GlossaryLegal Glossary

South African
Contract Law Glossary

69 attorney-drafted definitions of the legal terms that appear across our contract templates — the Companies Act, BCEA, LRA, POPIA, CPA, NCA, and common law. Each entry covers the statutory basis, plain-English meaning, and the templates where the term is used.

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Corporate & Commercial (17)B-BBEE (1)Employment (12)Data Protection & POPIA (9)Consumer & Commercial (6)Lending & Finance (5)Property & Leases (3)Compliance Certificates (3)Compliance (3)Commercial & Tech (5)Skills Development (3)Common Law (1)Tax (1)

Corporate & Commercial

Restraint of Trade

A restraint of trade is a contractual undertaking that limits a party from competing, soliciting clients, or poaching staff after termination. Under South African common law following Magna Alloys v Ellis, restraints are prima facie enforceable, but a court will refuse enforcement where the restraint is unreasonable in scope, duration, area, or activity.

Pre-Emptive Right

A pre-emptive right entitles existing shareholders to be offered newly issued or transferred shares in proportion to their holding before those shares are offered to outsiders. Under Companies Act 71 of 2008 Section 39, pre-emption is the default for private companies on new issues, and is commonly extended to transfers by the MOI or shareholders agreement.

Drag-Along Right

A drag-along right entitles a majority shareholder accepting a bona fide third-party offer for 100% of the company to compel minority shareholders to sell on the same terms. It is not statutory in South Africa — it is created contractually in the MOI or shareholders agreement, and must withstand oppression challenges under Section 163 of the Companies Act 71 of 2008.

Tag-Along Right

A tag-along right entitles minority shareholders to participate pro rata in any share sale by the majority to a third party on identical terms. It is a contractual minority-protection device created in the MOI or shareholders agreement — not statutory — and is the protective mirror of the drag-along right under South African company law.

Reserved Matters

Reserved matters are strategic decisions that a company may not take without the specified super-majority shareholder or investor consent, overriding the default board authority. They are created contractually in the MOI or shareholders agreement under Section 15(7) of the Companies Act 71 of 2008 and typically cover new share issues, borrowings, and related-party transactions.

Memorandum of Incorporation (MOI)

The Memorandum of Incorporation (MOI) is the constitutional document of a South African company, setting its rules on shares, directors, shareholder rights, and governance. Under Section 15 of the Companies Act 71 of 2008, the MOI binds the company, its directors, and all shareholders, and prevails over any conflicting shareholders agreement.

Deadlock Resolution

Deadlock resolution is the contractual mechanism for breaking shareholder or board stalemates in joint-venture and closely held companies. Typical escalators include mediation, expert determination, Russian-roulette or Texas-shoot-out buy-outs, and, as a last resort, winding-up under Section 81(1)(d)(iii) of the Companies Act 71 of 2008 or the oppression remedy in Section 163.

Anti-Dilution

Anti-dilution is a contractual protection adjusting an investor's conversion or equity stake if the company issues shares below the investor's original subscription price. Common South African formulations include full-ratchet and weighted-average (broad-based or narrow-based), typically embedded in preference-share terms or the MOI under Section 15(7) of the Companies Act 71 of 2008.

Vesting Schedule

A vesting schedule is a contractual arrangement under which founder or employee shares, or share options, accrue to the recipient over time or on meeting milestones, with unvested portions forfeited or repurchased on early departure. It is a pure contract creation in South Africa, typically embedded in the MOI share-class terms, shareholders agreement, or employee share-option plan.

Solvency and Liquidity Test

The solvency and liquidity test is the statutory threshold under Sections 4 and 46 of the Companies Act 71 of 2008 that a company must pass before making a distribution, share buy-back, or financial assistance. The company must be able to pay its debts as they become due (liquidity) and its assets must equal or exceed its liabilities (solvency).

Special Resolution

A special resolution is a shareholder resolution requiring at least 75% of voting rights exercised to be adopted. Under Section 65(9) of the Companies Act 71 of 2008, it is required for MOI amendments, class-right variations, share buy-backs, voluntary winding-up, and related-party transactions, unless a higher threshold is set in the MOI.

Quorum

A quorum is the minimum number of shareholders or directors required to be present for a meeting to transact valid business. Under Section 64 of the Companies Act 71 of 2008, the default shareholder quorum is 25% of voting rights or three shareholders (whichever is lower); the MOI may vary this. Board quorum is set in the MOI under Section 73.

Fiduciary Duty

Fiduciary duty is the legal obligation of directors, officers, and other fiduciaries to act in good faith, in the best interests of the company, and with the degree of care a reasonable person would exercise. In South Africa the duties are codified in Sections 75, 76, and 77 of the Companies Act 71 of 2008 and continue to draw on common-law jurisprudence.

CIPC (Companies and Intellectual Property Commission)

The Companies and Intellectual Property Commission (CIPC) is the South African regulatory body responsible for registering and administering companies, co-operatives, and intellectual-property rights. Established under Section 185 of the Companies Act 71 of 2008, it receives MOI filings, annual returns, beneficial-ownership declarations, and regulates insolvency practitioners.

Directors' Resolution

A directors' resolution is a formal decision of the board of directors, recorded in writing, authorising company action. Under Section 74 of the Companies Act 71 of 2008, resolutions may be passed at a quorate meeting or by unanimous written round-robin, and form the basis for binding external commitments and internal authority.

Board Minutes

Board minutes are the statutory record of proceedings at a directors' meeting, including attendance, decisions taken, and dissents recorded. Under Section 73(6) of the Companies Act 71 of 2008, every company must keep minutes for at least seven years, and they serve as prima facie evidence of board decisions and compliance with fiduciary duties.

Securities Transfer Tax (STT)

Securities Transfer Tax (STT) is a 0.25% tax on the transfer of listed and unlisted securities imposed by the Securities Transfer Tax Act 25 of 2007. STT is triggered on every transfer of shares, including sales, donations, and certain restructurings, and is administered by SARS under the Tax Administration Act 28 of 2011.

B-BBEE

B-BBEE Fronting

B-BBEE fronting is any transaction, arrangement, or initiative that directly or indirectly undermines the objectives of the Broad-Based Black Economic Empowerment Act 53 of 2003. Under Section 13O, fronting is a statutory offence punishable by fines of up to 10% of annual turnover, imprisonment for up to 10 years, and disqualification from State tenders.

Employment

CCMA

The CCMA is the Commission for Conciliation, Mediation and Arbitration, a statutory dispute-resolution body established under Section 112 of the Labour Relations Act 66 of 1995. It has compulsory jurisdiction over unfair-dismissal, unfair-labour-practice, discrimination, and many collective disputes in South Africa, offering free conciliation and, where conciliation fails, arbitration.

Schedule 8 to the LRA (Code of Good Practice: Dismissal)

Schedule 8 to the Labour Relations Act 66 of 1995 is the Code of Good Practice: Dismissal, setting out the substantive and procedural fairness standards for dismissals in South Africa. It codifies the progressive-discipline principle, the fair-procedure (audi) requirements, and the distinction between misconduct, incapacity, and operational-requirements dismissals.

Section 189 Retrenchment

Section 189 of the Labour Relations Act 66 of 1995 governs retrenchment — dismissal for operational requirements. It requires the employer to consult with affected parties in a meaningful, joint consensus-seeking process, consider alternatives, apply fair selection criteria, and pay a minimum severance of one week per completed year of service under Section 41 of the BCEA.

Section 200A Presumption (Employee vs Contractor)

Section 200A of the Labour Relations Act 66 of 1995 creates a rebuttable presumption that a person earning below the BCEA earnings threshold is an employee — not an independent contractor — if any one of seven statutory factors applies. It shifts the onus to the putative employer to prove genuine contractor status.

Dominant-Impression Test

The dominant-impression test is the judicial tool used in South Africa to decide whether a worker is an employee or independent contractor. Courts look past the label in the contract and weigh control, integration, economic dependence and the seven statutory factors in section 200A of the LRA to determine substance.

Section 34 BCEA (Deductions from Remuneration)

Section 34 of the BCEA prohibits an employer from making any deduction from an employee's remuneration without the employee's written consent, or unless the deduction is required or permitted by law, a collective agreement, court order or arbitration award. It is the anchor for all payroll deduction clauses in South African employment contracts.

Progressive Discipline

Progressive discipline is the principle that employers must use increasingly serious sanctions — counselling, verbal and written warnings, final written warning — before dismissing for misconduct, unless the misconduct is so serious that it makes the continued relationship intolerable. It is anchored in item 3 of Schedule 8 to the LRA.

Audi Alteram Partem

Audi alteram partem is the common-law principle that no person may be penalised without being heard. In South African labour law it requires employers to give employees fair notice of charges and a reasonable opportunity to respond before dismissal or serious discipline. It underpins item 4 of Schedule 8 to the LRA.

Parity Principle

The parity principle requires employers to apply discipline consistently: employees who commit the same misconduct in similar circumstances should receive the same sanction. Distinctions must be justified on objective grounds such as differing service records, seniority, or levels of involvement. The principle flows from item 7(b)(iii) of Schedule 8 to the LRA.

Probation Period

A probation period is an initial phase of employment, permitted by item 8 of Schedule 8 to the LRA, during which the employer assesses the employee's suitability. While dismissal for incapacity during probation is easier to justify, the employee is still entitled to evaluation, training, and audi alteram partem before termination.

Occupational Detriment (Protected Disclosures Act)

Occupational detriment is any adverse workplace consequence — dismissal, disciplinary action, demotion, harassment or being overlooked for promotion — inflicted on an employee or worker because they made a protected disclosure under the Protected Disclosures Act 26 of 2000. It triggers a civil remedy and, where the disclosure relates to an offence, reverse-onus protection.

Mutual Separation

A mutual separation agreement is a written settlement in which employer and employee agree to end the employment relationship on terms — usually including a payment, a release of claims, and a restraint or confidentiality clause — without resorting to disciplinary or CCMA processes. It must be voluntary to be enforceable under section 158(1)(c) of the LRA.

Data Protection & POPIA

Responsible Party (POPIA)

A responsible party, under section 1 of POPIA, is the public or private body that, alone or with others, determines the purpose and means of processing personal information. It is equivalent to the GDPR "controller" and carries primary statutory liability for POPIA compliance, including the eight conditions for lawful processing in Chapter 3.

Operator (POPIA)

An operator, under section 1 of POPIA, is a person who processes personal information for a responsible party in terms of a contract or mandate, without coming under the direct authority of that party. It is the South African equivalent of the GDPR "processor" and must act only on the responsible party's lawful instructions.

Operator Agreement (POPIA Section 21)

An operator agreement is the written contract required by section 21 of POPIA between a responsible party and any operator processing personal information on its behalf. It must impose confidentiality, appropriate security safeguards, and breach-notification duties on the operator, and is the keystone of vendor POPIA compliance.

Sub-Processor

A sub-processor is a third party engaged by an operator to assist with processing personal information under an operator agreement — for example a cloud hosting provider sitting behind a SaaS vendor. POPIA treats sub-processors as operators, requiring the primary operator to flow down section 21 obligations and obtain the responsible party's authorisation.

Cross-Border Transfer of Personal Information

Cross-border transfer is the movement of personal information outside South Africa to a third country or international organisation. Section 72 of POPIA prohibits such transfer unless one of five lawful bases applies — adequate foreign law, binding agreement, data-subject consent, performance of a contract, or benefit to the data subject. It is the cornerstone of international data flows compliance.

Personal Information (POPIA)

Personal information, under section 1 of POPIA, is information relating to an identifiable, living natural person and, where applicable, to an identifiable, existing juristic person. It includes identifiers, contact details, biometric data, financial history, opinions, employment information and online identifiers. A special-personal-information subset under section 26 receives heightened protection.

Information Officer (POPIA)

An information officer is the senior manager designated under POPIA and PAIA to ensure compliance with those Acts. Under POPIA, the head of a private body is automatically the information officer until another person is designated. The role carries personal duties in sections 55 and 56 of POPIA and must be registered with the Information Regulator.

Information Regulator

The Information Regulator is the independent statutory body established under section 39 of POPIA to regulate the protection of personal information and access to information in South Africa. It has investigatory, enforcement and rule-making powers under POPIA and PAIA, including issuing enforcement notices and imposing administrative fines of up to R10 million.

Security Compromise (POPIA Section 22)

A security compromise, under section 22 of POPIA, is a situation where there are reasonable grounds to believe that personal information has been accessed or acquired by an unauthorised person. It triggers mandatory notification to the Information Regulator and affected data subjects "as soon as reasonably possible" after discovery.

Consumer & Commercial

Cooling-Off Period

A cooling-off period is a statutory window during which a consumer may cancel a contract without penalty and receive a refund. South African law provides two distinct regimes: section 16 of the Consumer Protection Act (five business days for direct-marketing transactions) and section 29A of the Alienation of Land Act (five days for residential property below R250,000).

Consumer (CPA)

A consumer, under section 1 of the Consumer Protection Act 68 of 2008, is a person to whom goods or services are marketed or supplied in the ordinary course of the supplier's business, or a user of those goods or recipient of those services. Juristic persons with turnover or assets below the R2 million threshold also qualify, giving the CPA broad B2B and B2C reach.

CPA Section 14 (Fixed-Term Consumer Agreements)

Section 14 of the Consumer Protection Act governs fixed-term consumer agreements. It caps the maximum term at 24 months (extendable only with demonstrable benefit), requires 20 business days' notice of expiry, permits early cancellation on 20 business days' notice subject to a reasonable cancellation penalty, and mandates automatic month-to-month continuation after expiry.

CPA Section 41 (False or Misleading Representations)

Section 41 of the Consumer Protection Act 68 of 2008 prohibits a supplier from using false, misleading or deceptive representations concerning a material fact when marketing, supplying or negotiating any goods or services, including claims about price, origin, endorsement, sponsorship or the supplier's status.

Implied Warranty of Quality (CPA Section 55)

Section 55 of the Consumer Protection Act 68 of 2008 implies an unwaivable warranty into every consumer sale that goods will be reasonably suitable for their ordinary purpose, of good quality, usable and durable for a reasonable period, and compliant with any public regulations applicable to those goods.

Direct Marketing (CPA + POPIA)

Direct marketing is the approach of a consumer, personally or by post, email, SMS or telephone, for the direct or indirect purpose of promoting goods or services or requesting a donation. Under the CPA and POPIA it is subject to opt-out and opt-in rules respectively, with electronic direct marketing requiring prior written consent.

Lending & Finance

Reckless Credit

Reckless credit under section 80 of the National Credit Act 34 of 2005 is credit extended without a proper affordability assessment, or after an assessment that showed the consumer did not understand the risks or would be over-indebted. A court or the Tribunal may set aside the agreement or suspend the consumer's obligations.

In Duplum Rule

The in duplum rule is a common-law and statutory principle that caps the total of arrear interest, fees and charges at an amount equal to the unpaid capital at any given time. Section 103(5) of the NCA extends it statutorily to all regulated credit agreements, continuing to operate even after litigation commences.

Co-Principal Debtor

A co-principal debtor is a surety who has waived the benefits of excussion and division and is liable jointly and severally with the principal debtor for the full debt. Creditors may sue the co-principal debtor immediately on default without first proceeding against the principal debtor.

Benefit of Excussion

The benefit of excussion (beneficium ordinis seu excussionis) is the common-law right of a pure surety to require the creditor to first exhaust remedies against the principal debtor before pursuing the surety. It is waived automatically when the surety binds themselves "as surety and co-principal debtor".

Security Cession

A security cession is the transfer of rights to claim from a debtor (such as book debts or insurance proceeds) to a creditor as security for a debt. South African law distinguishes between pactum fiduciae (cessionary becomes owner subject to reconveyance) and pledge (the cedent retains ownership) constructions.

Property & Leases

Huur Gaat Voor Koop

Huur gaat voor koop ("lease goes before sale") is a common-law principle holding that a lease of immovable property binds a subsequent purchaser of the property, who becomes the new lessor on the existing lease terms. The rule protects tenants from eviction following a change in ownership.

Transfer Duty

Transfer duty is a tax levied under the Transfer Duty Act 40 of 1949 on the acquisition of immovable property in South Africa. It is payable by the purchaser on a sliding scale based on the value of the property, with the first R1.1 million exempt, and must be paid before the Registrar of Deeds will register transfer.

Conveyancer

A conveyancer is an admitted attorney who has passed the conveyancing examination and is registered with the Legal Practice Council to prepare and lodge deeds for registration in the Deeds Office. Only a conveyancer may sign the preparation certificate on a deed of transfer, bond or servitude.

Compliance Certificates

Compensation Fund (COIDA)

The Compensation Fund is a statutory fund established under the Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA) to compensate employees who suffer injury, disablement or disease arising out of and in the course of employment, and dependants of employees who die as a result. It is funded by employer assessments.

Letter of Good Standing

A Letter of Good Standing (LGS) is a certificate issued by the Compensation Commissioner under COIDA confirming that an employer is registered, has submitted its annual return of earnings, and has paid all assessments due. It is typically required for tenders, procurement and site access in the construction and services industries.

Compliance Certificate

A compliance certificate is a formal certificate issued by a regulator or accredited inspector confirming that a person, installation or activity meets the requirements of a specific statute. Common SA examples include electrical compliance certificates under the Electrical Installation Regulations, gas and plumbing certificates, and B-BBEE verification certificates.

Compliance

FICA Verification

FICA verification is the process by which accountable institutions identify and verify their clients under the Financial Intelligence Centre Act 38 of 2001 before establishing a business relationship or concluding a single transaction above the prescribed threshold. Under the risk-based approach, verification depth varies with client and product risk.

Customer Due Diligence (CDD)

Customer Due Diligence (CDD) is the suite of measures required under sections 21 to 21H of FICA by which an accountable institution identifies its client, verifies the client's identity, identifies beneficial owners, understands the purpose of the relationship, and conducts ongoing monitoring — with enhanced measures for higher-risk clients (EDD).

PRECCA (Prevention and Combating of Corrupt Activities Act)

PRECCA (the Prevention and Combating of Corrupt Activities Act 12 of 2004) is South Africa's principal anti-bribery statute. Section 3 creates the general offence of corruption, and Section 34 imposes a positive obligation on persons in positions of authority to report suspected corrupt transactions above R100 000 to the police.

Commercial & Tech

Clickwrap Agreement

A clickwrap agreement is an online contract formed when a user actively assents to terms by clicking an "I agree" button or equivalent before proceeding. Under the Electronic Communications and Transactions Act 25 of 2002 and the Consumer Protection Act, a properly implemented clickwrap is enforceable in South African law.

IP Assignment

An IP assignment is the transfer of ownership of intellectual property rights — typically copyright, patents, trade marks or designs — from one party to another. Under South African law, copyright and trade-mark assignments must be in writing; patent and design assignments require written form and registration.

Service Credit

A service credit is a contractual remedy under a service-level agreement (SLA) entitling a customer to a percentage refund or invoice credit when the supplier fails to meet a service level. In South African law, if framed as liquidated damages, the credit is subject to the Conventional Penalties Act proportionality review.

Change Order

A change order (or change request) is a formal instrument by which the parties to a contract agree to vary the scope, price, timeline or deliverables of the original engagement. Under South African contract law, variations must satisfy any non-variation clause in the main contract, per Shifren v SA Sentrale Ko-op Graanmaatskappy.

Definition of Done

The Definition of Done is the binding contractual criterion in an agile or milestone-based software agreement that determines when a deliverable is complete, payable, and accepted. In South African contracts, it is the objective yardstick courts and arbitrators apply under the rules of interpretation established in Endumeni v Natal Joint Municipal Pension Fund.

Skills Development

Section 12H Learnership Allowance

Section 12H of the Income Tax Act 58 of 1962 grants employers a tax allowance for registered learnerships. The allowance is an annual deduction of R40 000 per learner (R60 000 if the learner has a disability) during the learnership, plus a completion allowance of the same amount when the learnership ends.

SETA (Sector Education and Training Authority)

A SETA (Sector Education and Training Authority) is a statutory body established under Section 9 of the Skills Development Act 97 of 1998 to promote skills development within a specified economic sector. There are 21 SETAs in South Africa, each funded through a share of the Skills Development Levy.

Skills Development Levy (SDL)

The Skills Development Levy (SDL) is a 1% payroll tax payable by most South African employers under the Skills Development Levies Act 9 of 1999. It is levied on leviable payroll as defined in Section 3 and is collected monthly by SARS alongside PAYE and UIF on the EMP201.

Common Law

Ostensible Authority

Ostensible authority (also called apparent authority) is a common-law doctrine by which a principal is bound by an agent's act even where the agent had no actual authority, provided the principal represented to the third party that the agent did have authority. The leading South African authority is Glofinco v ABSA Bank Ltd 2002 (6) SA 470 (SCA).

Tax

Fringe Benefit (Seventh Schedule)

A fringe benefit is a non-cash benefit received by an employee by virtue of employment and taxed under the Seventh Schedule to the Income Tax Act 58 of 1962. Examples include company cars, employer-provided housing, low-interest loans, and free or subsidised services. Each benefit is valued under a prescribed formula and added to taxable income.