HOW THE NEW COMPANIES ACT AFFECTS YOUR BUSINESS

The coming into effect of the new Companies Act has far-reaching implications for any company wishing to do business in South Africa. Corporate managers need to accustom themselves with the basic requirements of the new Act and take immediate action to ensure compliance.

The new Act introduces significant changes to our corporate law system.

Under the old Act, incorporation of a company required the submission of two documents, namely the Memorandum and Articles of Association, jointly referred to as the constitution of a company. These two documents are now merged into one single governing document named the Memorandum of Incorporation (“MOI”) which sets out the respective duties, rights and responsibilities of shareholders, directors and other stakeholders in relation to the Company.

Since every company’s existing constitution will certainly contain provisions which are inconsistent with the new Act, it grants pre-existing companies a two-year grace period (“transitional period”) calculated from the effective date. During this period, companies must adopt and file a new MOI that aligns their constitution with the provisions of the new Act. Should a conflict exist between the provisions of the new Act and a company’s existing constitution during the transitional period, then the existing constitution will prevail. However, certain provisions of the new Act became effective from the effective date.

The transitional period does not apply to provisions dealing with the following issues:

  • The duties, conduct and liabilities of directors;
  • The rights of shareholders to receive notices and have access to information;
  • Meetings of shareholders and directors and the adoption of resolutions;
  • Approvals required for any distributions, financial assistance, insider share issues and options;
  • Fundamental transactions, take-overs and offers (except to the extent exempted).

 

Companies need to consider the impact of these immediately effective provisions on their existing constitution because they cannot indiscriminately rely on their current constitution to prevail over the new Act during the transitional period.

The writer submits that it is imperative that the duly authorised representatives of a Company seek legal advice well in advance of the transitional period lapsing, so as to safeguard against not complying with the Act.

- By Roslyn Lerena (Candidate Attorney)




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