As the May 2013 deadline looms, companies are advised to ensure they comply as exceptions are unlikely.
Smaller companies may not be aware of what is expected of them before May 2013
Large corporates generally have the resources to ensure compliance with changes in legislation and generally do so timeously. Many smaller enterprises
are either unaware of the implications of the new Companies Act or are putting off aligning themselves with the Act until the last minute in order to
save costs, which is ineffective as aligning with the new Companies Act may potentially save a company money.
For example certain companies, depending
on their public interest score, are exempt from being audited unless such company’s Memorandum of Incorporation (the new name for the old Memorandum and Articles of Association) so requires.
All “old Memorandums of Incorporations” will require a company to be audited thus there may be companies who are unnecessarily incurring such costs.
Companies should consider updating their Memorandum of Incorporation and any Shareholders Agreements. This is because any pre-existing Memorandum of Incorporation and pre-existing Shareholders Agreement prevails over the new Companies Act until May 2013 whereafter the new Companies Act will prevail and the Memorandum of Incorporation will prevail over the Shareholders Agreement to the extent there are any conflicts. This could have dire consequences for Shareholders as it was common practice in the past to negotiate a structure and contain the detail thereof in the Shareholders Agreement. After May 2013 many Shareholders may be faced with a situation where many of their rights are simply superseded by the “default position” as opposed to what they had initially agreed upon.
Challenges facing compliance within the two-year window period
As with all new legislation, it’s likely that the biggest problem faced by companies and practitioners alike is the interpretation thereof. We cannot rely on years experience and case law regarding some new principles and content contained in the new Companies Act. CIPC (the Companies and Intellectual Property Commission) may provide advice and non-binding opinions on the interpretation of provisions of the Act but the have, however, been inundated with queries whilst trying to get up to speed with the new legislation whilst also dealing with inherent historical backlogs from the previous commission.
The new Companies Act is the simplification of the process of registering a company, and of regulatory compliance, without exposing the various stakeholders. The Act attaches a higher degree of compliance depending on the Company’s Public Interest Score. A Companies Public Interest Score is calculated taking into account the number of shareholders in a company, the number of employees in a company, the amount of third party liability and the turnover of the company.
CC confusion clarified
A Closed Corporation (CC) may remain as such, currently there is no obligation to convert to a Company. However no new CC’s may be incorporated. Members of CC’s must be mindful of the fact that certain provisions, such as Financial Reporting Standards and whether or not a CC is required to be audited, that apply to CC’s in some instances.
Directors of a Company must either bring themselves up to speed with the new Companies Act, or seek advice from a legal entity, as there is now a higher degree of accountability attached to the position of director. Even prescribed officers of a company may be held liable in certain circumstances