Is Your Company "Widely Held"?!
The Corporate Laws Amendment Act (the "Act"), which became law at the end of last year, has introduced a number of changes to our company legislation.
The Act has introduced the concept of a "widely held" company together with certain compliance requirements which must be met should a company be categorized as widely held. In terms of the Act, a company will be widely held if:
- its articles provide for the unrestricted transfer of its shares, in other words the shares of the company are not subject to pre-emptive rights in favour of all shareholders in every proposal to sell to a third party; or
- it is permitted by its articles to offer shares to the public; or
- it decides by special resolution to be a widely held company; or
- it is a subsidiary of a company which falls into one of the categories above.
Since all public companies must be permitted by their articles to offer shares to the public, it follows that public companies will be classified as "widely held". However, management of private companies will need to review their company's articles of association to see whether they contain the pre-emptive rights described in order to determine whether their company is "widely held" or a "limited interest" company.
The Act provides that "widely held" companies must meet additional compliance requirements. For example, the company will have to appoint an audit committee which will be responsible for a number of issues such as the appointment of an auditor, auditor independence and the approval of fees to be paid to the auditor. The company will also have to report in accordance with International Financial Reporting Standards.
We recommend that senior management review the articles of association of their company and, if necessary, take steps to ensure compliance with the Act or evaluate whether it would be desirable, and possible, to amend their company's articles for that company to fall outside the definition of a "widely held" company.
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.