Section 13A of the Competition Act (“the Act”) states that provided the value of the transaction meets certain financial thresholds, the parties to a merger may not implement that merger until it has been approved by the Competition Commission (Commission) or Competition Tribunal (Tribunal).
Section 12 of the Act defines a “merger” as one or more firms directly or indirectly establishing direct or indirect control over the business of another firm. Section 12(2) states that a person “controls” a firm, inter alia, when they:
- beneficially own more than half of the issued share capital of the firm;
- are entitled to vote a majority that may be cast at a general meeting of the firm, or are able to control the voting of a majority of those votes, either directly or through a controlled entity;
- are able to appoint or veto the appointment of a majority of the directors; or
- are able to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise one of the above methods of control.
It frequently happens, that, in terms of a shareholders’ agreement, a “super majority” may be required for the company to pass resolutions on certain topics. This is done to protect the minority shareholders, by giving them the ability to block resolutions being passed by a simple majority that would compromise the investment of the minority. Dependent upon the exact content, some such clauses give the minority shareholders the ability to “materially influence the policy of the firm” as contemplated by section 12(2)(g) of the Act, mentioned in the last bullet point above. It is commonly referred to as “negative control”, as it allows the minority to prevent the company from taking certain actions. In such a case, the minority will be considered to have joint control with the majority, which may have one or more of the other forms of control listed above.
Where, in consequence of a transaction, a minority will acquire negative control, or a minority that currently has negative control will relinquish it, so that the majority will acquire sole control, if the value of the transaction exceeds the prescribed thresholds, the transaction will need to be approved by the Commission or Tribunal before it can be implemented.
There has historically been a lack of clarity as to when a minority shareholder protection right in fact amounts to “negative control”, resulting in a number of cases, dealing with specific instances of such clauses. The Commission has sought to address this by issuing guidelines, published on 4 December 2025, setting out the approach it will adopt when assessing whether this is the case.
The Commission begins by clarifying that the list of subjects that require a special resolution in terms of the Companies Act do not, in themselves, confer control on the minority.
In the annexures to the guidelines, the Commission lists examples of minority protections that will and will not be considered to confer control. However, the Commission stresses that the list is not exhaustive and, in each case, a factual enquiry will be made. The test for determining whether a minority protection confers control or not is “whether the minority protection(s) provide the minority shareholder with a right to steer a firm or to appoint persons to steer the firm in a particular direction which constitutes control in terms of section 12(2)(g)”. In making the determination, the Commission will apply a five-point approach:
- assess whether the transaction would amount to a change or acquisition of control in terms of section 12(2)(g);
- assess the content of the rights in question and their importance in the context of the business;
- analyse whether the protection relates to strategic decisions of the firm or enable the minority to influence of constrain strategic decisions of the firm;
- analyse whether the protection is financial and is aimed at protecting the minority’s investment; and
- analyse whether the protection will influence the day-to-day running of the firm.
In terms of section 79(4) of the Act, guidelines issued by the Commission are not binding but any person interpreting or applying the Act must take them into account.
The public has been invited to comment on the guidelines.
