The shareholders of a profit company, has a right, in accordance with section 26 of the Companies Act, Act 71 of 2008 (hereinafter the “Act”) to inspect and copy, without any charge, the information contained in the following records of the company:

Important to note that the above does not include the ‘accounting records’ of the company, but only makes reference to the annual financial statements of the company. Accordingly, and unless the Memorandum of Incorporation provides otherwise, a shareholder is not entitled, by reason only of being a shareholder of the company, to inspect the accounting records and books of first accounting entry.

In Clutcho (Pty) Ltd. v Davis 2005 SCA, a shareholder of the company sought access to the company’s books of first accounting entry, namely ledgers, journals, invoices, cash books. The shareholder argued that same was necessary in order for him to properly value his equity. He further argued that he suspected the audited financial statements were inaccurate and does not reflect the true value of the company.

The Supreme Court of Appeal determined that, although a shareholder have the right to receive copies of the company’s annual financial statements, and to obtain copies of the minutes of the company’s general meetings, a shareholder does not have an automatic right to a company’s accounting records. The court further concluded that the legislator could not have intended for the accounting books of a company to be thrown open to every shareholder that merely suspects iniquity. A much more substantial foundation will be required.

Although there are instances, where a shareholder may ask the court to grant access to company information, in order to relief such a shareholder from any oppressive or prejudicial conduct, which disregards the interest of the shareholder. It is therefore important to ensure that the company’s Memorandum of Incorporation, makes provision for a shareholder to access accounting records, at least in an event where a shareholder disputes the board of directors’ valuation of the company or the value recorded in the annual financial statements.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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