insurance
company, co-operative or friendly society. The main motivational reason could be the principle
of rotation. In terms of this principle, a member receives all the money contributed by all the
members to a common pool or fund on a rotational basis. For example, 10 members contribute a
27 Ibid 20.
28 Ibid 23.
29 Ibid 41.
30 See in general, DHC van der Merwe, Die Stokvel ‘n Ondernemingsregtelike Studie (1996) 26 Transactions of the
Centre for Business Law 4.
31 Co-Operatives Act 1981 (South Africa); Friendly Society Act 1956 (South Africa) or any financial services Act i.e.
Financial Advisory Intermediary Services Act 2002 (South Africa).
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

fixed amount of money over a 10-month period, in which case a member would be receiving all
the contributions made to the fund at least once in every 10-month period. 32 The principle of
rotation dates back to the early 19th century where individuals pooled their money to allow
individual members to acquire cattle or similar assets. It was simply too expensive for an
individual to buy cattle or to accumulate wealth without the existence of a stockfair.33
B Stockfair and Legal Personality
A stockfair is an unregistered form of business in South Africa. However, in Morrison v
Standard Building Society34 the court suggested that a stockfair could be endowed with legal
personality. It should be remembered that this appeal court case was decided in 1932 when the
Companies Act 1926 (South Africa) was relevant and applicable. Nevertheless, it seems that an
association of persons may acquire legal personality without the permission of the legislature if
the association complies with the common law requirements for personality of this type. These
are simply the following:
1. There must be an association of persons;35
2. The business object of the association may not be contrary to public policy;36 and
3. The association of persons must have a constitution. 37
It is not a statutory or common law requirement to be able to conduct business only if it has a
constitution since the latter is only relevant when deciding on the juristic or legal personality of
the stockfair or determining the required duties or conduct of its directors.38 Although King III is
relevant in this regard, it has no meaning or relevance since the ‘directors’ of a stockfair can and
do run the business as they think proper.39 Or, if there is a constitution, the ‘directors’ can create
32 See in general, DHC van der Merwe, ‘Die Stokvel ‘n Ondernemingsregtelike Studie’ (1996) 26 Transactions of
the Centre for Business Law 5.
33 Ibid.
34 [1932] (Appellate Division) 229.
35 Ibid 238.
36 Ibid 238.
37 Ibid 238.
38 Ibid 238.
39 DHC van der Merwe, Die Stokvel ‘n Ondernemingsregtelike Studie (1996) 26 Transactions of the Centre for
Business Law 55,113.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

their own rules relevant to their conduct which might be contrary to current company law
legislation but would not be contrary to King III. For example, legislative criteria relevant to the
disqualification of directors in terms of the Companies Act 2008 (South Africa) might not be
cited in the stockfair constitution or even referred to.
The aforementioned is also relevant to a business trust. Notably, although it is a requirement to
register the constitution of a trust, some authorities have speculated on the legal personality of a
business trust.40 This position was altered by the introduction of the new Companies Act 2008
(South Africa), which defines a business trust as a legal person in section 1. The definition of a
juristic person reads as follows:
Juristic person includes a foreign company and a trust, irrespective of whether or not it
was established within or outside the Republic of South Africa.
The above is also relevant to partnerships as a business entity. Although a partnership (as noted, a
maximum of 20 partners) is established by at least two individuals, the rights and duties of the
individual partners are regulated by a partnership agreement. This agreement is not a constitution
of the partnership; therefore, a partnership cannot acquire legal personality by making use of
common law principles.41
V King IV Report and the Companies/Business Organisations that are Subject to the
Report
King IV is not yet relevant or applicable to South Africa. There is a possibility that King IV
would repeal King III in November 2016. In part two of the draft report, the following
organisations are listed. Briefly, they are:
a) Small, medium size enterprises42 (SMEs)43;
40 Cilliers et al, Ondernemingsreg (Butterworths, 1993) 362 [34.16].
41 Ibid 9 [2.08], 13 [2.24]-[2.27]. Insolvency is another example which illustrates no separateness in estates between
a partnership and its partners.
42 VG Heimstra and HL Gonin, Trilingual Legal Dictionary (Juta, 2000) 46. Definition of an enterprise is as follows:
an entrepreneur founds an enterprise which could be either a one person business with legal formalities for example
a company or a trust etcetera or a sole proprietorship and a sole proprietorship is not part of the discussion in the
main text.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
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Deakin Law School
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b) Non-profit organisations;44
c) Public sector organisations and entities;45
d) Municipalities;46
e) Pension funds;47
f) Listed companies on the JSE;48 and
g) Public and large private companies.49
King IV contains a similar statement to King III, i.e. that corporate governance is applicable and
relevant to all organisations, regardless of their form of incorporation.50 The difficulty stemming
from this statement is explained here. If a company exceeds the limits of a medium size
enterprise, then the company is referred to as a large company, as listed above in (g). A stockfair
could be interpreted as an enterprise; this ‘SME’ terminology is relevant to small and medium
size enterprises alone, irrespective of legal personality. If a stockfair is similar in size to a large
company, it raises the possibility of excluding the stockfair in the organisations listed in (a) and
(g) above, since a stockfair is not viewed as a large private or public company, even if it contains
the similar characteristic of ‘an association of persons’. King IV makes specific reference to
SME’s and companies and their application exclude our example of a stockfair.51
The listed enterprises in the report is probably incomplete or it may be a typing error, since
number (a) listed above, makes reference to ‘enterprises’, which include, for example, co-
operatives and the like. If it is not a typing error or an incomplete listing of enterprises,
‘enterprises’ should then be interpreted in the light of juristic persons (public or large private
companies) alone, effectively excluding stockfairs with or without a constitution and large co-
43 The Institute of Directors in Southern Africa, King IV Report (online), 16 June 2016
<http://adamsadamsip.com/wp-content/uploads/2016/05/King_IV_Report_draft.pdf> 5, 26.
44 Ibid 26.
45 Ibid 26.
46 Ibid 26.
47 Ibid 26.
48 Ibid 26.
49 Ibid 26.
50 Ibid 29.
51 Ibid 5.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)

operatives, which are not public or private companies. The same applies to large friendly
societies.
VI Conclusion
The legal position of a stockfair has managed to escape the corporate relevance of King I, King
II, King III and King IV. Although King IV clearly stipulates that the same has been drafted in
such a way as to include all organisations, even if not explicitly provided for in the King IV or in
the supplements of the report,52 the report does refer to its application to juristic persons and or
organisations listed in the report.53 It is clear that the common law requirements should be
applied to understand when a stockfair is in fact a juristic person, and if not, a possibility exists
that this type of organisation, enterprise or business entity is not subject to King IV since this
organisation with or without legal personality is neither a private or public company.
52 Ibid 30.
53 Ibid 5, 6. In brief King IV states that an organisation is a sovereign juristic person in the broader society in which
it operates and in turn organisations contribute to the wider society as creators of capital wealth.
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Written by: Cornelius G Killian (2016) 4 Centre for Comparative Corporate Governance Research Notes
(abbreviated as CCC-G-RN)
Editor: Mr. Jim Apollo Mathiopoulos
Deakin Law School
Centre for Comparative Corporate Governance (CCC-G)