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Companies need to get in on the Act

11th September 2013

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The New Companies Act, promulgated in 2008, was only recently brought into force – affecting 1.6 million South African Companies and Close Corporations.

As of 1 May 2013, under the Act, a company’s Memorandum of Association and Articles of Association (MOAs) automatically convert to become its Memorandum of Incorporation (MOI) - the sole governing document and constitution of the company. Most MOAs, however, are not aligned with the Act, thus posing major compliance issues and the potential for contraventions of the Act. According to section 15(1) (a) and (b) of the Act, “Each provision of a Company’s MOI must be consistent with this Act and is void to the extent that it contravenes or is inconsistent with this Act.”

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Should a company be found to be non-compliant, an administrative fine of 10% of its turnover for the period during which the company failed to comply with a compliance notice could be imposed. In addition, the Minister of Trade and Industry may make a regulation prescribing the maximum amount of an administrative fine, which must be not less than R1 000 000.

More concerning to note is that, “if the Companies and Intellectual Property Commission (CIPC) has reasonable grounds to believe that a company is engaging in conduct prohibited by the Act, the Commission may issue a notice to the company to show cause why the company should be permitted to continue carrying on its business, or to trade, as the case may be.”

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“Many companies do not understand the potential pitfalls of keeping an existing MOA; leaving shareholders, creditors and others dealing with the company exposed to the repercussions of non-compliance,” says Adv. Leigh Hefer, Executive Chairman of OnlineMOI and an authority on the New Companies Act, Protection of Personal Information Act and the Consumer Protection Act. To this end Adv. Hefer, Jayne Hunter-Rhys, Chief Operating Officer of OnlineMOI and Dr John Hendrikse, Chief Executive Officer of OnlineMOI, a recognised expert in the field of accounting and corporate governance, have combined their collective knowledge and experience to schedule workshops across the country to raise awareness of the implications of the Act and the importance of submitting a revised, compliant and customised MOI.

Hefer explains, “Although the deadline for submission without paying the prescribed lodgement fee may have passed, companies should still submit this vital document. The MOI deals with matters such as the powers of the company,  the ability to create the company’s rules, securities and debt instruments, the composition of the board of directors, the authority and powers of directors, indemnification of directors and, in the case of non-profit companies, the disposal of the Company’s assets upon dissolution. These will, of course, vary depending on each company, its type and its envisaged needs and structure.”

She continues, “Unless the MOI reserves the authority for certain decisions to be made by the body of shareholders, the directors will, by default, be given the greatest powers that the Act allows which will severely limit shareholders’ rights. Shareholders will have no right to choose the Chief Executive Officer, no right to insist on the payment of a dividend, no right to vote to change the company’s line of business and no right to prevent directors from squandering money. It is therefore important that the MOI caters for the above in order to protect the rights of shareholders.”

To make the process of drafting an MOI more time and cost efficient, OnlineMOI have developed the OnlineMOI set of web-based tools, which enables the creation of legally compliant, customised MOIs to suit the specific needs of a company.

“For the accounting, auditing and legal firms that have to draft these, it can be a costly undertaking in terms of time and money for them and their clients. With OnlineMOI you can produce more than 20 MOIs a day – all of which cover every aspect of the Companies Act,” says Hunter-Rhys.

“Every company is unique, in terms of the rights, responsibilities, relationships, rewards, risks and liabilities of shareholders and individual directors. The DTI’s one-size-fits-all MOI does not protect the fiduciary and legal interests of the Company, its Directors and Shareholders and puts the drafter of the MOI at risk. MOIs should be customised to meet these requirements. It should also take cognisance of numerous important provisions such as whether the company is regulated or non-regulated, if the enhanced accountability and transparency requirements apply to the company, whether the board’s authority is to be limited or restricted and if the company requires audit, independent review or a financial accountability supplement,” states Hefer.

OnlineMOI offers several easy to use products, including MOIs for an Owner-managed Company, a Home Owners Association (Non-Profit Company) and a Personal Liability Company, which are a first in the market and only available from OnlineMOI.

Marius Theart, an Accounting Officer, Tax Practitioner and CEO of Capstone Advisory Services says, “The workshops and tools provided by OnlineMOI are invaluable for any professional service provider or Company secretary concerned with ensuring compliance with the Companies Act. I can now add to my bottom line and that of my clients whilst increasing profits in half the time. This software ensures that all documentation is compliant with the Companies Act, and provides free, value added documents needed by the CIPC.”

“From the workshops we have run so far, it is quite frightening to see how little understanding there is regarding the Act and the potential implications of exposure to it. Awareness of its possible ramifications and preventing these issues now, will far be easier and cheaper than fixing them later. As they say, prevention is always better than cure,” concludes Hunter-Rhys.

For more information, visit https://www.onlinemoi.co.za

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