The new Companies Act is due to come into effect on 1 April. It is vital for companies to identify the practical steps that need to be taken to ensure a smooth transition from the old Act to the new one before this date. Some of the issues that should be considered are highlighted below.
Memorandum of Incorporation
The memorandum and articles of association of a company (constitutional documents) will be replaced by a single Memorandum of Incorporation (MOI). A company incorporated under the existing Companies Act will be given a two year transitional period to bring its constitutional documents in line with the provisions of the new Act.
However, this transitional period should not lead to complacency as exceptions relating to the duties and liabilities of directors; notices to shareholders and access to information - to name but a few - will take effect from 1 April, and will over-ride conflicting provisions of a company's constitutional documents.
Categories of companies
The new Companies Act introduces a new classification of companies (although the essential nature of a company will not change), and the concepts of "widely held companies" and "limited interest companies" have not been retained.
The new Act distinguishes only between profit companies and non-profit companies. A profit company may be:
- a private company (which may not offer securities to the public and restricts the transferability of its shares);
- a personal liability company (where directors are jointly and severally liable for the company's debts);
- a state-owned company (a company contemplated in the Public Finance Management Act, 1999 or owned by a municipality); or
- a public company (a company which is not a private, personal liability or state-owned company).
Directors and prescribed officers
The duties and responsibilities of directors under the new Companies Act will also apply to "prescribed officers" and to members of board committees who are not directors, therefore exposing persons in management positions to new obligations and possible personal liability.
A "prescribed officer" is a person who, despite not being a director of a company, exercises general executive control over (and management of) the whole, or a significant portion, of the business and activities of the company or regularly participates to a material degree in the exercise thereof.
Thus, it is critical that a company identifies its "prescribed' officers" and ensures that they, as well as ordinary board directors and members of board committees, are informed about:
- their required standards of conduct and their duties under the new Act, as well as their statutory liability for any breach;
- their exposure to claims by third parties and from the company; and
- the limits of any indemnity which may be granted to them by the company.
It would also be prudent at this time for a company to ensure that it has adequate insurance cover in place to cover directors' and officers' liability.
These issues should be of material importance to companies in the lead up to, and immediately following, the implementation of the new Act and should be receiving management attention to ensure a smooth transition from the old to the new statutory regime.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.