Corporate Law takes a turn for the better?
In June this year, a revised Companies Bill was tabled in Parliament that should come into effect in 2010. It will have far reaching implications for businesses carried on in South Africa.
The Bill aims to introduce flexibility and a lack of formality. The most notable changes being the maintenance of certain statutory documentation in an electronic format and the ability to communicate electronically for the purposes of holding directors and shareholders meetings.
Currently a Company’s constitution is contained in its Memorandum and Articles of Association. A new, simplified document called the Memorandum of Incorporation (MOI), will take its place. The Bill will also allow for the provisions in the MOI to be alterable. For example, a special resolution must be supported by at least 75% of the shareholders of the Company present at the meeting. However, in terms of the Bill, a Company may permit a lower percentage of voting rights to approve a special resolution, provided that a margin of at least 10% between the requirements for approval of an ordinary resolution (being 51%) and a special resolution is retained. The new Bill will also contain a set of ‘Part A’ and ‘Part B’ schedules as is in our current Companies Act, that may be used as a basis for the Memorandum of Incorporation.
Concern has been raised about the onerous responsibilities and personal liability implications being placed on directors. This could result in fewer persons being willing to act as a director. The Bill seeks to codify the common law duties of directors and stipulates that the law be interpreted in accordance with our common law.
One of the exciting new changes in the Bill is the removal of the audit requirement and the requirement to prepare Annual Financial Statements for certain types of Companies. A Company is exempt from preparing Annual Financial Statements if it satisfies the Commission (similar to the Registrar of Companies) that it has not actively carried on business during that financial year or it is:
- A personal liability Company; OR
- A private Company and:
- 1 person is the sole shareholder or holder of beneficial interest OR
- Every shareholder or holder of beneficial interest is also a director of the Company.
It is important to note that the Commission may still issue a notice to the Company requiring the Company to prepare Annual Financial Statements should it appear to be:
- Necessary to protect security holders’ interests AND/OR
- Desirable in the public interest, having regard to social or economic significance of the Company as indicated by:
- Annual turnover
- Workforce size
- Nature and extent of activities
It is also important to note that the Minister may make regulations, including different requirements for different categories of Companies, prescribing:
- The different categories of private Companies that are required to have their Annual Financial Statements audited AND
- The manner, form and procedures for the conduct of an independent review, as well as the professional qualifications, if any, of persons who may conduct such reviews.
If a Company is required to prepare Annual Financial Statements the statements must:
- Be audited (in the case of a public Company) AND
- In the case of any other Company:
- Be audited, if so required OR
- Be either:
- Voluntarily audited at the option of the Company OR
- Independently reviewed
There is also much uncertainty around the future of Close Corporations, as the Government has hinted at its intention to scrap Close Corporations. The flexibility and lack of formality introduced by the Companies Bill will pave the way for a much more simplified way of forming and maintaining small Companies. It will no longer be necessary to have Close Corporations (CC’s) in South Africa. Once the new Companies Bill becomes law, new CC’s will no longer be allowed to register. However, existing CC’s will be allowed to continue in existence with the option of converting to a Company. This may be appealing to many as currently Companies enjoy an advantage, albeit an unfair advantage, in the market as a more sophisticated and stable business.
All of the above changes are positive changes to promote a more flexible corporate environment in which to do business. The changes should stimulate private sector growth and create further opportunities for the entrepreneur. This is in line with the country’s commitment to promoting business opportunities.
Should you require any further information, please do not hesitate to contact us.
All material subject to our Legal Disclaimers.