COMPANY AMENDMENTS EXPLAINED

Presented by:Lucinda Steenkamp

CONTENT

• Introduction

• Capital: The impact of the Companies Act

• Share structures

• MOI Amendments (stats)

• Practical Considerations

• Conclusion

INTRODUCTION The New Companies Act coming into effect on 1 May 2011 provided much

needed structured changes to the general governance, processes and

responsibilities of companies embodied in their Memorandums of

Incorporation (MOI’s).

One of the biggest and most impacting changes by the new Companies

Act, was the changes made to the composition of company capital and the

consequences thereof.

The comfort zone of companies with regards to par value shares was

changed radically and the uncertainty created as a result have been and

still needs to be addressed continuously.

CAPITAL: IMPACT OF THE COMPANIES ACT • The Companies Act of 2008 brought about the radical simplification and modernization of

statutory financial provisions that eliminates the traditional (but arbitrary) concepts of par value

shares;

•The introduction of uniform standards for determining the legality for all types of distributions,

whether by way of dividends, redemptions or repurchases of shares, or other distributions of

capital as well as the introduction of maximum flexibility with regard to the rights attaching to

shares.

•The 1999 Companies Amendment Act had earlier allowed for the No Par Value shares without

eliminating Par Value Shares. Its effect was that there could be no mixture of Par Value and No

Par Value Shares within the same class of shares in a company.

• Prior to the 2008 Companies Act, the 1999 Companies Amendment Act stopped short of

making ‘the solvency and liquidity test’ applicable to all forms of distribution.

CAPITAL: IMPACT OF THE COMPANIES ACT • As evidenced by s85(4) and s90(2) of the 1973 Companies Act, the 1999 Companies

Amendment Act introduced the solvency and liquidity test only for ‘share buy-backs and

payments to shareholders, primarily in the form of dividends.

• The test was not extended to redemption of redeemable preference shares, for example, even

though redemptions are another form of distribution.

• Companies Act of 2008 clarified and enhanced this test by including any form of distribution

which has a wide definition in terms of Art 1 of the Act.

SHARE STRUCTURES

• In terms of the Companies Act, 2008 the elimination of the traditional concepts of

nominal or par value shares was introduced subject to Schedule 5, Item 6.

• No company may create new par value shares, or increase or subdivide existing

par value shares except for Banks as defined in the Banks Act.

• An authorized share has no rights associated with it until it has been issued,

although the MOI may already contain the rights and privileges associated with the

authorized shares of the company.

• Companies cannot have par value and no par value shares of the same class (sect

36 (1) ), which requires a clear distinction between the classes of shares .

SHARE STRUCTURES

•Companies may issue par value shares up to the number of already authorized par

value shares, if shares were in issue at the effective date of the Act

• Retroactive resolution authorizing issue of shares may be done within 60 days after

the date on which the shares were issued.

• In order to increase the number of par value shares, companies must first convert

the shares to that of no par value and then increase, OR in the alternative create a

new class of no par value shares.

• Report as set out in Regulation 31(7) is necessary for the conversion of issued par

value shares. Copy thereof to be lodged with SARS as well as a provision of ensuring

that the Capital Gains Tax is not undermined.

MOI Amendments (Stats)The end of the transitional arrangements as provided for by the Companies Act

to allow pre-existing companies 2 years of grace to amend their current Memo’s

and Articles and bring it in line with the Act, free of charge, created a massive

backlog within the Company Amendments division.

April 2013 – December 2013

MOI AMENDMENTS RECEIVED PROCESSED

67 838Staff compliment of 12 officials

60 795

PRACTICAL CONSIDERATIONSCareful cognizance must be taken with regards to proper first

time company registration to avoid continuous and unnecessary

filing of amendment applications. There are three different profit

companies (Sect 8) to choose from:

-Private companies

- Cannot offer shares to the public

- Restrictions on transfer of shares

-Personal liability companies

- Past and present directors are jointly and severally liable

- Doctors practices and lawyers firms

-Public companies

PRACTICAL CONSIDERATIONSNon-profit companies may be incorporated with or without members and is the only company type, which require a specific main business (object) to be indicated in accordance with Schedule 1 of the Companies Act

Non-profit companies cannot convert to a profit company. It is prohibited by the Act.

Companies Act makes it possible to incorporate a company without a name and will be awarded a registration number as its name. Trading may commence and continue indefinitely.

Companies does not have to adopt a new MOI each time an amendment to the content is made, unless it is substantive.

Correct company type must be chosen upon incorporations to alleviate costly and time consuming subsequent amendments.

CONCLUSION

Transitional arrangements with regards to the MOI’s of pre-existing companies

came to an end on 30 April 2013, and it is important for each and every company to

ensure that the contents of its MOI, rules and shareholder agreements, are in line

with the Companies Act. Any conflict between the Companies Act and its MOI’s

after 1 May 2013 will result in the Act prevailing, (Schedule 5, Item 4(4) ) and this

may cause company decisions, and actions to be null and void with far reaching

consequences. Revision of the impact of shareholder agreements are of utmost

importance as content hereof, cannot override the MOI or the Companies Act as

was possible in terms of the previous Companies Act.

Compliance to the Companies Act with regards to company capital and others will

ensure a healthy productive company and economy.

QUESTIONS?