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What is the current status of the new companies Act of 2008? And when and how will it start to affect you?

Current status

The new Companies Act will come into force on a date to be notified by government, probably during the third quarter of 2010.  The new Act will replace the old Companies Act of 1973.  The Act has already been promulgated, but a significant number of errors have been identified and acknowledged by the Department.  It is unclear how these errors are being addressed and when we will see the final, corrected legislation.  A set of regulations has also been published, but only for public comment at this stage.  The regulations will be finalised in the months to come.  The answer, then, is that the Act will probably come into effect somewhere between July and September 2010, unless the correction of errors occasions further delay.

Implications for close corporations

Existing close corporations will be entitled to continue operating.  You will be able to convert a corporation to a company under the new Companies Act, but will not be obliged to do so.  However,as from the date of effect of the new Companies Act, it will not be possible to register new close corporations – so if you are thinking of establishing one in the future, you  should acquire a shelf corporation as soon as possible.

Implications for companies

Imagine that the IRB announces that it has replaced the rules of rugby.  The new rules, says the Board, are based on the old rules, but are intended to modernise the game and therefore introduce some fundamental new principles.  The new Companies Act will have exactly the same effect on business. The Sharks are lectured by professional referees at the start of each season on the implications of any rule changes made during the off-season.  Business people are going to need to do much the same in order to come to terms with the new rules of business.
Other than understanding the new rules, every company will need to take at least two legal steps.
Firstly, you will have two years from the implementation date to replace your existing Memorandum and Article of Association with a new Memorandum of Incorporation.  During this grace period your existing Memorandum and Articles of Association will prevail in the event of a conflict with the new Act.  Thereafter, the new Act prevails and your company may be left in a state of great uncertainty if there are conflicts.

Secondly, you will need to review your shareholders agreement.  These agreements will have dealt with matters that are not or could not be included in the Memorandum and Articles of Association under the old Act, and they are critical to the smooth operation of many companies, as well as the protection of shareholder interests.  Under the old Act, shareholders agreements were valid even if they were inconsistent with the Companies Act.  This is set to change and shareholders' agreements will be invalid to the extent that they are inconsistent with the new Act.  Unlike your existing Memorandum and Articles of Association, shareholders' agreements do not enjoy a grace period.  As soon as the new Act becomes effective, shareholders' agreements will immediately be invalid to the extent that they conflict with the new Act.

We believe that the sensible approach is to review your shareholders' agreements and Articles of Association at the same time – they cannot be looked at separately – and to do this as soon as possible.  This will ensure that the new Act does not pose any unexpected problems for you and your company.

 Tim is the Commercial Director at Venn, Nemeth & Hart Attorneys.  He can be contacted at tim@vnh.co.za

Do not hold your breath...  Getting a simple task such as a name reservation - which used to take 24 hours - is now taking 4 weeks!

Woes of CIPRO unfortunately affect us all.  The New Companies Act cannot be fully implemented without CIPRO functioning, neither can businesses register trade marks, or business names as required by the Consumer Protection Act.

The only advice is PLAN AHEAD.  Make sure you allow plenty of extra time for changes you may require to your statutory records.

Does your company or close corporation trade under names which are different to their registered name? 

The Consumer Protection Act which is likely to come into effect in October 2010 will outlaw this.

"Section 79 of the Act prohibits any person from carrying on business except under the person’s full name as recorded in an identity document or officially recognised or in the case of a juristic person (for example, a company), a business name registered with the Registrar of Companies." a

"Those boxes at the back of the garage marked Accounting Records: ABC CC 1995...can I thow them away?"

How long do you need to keep those dust filed, moth eaten records that one has ever or will ever look at?

With the introduction of Annual Returns for both Companies and Close Corporations, comes the threat from CIPRO that entities who do not submit their annual return may be deregistered.  What you probably do not know is the potentially severe cost to you of this...

"The members of a corporation shall within nine months after the end of every financial year of the corporation cause annual financial statements in respect of that financial year to be made out in one of the official languages of the Republic." Close Corporation Act, 1984 (No. 69 of 1984) s58

As a member of a close corporation, it is YOUR responsibility to ensure that the financial staments are prepared within this 9 month period.  Failure to do so is a contravention of The Act, which amongst other things, your accounting officer is required to report to the registrar.

Bottom line:  Make sure that your financials are prepared within the 9 month period.

The new Corporate Law Amendment Act (CLA) came into effect on 17 December 2007, which made a number of changes to your company's responsibilities in terms of audits and financial reporting. Important for the smaller private company (and bigger) you may now also be regarded as a widely held company!

With the publication of the proposed changes to the Companies Bill (expected to take effect in 2010), there has been uncertainty about the future of close corporations. The New Companies Bill provides for the co-existence of the new Companies Act and the Close Corporations Act.

The Department of Trade and Industry has, throughout the corporate law reform process, emphasised the need for simplification, flexibility, corporate efficiency, transparency and predictable regulation. In addition, a need for legislation to be appropriate to the legal, economic and social context of South Africa, was identified. The new Companies Bill proposed is expected to take effect in 2010. In the interim, the Companies Act, 1973, as amended by the Corporate Laws Amendment Act, which took effect on 14 December 2007, prevails.

Section 287A introduced by the Corporate Laws Amendment Act (CLA) last year makes it an offence to be a part of misleading financial information...