After much anticipation, the 1 May 2011 saw the Companies Act 71 of 2008 come into operation. Interestingly enough, it has enjoyed less attention than it’s cousin the Consumer Protection Act, which became operational on 1 April 2011. The new modus operandi of a company has to comply with the Companies Act 71/2008, the Companies Amendment Act 3 of 2011 and the regulations to the Companies Act.
It has been described as transformative by government and the press. Its enactment has effectively changed our company law structure drastically and aligned it with many international trends. For example:
- Directors’ rights, duties and liabilities are codified in law
- Mergers and acquisitions now have legislative framework to guide the process
- The introduction of the new concept of business rescue
One of the most pressing developments resulting from the enactment of this Act is the abolition of close corporations, although existing close corporations will continue to exist. In essence this means that all corporate structures will from the 1 May 2011 be governed by one piece of legislation.
According to the Act, some of the arrangements and time limits for compliance after the general effective date are as follows:
- Existing companies and close corporations will continue to exist as if they were incorporated under the Act.
- Existing companies must file a MOI (memorandum of incorporation) within two years.
- Shareholders agreements entered into before the 1 May 2011 will be valid for a period of two years.
- Par value shares must be converted to no par value shares within five years.
- New close corporations may only be registered until section 13 of the new Act comes into force and effect, and no conversions of companies into close corporations may take place after the general effective date of the Act.
Although the Act makes provision for the MOI to be amended and filed with the registrar (CIPC, formerly CIPRO) within two years from the general effective date of the Act, some of the provisions relating are effective immediately. These include:
- Directors’ duties, conduct and liability.
- The rights of shareholders to receive any notice or to have access to information.
- Meetings and resolutions of shareholders or directors and the adoption of resolutions.
- Take-overs and fundamental transactions.
It is therefore of great importance that you consult with your attorney to ensure that your business and its structure will meet the new requirements set out by the Act. If you would like more information on the new Companies Act, please refer to our news page where you will find many articles we have written featuring this particular subject.