DealMakers - Annual 2025 (released February 2026)
Small stakes, big regulatory risk: Draft guidelines on minority shareholder protections amounting to a change of control
by Daryl Dingley, Kgomotso Mmutle, Gina Lodolo and Terrence Lane
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In December 2025, the Competition Commission (Commission) published Draft Guidelines on minority shareholder protections in merger transactions (Guidelines). While not legally binding, these Guidelines signal how the Commission will likely approach these matters.
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According to the Competition Act 89 of 1998 (the Competition Act), transactions resulting in a change of control must be notified if certain thresholds are met. In South Africa, the definition of control in the context of a merger is broad. Section 12(2)(g) of the Competition Act includes a “catch-all” provision whereby a firm controls another firm if it can “materially influence” that firm’s policy in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control.
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The Guidelines aim to clarify when minority shareholder protections may give rise to material influence over a firm. They confirm an established principle that, in the context of notifiable transactions, even a minority shareholding could result in a change of control, triggering merger application obligations if the rights attached to the investment allow the minority investor to materially influence the business.
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Minority shareholder protections typically safeguard the rights and interests of shareholders (i.e. their investment) owning less than 50% of a company. However, some protections can cross over to provide rights that enable the minority shareholder to exercise a form of control, and go beyond merely protecting the minority shareholder’s investment. When this occurs, the rights must be carefully assessed to determine whether merger notification is required.
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Control and non-control conferring minority protections
The Guidelines confirm that control is a factual and contextual assessment that must be undertaken by the Commission on a case-by-case basis. The legal test is whether the minority investor has the ability to materially influence the policy of the firm in a manner comparable to that of a controlling shareholder. This approach is firmly grounded in South African competition law and aligns with international practice, particularly European merger control practice.
As alluded to earlier, there are ordinary minority investment protection rights that do not confer control, and the Guidelines recognise that not all veto rights confer control. The Guidelines identify protections – many of which are contained in the Companies Act (71 of 2008) – that typically do not trigger control, including rights to approve changes to dividend policy, appointment or removal of auditors, liquidation or winding-up, changes to accounting policies, entry into transactions outside the ordinary course of business, and amendments to constitutional documents. These are seen as standard protections for a minority investor’s financial interests.
Daryl Dingley
Kgomotso Mmutle
Gina Lodolo
Terrence Lane
Rights likely to cross the control threshold include vetoes over the company’s strategy, business plan or budget, appointment or removal of the CEO or CFO, dismissal of executives, new business activities outside the scope of the firm’s ordinary business activities, and significant deviations from approved budgets.
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The instances listed by the Commission largely reflect established case law. However, many situations remain unclear. The Guidelines represent a missed opportunity, as they consolidate existing law rather than provide fresh guidance on more complex minority shareholder arrangements.
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One notable addition is that control may arise from “the right to approve and/or veto or decline the undertaking of any new business activity outside the scope of the ordinary business activities of the firm”. This right could be seen as simply protecting a minority shareholder’s original investment. Whether it truly confers control remains debatable, and the Guidelines would have benefited from further examples addressing such borderline cases.
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Whilst the Guidelines may represent a missed opportunity, leaving legal practitioners wanting in some respects, they helpfully reference the European Commission’s Consolidated Jurisdictional Notice, which can be read as an endorsement of the European approach for scenarios not yet fully addressed in South African law. For example, guidance can be drawn from the European Commission’s contextualisation of control rights with reference to market-specific factors. In this regard, the European Commission expressly references decisions concerning the technology to be used by a company – where technology is a key feature of the company’s activities – as being an important contextual factor when considering whether a right confers minority shareholder control. Similarly, in markets characterised by product differentiation and a significant degree of innovation, veto rights over new product lines may also be an important element in establishing minority control.
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For business leaders, the Guidelines serve as a reminder that deals should not always be considered ‘low risk’, as private equity investments, joint ventures, growth capital funding and strategic minority stakes can confer control and trigger merger approval requirements. Standard shareholder agreements should be reviewed regularly, as ‘boilerplate’ clauses may inadvertently create notifiable mergers. It is important that these considerations are factored into deal timing, since notifiable transactions cannot proceed without competition authority approval.
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Dingley is a Partner, Mmutle a Senior Associate and Lodolo and Lane Associates | Webber Wentzel
