On 1 December 2010 the new companies act is likely to take full force and effect. This will result in interesting times for businessmen and legal practitioners alike.

 

Our current act governing company law was promulgated in 1973 and although this act has been amended several times, it is about time for reform in order to keep our laws governing companies in touch with current business trends and developments, both locally and abroad.

Firstly the new act consists of a mere 225 sections as opposed to the 443 sections of the current act. Secondly, the new act is written in plain language and chapters are dedicated to enhanced accountability and transparency, corporate governance, directors’ liability, business rescue (comparable with the current judicial management provisions) and so forth.

Thirdly, the current company constitutional documents consist of the memorandum and articles of association. The aforementioned constitutional documents are to be substituted by a single document known as the memorandum of incorporation.

The change of the constitutional documents of a company from consisting of the memorandum and articles of association to the memorandum of incorporation is a lot more than a mere name change.

Here’s a question to all legal practitioners: when last did you read a company’s constitutional documents from beginning to end? Almost never? This is understandable as they are largely generic and a lot of the detail is contained in the shareholders agreement, which is concluded between shareholders in order to regulate their relationship. Such shareholders agreements often contain provisions stating that in the case of any conflict between the company’s constitutional documents and the shareholders agreement – the shareholders agreement will prevail.

The new companies act, upon its commencement, will change this position greatly. It provides for unalterable and alterable provisions of the act. Alterable provisions, as the name suggests, may be altered. This however may only be done in the company’s memorandum of incorporation, otherwise such provisions will remain unaltered and will still apply to the company.

Furthermore, the new act states that for a period of two years after it becomes of full force and effect, in the case of any conflict between the existing constitutional documents of a company and the new act, the aforementioned constitutional documents will take preference. This does not extend to shareholders agreements and upon the new companies act coming into force, may leave certain provisions within shareholders agreements of no force and effect and overridden by the provisions of the new companies act.

Contact us for a free consultation and we will gladly help you understand what position your company will find itself in after the commencement of the new companies act.