“Related”
and
“Inter-related”

Under the Companies Act: A Guide for Shareholders and Businesses

Understanding “Related” and “Inter-related” Under the Companies Act: A Guide for Shareholders and Businesses

The Companies Act 71 of 2008 (Companies Act) defines two important concepts in section 2: “related” and “inter-related”. These terms are used to determine when companies, individuals, or entities have direct or indirect connections that could impact compliance, influence, or risk in corporate dealings. Understanding these definitions is crucial for shareholders, directors, and businesses involved in transactions, governance, or financial assistance.

What Does “Related” Mean?

Being “related” means there is a direct, traceable link — usually involving control, ownership, or a familial bond. Examples include:

Corporate Relationships: Two companies are related if one is a holding company of the other, they are subsidiaries of the same holding company, or they are fellow subsidiaries.
Control by an Individual: A person who controls a company, influences its board decisions, or is a major shareholder or director is related to that company.
Family Ties: Two individuals are related if they are married, or related within the second degree of consanguinity or affinity (spouses, parents, siblings, children, in-laws).

What Does “Inter-related” Mean?

“Inter-related” relationships are indirect, created through a third party. The Companies Act defines it as:

“Two persons are inter-related if either is related to a third person.”

For example, if Company A is related to Company B, and Company B is related to Company C, then Company A and Company C are inter-related — even though they have no direct connection.

Visualising the Difference

Related: Like being in the same WhatsApp group — direct and obvious.

Inter-related: Like being in different WhatsApp groups with a shared contact — indirect, but still linked.

In practice, the law treats both types of connections as capable of influencing decisions, ensuring that indirect links are not overlooked.

This means that both related and inter-related connections must be considered when assessing transactions, board decisions, or shareholder influence.

Why the Distinction Matters

The Companies Act applies these definitions in various contexts to prevent conflicts of interest, hidden influence, and unfair advantage. This is particularly relevant when assessing:

Financial Assistance: Sections 44 and 45 require assessing whether the recipient is related or inter-related.
Distributions: Shareholder relationships can affect compliance with distribution rules.
Conflict of Interest: Directors must disclose both direct and indirect connections.
Group Transactions: Dealings between subsidiaries may fall under related-party provisions.

Practical Business Applications

Before entering into a transaction, granting a loan, or making a board decision, companies should ask:

Are we dealing with someone who is directly related to us?
Is there a third party linking us, making us inter-related?
Could this relationship trigger obligations under the Companies Act, the National Credit Act, or tax laws?

Holding companies should map corporate structures to identify both direct and indirect relationships early, avoiding unintended legal consequences.

Conclusion

“Related” and “inter-related” are key compliance concepts under the Companies Act. They capture both direct control and indirect influence, ensuring transparency and accountability in corporate dealings. By identifying these links before executing transactions, businesses can prevent governance breaches and maintain legal compliance.

By: Xander Schoeman
Attorney