Complying with Changes in Legislation

Memorandum of Incorporation, shareholder agreements and rules of company (Section 15)

The Bill proposes that the words “special conditions” be replaced by the words restrictive or procedural.

It also proposes that rules must take effect 10 business days after the rule is filed as opposed to the 20 days stated in the Act.

The Bill states that where a rule that has been filed is subsequently ratified, the company must file a notice of ratification within 5 business days, or must file a notice of non-ratification within 5 business days if not ratified, when put to a vote.

Any failure to ratify the rules of a company does not affect the validity of anything done in terms of those rules during the period that they had interim effect.

Amending Memorandum of Incorporation (Section 16)

The Bill proposes that if an amendment to the MOI of a personal liability company has the effect of transforming that company into any other category of company, the company must give at least 10 business days advance notice of the filing of the notice of amendment to:

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  Any professional or industry regulatory authority that has jurisdiction over the business activities carried on by the company; and
  
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  Any persons who:
  
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    In their dealings with the company, may reasonably be considered to have acted in reliance upon the joint and several liability of any of the directors for the debts and liabilities of the company; or
    
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    May be adversely affected, if the joint and several liability of any of the directors for the debts and liabilities of the company is terminated as a consequence of the amendment to the MOI.
    

A person who receives, or is entitled to receive, a notice may apply to a court in the prescribed manner and form for an order sufficient to protect the interests of that person.

Validity of company actions (Section 20)

The bill proposes that if, on application by an interested person, or in any proceedings in which a company is involved, a court finds that the incorporation of the company, any use of the company, or any act by or on behalf of the company, constitutes an unconscionable abuse of the juristic personality of the company as a separate entity, the court may declare that the company is to be deemed not to be a juristic person in respect of any right, obligation or liability of the company, or of a shareholder of the company or, in the case of a non- profit company, a member of the company, or of another person specified in the declaration.

Registration of external companies (Section 23)

The Bill proposes to amend the definition of an “external company” and to provide that a foreign company must be regarded as conducting business, or non-profit activities, within the Republic, if that foreign company is:

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  Party to one or more employment contracts within the Republic; or
  
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  Is engaging in a course of conduct, or has engaged in a course or pattern of activities within the Republic over a period of at least six months, such as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within the Republic.
  

A foreign company must not be regarded as “conducting business activities, or non-profit activities, as the case may be, within the Republic” solely on the ground that the foreign company is, or has engaged, in one or more of the following activities:

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  Holding a meeting or meetings within the Republic of the shareholders or board of the foreign company, or otherwise conducting any of the company’s internal affairs within the Republic;
  
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  Establishing or maintaining any bank or other financial accounts within the Republic;
  
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  Establishing or maintaining offices or agencies within the Republic for the transfer, exchange, or registration of the foreign company’s own securities;
  
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  Creating or acquiring any debts within the Republic, or any mortgages or security interests in any property within the Republic;
  
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  Securing or collecting any debt, or enforcing any mortgage or security interest within the Republic; or
  
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  Acquiring any interest in any property within the Republic.
  

Access to company records (Section 26)

The Bill proposes the following amendments to subsection (1) of section 26.

A person who holds or has a beneficial interest in any securities issued by a profit company, or who is a member of a non-profit company, has a right to inspect and copy, without any charge for any such inspection or upon payment of no more than the prescribed maximum charge for any such copy, the information contained in the following records of the company:

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  The company’s Memorandum of Incorporation and any amendments to it, and any rules;
  
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  The records respecting the company’s directors;
  
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  The reports to annual meetings, and annual financial statements;
  
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  The notices and minutes of annual meetings, and communications to shareholders meetings;
  
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  The securities register of a profit company, or the members register of a non-profit company that has members.
  

A person not contemplated in subsection (1) has a right to inspect the securities register of a profit company, or the members register of a non-profit company that has members, or the register of directors of a company, upon payment of an amount not exceeding the prescribed maximum fee for any such inspection.

Annual financial statements (Section 30)

The Bill proposes that a private company can be:

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  Audited voluntarily, if the company’s MOI, or a shareholders resolution, so requires, or if the board has so determined.
  
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  Independently reviewed in a manner that satisfies the regulations.

  Except to the extent required by any other law or agreement, a private company is exempt from the requirements to have its annual financial statements audited or independently reviewed, if every person who is a holder of, or has a beneficial interest in, any securities is also a director of the company.

  A new section 8 is also inserted that states that despite section 1 of the Auditing Profession Act, an independent review of a company’s annual financial statements does not constitute an audit within the meaning of the Act.