Compliance with the companies act 71 of 2008

Apr 22, 2019 | 2019, News

Clients are reminded of the continued need to review their shareholders agreements and their Memorandum of Incorporation (“MOI”) in order to ensure that the terms of their shareholders agreement are aligned with its MOI as well as the provisions of the Companies Act 71 of 2008 (the “Act”). Clients are further reminded that under the Act the predominant aspects of governance of a company as stated in part “F” of the Act, must be incorporated in the MOI and accordingly shareholders agreements currently in place which may have then been suitable pursuant to the Act will need to be aligned with the terms of the Act so as to avoid issues of potential conflict.

As is probably known by now, the Act contains a number of innovations and requirements which have an important bearing upon the content of a company’s documents, and its structure. The old style Memorandum and Articles of Association has been replaced by an MOI.

Whilst it is some 7 years since the new Act became operative, some companies continue to retain as their constitutional documents the “old style” Memorandum and Articles of Association. More importantly, shareholders agreements in place in respect of some of these companies are not aligned with the provisions of the Act, thereby placing the company and the decisions flowing from it in jeopardy.

It is in some cases common practice, when intending to use a company as the vehicle for trading purposes, to purchase a shelf company. In many instances these contain terms not properly suited to the requirements of the interested shareholders. These shortcomings were prior to 2011 largely overcome by the conclusion of a comprehensive, negotiated and binding shareholders any conflict between the Company’s Articles and the Shareholders Agreement, the Shareholders Agreement will prevail”. Although most shareholders agreements used to require the company to amend its Articles to conform to the shareholders agreement, in practice this was rarely undertaken.

With the advent of the Act, the route open to use a shareholders agreement as a basis for consolidating matters not included in the MOI, is no longer available. The Act now provides that to the extent that a provision in a shareholders agreement may be inconsistent with the MOI, such provision in the shareholders agreement as described above will be void. In summary, it
will be necessary for all the salient terms of governance of a company which have been included in a shareholders agreement to now be checked to ensure no conflict with such provisions in the MOI, and to the extent that such conflict does exist, such provisions must be recorded fully and properly in the MOI or by an amendment to the MOI to remove any such conflict.

Most old styled companies (prior to 2011) were formed with shares having a par value. The Act no longer permits companies to create new par value shares and all new shares to be created by the company are required to be of no par value.

As and from the date of promulgation of the Act, it is no longer possible to register a Close Corporation (“CC”). A number of provisions in the Act apply to CC’s, such as those relating to names, financial statements, disqualification from acting as part of management, and annual financial statements. If any of these aspects are of concern to you, your corporate structure should be reviewed.

It is also generally known that private companies may not need to be audited, unless the MOI provides to the contrary (this obviously does not apply to those companies which, by law, must be audited). The determination of whether a company requires to be audited is somewhat complex and you should consult with your advisors to determine whether this requirement is relevant.

Quite apart from the above, there are a number of other important considerations of which you should be aware, such as:-

  • Pre-Emptive provisions;
  • Election and appointment of directors;
  • Governance issues and duties of directors as well as the concept of the “business judgement rule”;
  • The doctrine of constructive notice;
  • Business rescue; and
  • The takeover regulation panel and the methods of the companies tribunal.

If any of the aforegoing has any relevance to your business, we would invite you to contact us as soon as possible to discuss any such implications.

Your primary contacts for matters relating to the Companies Act are:

Johannesburg Office

T +27 (0)11 268 0250

T +27 (0)11 268 0250

Cape Town Office

T +27 (0)21 405 7359

T +27 (0)21 405 7333