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
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
The new Act distinguishes only
between profit companies and non-profit companies. A profit company
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
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;
the limits of any indemnity which may be granted to them by the
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.
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