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Companies Act – A Heads Up

Sunday, 01 May 2011   (0 Comments)
Posted by: Author: John Giles
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 Companies Act – A Heads Up
The new Companies Act 2008 came into effect on 1 May 2011. There have been delays and problems with the implementation of the Companies Act, but it has commenced.The Act is going to have a huge impact on virtually every business in South Africa. It creates a whole new regime for the regulation of companies in South Africa. Here’s a heads up on some of the practical implications of this Act.We’re going to refer to it as the Companies Actor just the Act. Many people still incorrectly refer to it as the Companies Bill rather than as the Companies Act. A Bill is a draft Act that has not yet been enacted.

What is the timeline? Companies regulations?There are a few things to bear in mind.
•There are now final Companies Regulations for the new Companies Act.It is now possible to consider all the implications of the Act and implement it.
•The Companies Amendment Bill 40 of 2010 was passed by both houses on 22 March 2011, and has been signed by the president. A consolidated Companies Act (that includes the amendments)is not yet available.The Department of Trade and Industry has undertaken to provide one.Without a consolidated Act, it is difficult to find out what the Companies Act actually says.

There is no need to panic
The new Companies Act requires all private companies to convert their existing Memorandum and Articles of Association to a Memorandum of Incorporation or MOI.There is no need to rush to do so now, simply because the Act is now law.The Act gives you two years to do so (see below). You should wait until the time is right before fulfilling this and other requirements stated by the Companies Act. Further:

•the Companies Act commenced on 1 May 2011,but not that much changed on that date for companies already in existence.
•the contents of the existing Memorandum and Articles of Association of a pre-existing company will remain unchanged.The new Companies Act does not have any effect on them for the next two years.
•an existing shareholders’ agreement of a pre-existing company will still be valid and prevail if there is a conflict with the MOI or the Companies Act.
•there is a transitional period of two years that started on 1 May 2011.In many instances,you have until 1 May 2013 to act and there are many transitional arrangements.For example,a company can amend its MOI during the transition period.
•existing CCs will continue to exist and operate as before.They do not have to be converted  immediately.
•It is likely that the transition from CIPRO to the Commission (or CIPC) is going to result in backlogs. therefore you do not want to be the first to do various things.
•there is no need to rush. You should wait until the time is right.

The practical implications
So what are some of the practical implications? Here are some of the most important points:
•there are new liability rules for directors.
•it creates new rules for the incorporation,registration, organisation and management of companies in South Africa.It will apply if you want to register, administer or windup a company. Michalsons Attorneys, our company’s solution provider, offers a seminar, webinar, workshop, or executive briefing on what regulates companies
•there is a new process to register a company
•It defines the relationships between companies and their respective shareholders or members
and directors.
•on 1 May 2011, the Memorandum and Articles of Association were renamed the Memorandum of Incorporation (MOI or Memorandum). It is the same document with a new name. By 1 May 2013, every pre-existing company (a company that existed before 1 May 2011) needs to amend its memorandum to bring it in line (harmony)with the new Companies Act. To do this, we will be launching a new product called ‘Amend a Memorandum’ in May 2011.
•from 1 May 2011, it is no longer possible to register a new close corporation or CC. CCs will slowly become extinct and every CC will have to be converted into a company ‘Pty Ltd’. The conversion of close corporations to companies is governed by the Companies Act and Companies Regulations. Every CC will have to convert eventually.To do this, we will be launching a new product called ‘Convert CC to Pty’ in May 2011.
•on 1 May 2013, shareholder agreements(or shareholders’ agreements) will go from hero to zero. If there is a conflict between the shareholder agreement and any other document which regulates the company, the other document will prevail. From 1 May 2011 to 1 May 2013, the order of importance of  documents is Shareholder Agreement (if signed before 1 May 2011), Memorandum, Companies Act. After 1 May 2013, the order of importance is Companies Act, Memorandum, and lastly Shareholder Agreement.
•It is no longer possible (after 1 May 2011) to adopt a shareholders’ agreement that prevails over the Memorandum and Companies Act.You need to amend a memorandum before adopting a shareholders’ agreement.
Source: By John Giles (TaxTALK)



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