Linda Stephenson provides a high level overview of the new Companies Act.
The Companies Act, 71 of 2008 as amended by the Companies Amendment Act, 3 of 2011 came into operation on 1 May 2011.
Briefly, the Act introduces the following new provisions, amending the Companies Act 61 of 1973 and the Close Corporations Act 69 of 1984:
- The Companies and Intellectual Property Commission (CIPC) (previously CIPRO), The Takeover Regulation Panel (previously Securities Regulation Panel), The Financial Reporting Standards Council (FRSC) and the Companies Tribunal will be the institutions that will regulate, administer and enforce the Companies Act.
- The Close Corporations Act is abolished and all Close Corporations are henceforth deemed to be companies in terms of the Companies Act. The Act provides for two categories of companies, namely, Non-Profit Companies (successor to the old Section 21 company) and Profit Companies, which includes private companies, personal liability companies, public companies and state-owned companies. The Act also caters for External and Domesticated companies. The former is a foreign profit or non-profit entity that carries on business or non-profit activities in South Africa and the latter is a foreign company whose registration has been transferred to South Africa.
- In line with a theme of increased shareholder protection and activism, a flexible regime is adopted for companies that operate under exceptional circumstances, in that all their shares are owned by related persons and all their shareholders are directors. The rationale behind that is in the former instance there is no need to protect minority shareholders and in the latter instance there is a diminished need to seek shareholder approval for certain board actions.
- Provisions regulating the public offering of securities within South Africa will be applicable to the securities of any external company, whether or not it carries on activities within the Republic.
- With respect to company formation the Act intends to minimise requirements for incorporation, maximise flexibility as regards design and structure and restrict the ambit of regulatory oversight on matters relating to company formation and design. The Memorandum of Incorporation serves as the sole governing document of a company and should therefore meet requirements in terms of content, as imposed by the Act. A standard form of a Memorandum of Incorporation is provided, and any amendments thereto, must be consistent with the spirit of the Act.
- Name reservations are no longer a requirement and a company name may only be restricted where such restriction is necessary to protect the public from misleading names, to protect the interests of owners of names and to protect society from names that could be characterised as hateful or negative. Companies must use their registered name at all times and all names must have the required ending, e.g. “Ltd” for a public company, “Inc” for a personal liability company, “(Pty) Ltd” for a private company, “SOC Ltd” for a state-owned enterprise and “NPC” for a non-profit company.
- All companies have a common accountability and transparency burden to fulfill. However, public companies and certain private companies, which may have a greater responsibility to a wider public as a consequence of their significant social or economic impact, have greater accountability, disclosure and transparency requirements to comply with. Of note, is the exemption for private companies and personal liability companies from producing annual financial statements provided all securities are held by one person and every security holder of the company is also a director of the company, in question. The annual financial statements of a public company must be audited whilst that of other companies must either be audited or subject to an independent review, the manner, form and procedure thereof to be stipulated in future regulations.
- A capital maintenance regime based on solvency and liquidity is created, thereby abolishing the concept of par value shares and nominal value. In addition the Act requires shareholder approval for share and option issues to directors and other specified persons, or financial assistance for share purchase or any financial assistance to a director or related person. A general scheme designed to protect the holders of securities other than shares is introduced.
- Corporate Governance matters are addressed and introduce flexibility, minimum standards, additional categories of directors and provisions for removal of directors from office. The duties of directors are codified, namely a fiduciary duty and a duty of reasonable care and directors may now either be declared delinquent or placed under prohibition by a court. The section also touches on the concepts of conflict of interest, director liability, indemnity and insurance. Personal liability of directors for breach of their duties replaces criminal sanction.
- Takeovers and fundamental transactions are regulated by the transformed Takeover Regulation Panel. Remedies are provided such as appraisal rights for dissenting minority shareholders, and compulsory acquisition of minority shareholding in a takeover scenario. Provision is also made for a court to approve fundamental transactions where a significant minority is opposed to the transaction or on the basis of procedural irregularity or manifest unfairness.
- A new concept of business rescue, replaces judicial management of companies to recognise the interests of shareholders, creditors and most especially employees. Independent supervisors will have their own regulator.