South Africa: Immediate Steps Following 1 May 2011 Commencement Of New Companies Act

Last Updated: 11 July 2011
Article by Robyn Holwill
  • Continuation of pre-existing companies and notification of deemed name changes
  • Memorandum and articles of association – memorandum of incorporation
  • Shareholder agreements
  • CIPRO filings
  • Deregistrations
  • Close corporations
  • Conversion of shares with a par value to shares with no par value
  • Status of companies with limited capacity, usually known as SPVs
  • Distributions
  • Intra-group loans
  • Pre-incorporation contracts

Continuation Of Pre-Existing Companies And Notification Of Deemed Name Changes

Every pre-existing company continues to exist as a company as if it had been registered in terms of the new Act, with the same name and registration number. However, when it comes to the concluding expressions in or suffixes to company names, pre-existing companies are in most cases deemed to have changed concluding expressions (eg "(Pty) Ltd") insofar as this may be required, in order to comply with the new Act.

Pre-existing companies incorporated under section 21 of the old Act are recognised as non-profit companies under the new Act and the names of theses companies must now be followed by the expression "NPC".

The names of pre-existing companies that fall within the definition of "state-owned company" must now be followed by the expression "SOC Ltd.".

The names of pre-existing s53(b) companies (that become personal liability companies under the new Act) remain followed by the expression "Incorporated" or "Inc.".

The position remains unaltered for pre-existing public and private companies, save that in the case of private companies, the expression "(Proprietary) Limited" no longer has brackets, ie "Proprietary Limited", whilst the abbreviation "(Pty) Ltd" retains the brackets.

All these changes are deemed to have been made and companies are not required to file any name change documents with the Commission.

The expression "(RF)" – for 'ring-fenced' - must follow the names of all pre-existing non-profit companies, state-owned companies, personal liability companies and companies limited by guarantee where the constitutional documents of those companies contain restrictive conditions applicable to the company and provisions restricting or prohibiting the amendment of those conditions, or any other prohibitions on the amendment of provisions of the constitutional documents. Oddly, this deeming requirement does not apply to pre-existing private or public companies with constitutional documents containing like provisions.

The company limited by guarantee under the old Act may choose to become a profit company within 20 business days of the new Act coming into operation, on 1 May (ie by 30 May 2011). If not it will be deemed to have become a non-profit company and amended its constitutional documents to that effect.

Memorandum And Articles Of Association – Memorandum Of Incorporation

The memorandum and articles of association of a pre-existing company are deemed to be that company's memorandum of incorporation ("MOI").

For a period of two years from the commencement of the new Act, any conflict between the provisions of the MOI of a pre-existing company and the new Act will be resolved in favour of the MOI. After two years, the new Act will prevail.

However, from the outset, the Transitional Provisions set out in Schedule 5 of the new Act prevail and, despite anything to the contrary in the MOI, the provisions in the new Act apply in respect of:

  • the duties, conduct and liabilities of directors to every director of a pre-existing company;
  • rights of shareholders to receive any notice or have access to any information of every pre-existing company;
  • meetings of shareholders or directors, and adoption of resolutions to every pre-existing company; and
  • fundamental transactions, takeovers and offers in Chapter 5 unless exempted by that Chapter.

Companies are advised to adopt a new MOI that is compliant with the new Act within the two year time frame – obviously the sooner this can properly be done, the better for all concerned.

Shareholder Agreements

The popular practice of drafting shareholder agreements that conflict with the company's constitutional documents and then inserting a provision at the end of the agreement providing that in the case of a conflict between the provisions of the shareholder agreement and the memorandum and articles of association, the provisions of the shareholder agreement will prevail, is now no longer possible. Such conflicts will be resolved in favour of the MOI (ie, the old memorandum and articles of association).

However, for a period of two years from the commencement of the new Act, conflicts between an existing shareholder agreement and the MOI will still be resolved in favour of the shareholder agreement. But this "two year reprieve" will cease upon any change to a shareholder agreement within the initial two years. This means that changes to shareholder agreements will need to be carefully considered, to ensure that all amendments to align the agreement with the MOI are addressed at the same time.

In order to avoid the potential unwanted consequences of certain provisions of a shareholder agreement being void upon the expiry of the initial two year period owing to them being in conflict with the MOI, shareholders are advised to act sooner, rather than later when it comes to revising their shareholder agreement.

CIPRO Filings

All documentation, applications and lodgements received by CIPRO up to and including 30 April 2011 will be processed in terms of the old Companies Act, 1973. From 1 May 2011 lodgements will have to comply with the new Act and will need to be processed using new Forms.


Companies that have failed to file their annual returns may have been provisionally, if not finally, deregistered by the Registrar of Companies. We understand that representatives of CIPRO have verbally indicated that, on 1 May 2011, CIPRO would immediately deregister all entities on its register that have failed to file their annual returns. Amongst many other serious consequences, the names of these entities will then be available for reservation by third parties.

We therefore strongly recommend that all outstanding annual returns must be filed immediately and that applications to restore the status of finally deregistered companies be processed with immediate effect. We also recommend that clients check their own status as well as confirm that parties with whom they do business are in fact still registered.

Close Corporations

It is no longer possible to incorporate any new CCs, nor is it possible to convert existing companies into CCs.

All existing CCs will continue to exist under the new Act, and it will be possible to convert existing CCs into private companies.

The annual financial statements of CCs will only need to be audited if so required by the Regulations to the new Act, regard being had to annual turnover, size of workforce and the nature and extent of the CC's activities. If an audit is not required, then the annual financial statements will need to be independently reviewed, as prescribed in the Regulations.

Conversion Of Shares With A Par Value To Shares With No Par Value

Conversion of shares with a par value to shares with no par value is optional. Par value shares issued under the new Act are also permissible, provided there is adequate authorised par value share capital and at least one share in the same class was issued before 1 May 2011. It is, however, not possible to create any more par value authorised share capital, nor is it possible to issue previously authorised shares if none of the same class of shares is already in issue.

Status Of Companies With Limited Capacity, Usually Known As SPVs

The new Act abolishes the doctrine of constructive notice. Limitations on a company's capacity, traditionally set out in the memorandum of association (although they may also be found in the articles of association), relied on the doctrine of constructive notice for their enforceability in that third parties dealing with a company were deemed to have knowledge of that company's limited capacity. The memoranda and articles of association of special purpose vehicles commonly used in many financing structures were regularly so adapted in order to limit the capacity of these companies to the special purposes for which they were established.

Under the new Act, it is possible for the doctrine of constructive notice to apply to those restrictive conditions, provided they are highlighted to the world at large by filing a notice with the Commission and the adding of the suffix "(RF)" to the company's name. Third parties dealing with such companies are then deemed to have constructive knowledge of the restrictive conditions.

Consequently, in order for the doctrine of constructive notice to continue to apply to these restrictive conditions, pre-existing companies must, as soon as possible after the implementation of the new Act, file a notice of those provisions with the Commission. The doctrine of constructive notice will only apply under the new Act from date on which the notice is so filed.


From 1 May 2011, all dividends and other distributions by a company need to comply with section 46 of the new Act. The most typical distributions are dividends declared by a company to its shareholder, although the definition of distributions extends to other forms of payments or transactions by a company in favour of its shareholders for example share repurchases, a payment in lieu of a capitalisation share, the incurrence of a debt or other obligation by a company for the benefit of its shareholders and the forgiveness or waiver by a company of a debt owed by a shareholder.

Section 46 will in our view apply even if the dividend was declared before the date on which the new Act came into operation, but is not yet paid. An unpaid dividend will need to be re-approved under the new Act at a board meeting in compliance with section 46.

A distribution may only be made pursuant to an existing legal obligation or a resolution of the board of directors of the company. In both cases the board of the company will need to confirm by resolution that the board of directors has applied the solvency and liquidity test, namely a financial assessment that the company will be solvent immediately after the proposed distribution as well as a forward looking assessment that the company will be able to service its debts in the coming year.

If any distribution does not comply with these provisions the directors of the company may be exposed to personal liability.

Intra-Group Loans

Section 45 of the new Act, although headed "Loans or other financial assistance to directors", also covers loans between companies in the same group. More specifically, the section regulates "financial assistance", which includes lending money and the provision of security, by a company to a "related or inter-related company". Companies are related through ownership or control. Thus a holding company is related to its subsidiary, and vice versa, as are co-subsidiaries to one another, to name but a few examples of how companies may be "related" or "inter-related".

Any form of related company financial assistance (save for certain specific exceptions) requires the approval of the company by way of a special resolution and the company providing the financial assistance must be both solvent and liquid after the transaction. Further, the terms of the financial assistance must be both fair and reasonable to the company providing the financial assistance.

In addition, notification of the financial assistance must be given to shareholders and to trade unions representing employees of the company concerned.

Section 45 will also apply to financial assistance that was approved under the old Act, but had not yet been implemented when the new Act commenced. In other words, such financial assistance will need to be re-approved under the new Act, in accordance with all the requirements of section 45.

Pre-Incorporation Contracts

The new Act provides for pre-incorporation contracts in section 21. This section maintains the position that written pre-incorporation contracts are valid contracts that may be entered into and subsequently ratified by the company concerned. The contract is then enforceable against the company as if the company had been a party to it when it was concluded.

An advantage of the new section 21 is that the pre-incorporation contract no longer needs to be filed with the Commission (previously CIPRO) on incorporation for the contract to be binding and enforceable on the company. This benefits companies that wish to keep the terms of their pre-incorporation contracts confidential.

The company must ratify the contract within three months of the company's incorporation. The company's board may, within this period, completely, partially, or conditionally ratify or reject any pre-incorporation contract. If no such action is taken, the company will be deemed to have ratified the agreement.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.