Unless you comply with the new Companies Act, and have all your company’s documentation re-drafted, by the end of the month, your company will go up in smoke. Just kidding. We’d like to alleviate your fears around the new Act by looking rationally at how it will be implemented.

First off, although companies used to have a Memo and Articles, these will now be replaced by one document, called the Memorandum of Incorporation or MOI. You can download a standard template MOI from the Companies & Intellectual Property Commission website or get a lawyer to draft you one.

Not everyone realises that as of 1 May, your company’s existing Memo and Articles should be referred to as the “MOI” despite the fact they are exactly the same documents as they were in April and still say at the top “Memo” and “Articles”. This is a little confusing, but important to understand because there are sections of the new Act (such as section 35) that deal with “amending your MOI” when what is actually meant is “replacing your existing Memo and Articles with an MOI”.

Most people have heard about the so-called “grace period” of two years for companies to get their documents in order. Schedule 5 section 4 of the new Act deals with the transitional arrangements and below is a summary of some of the main points.

1. Despite the repeal of the previous Act, a pre-existing company retains all the powers it had in terms of old Act in respect of its shares that were issued and outstanding at 1 May 2011

2. The shareholders also continue to have all the same rights with regard to their shares issued before 1 May 2011, whether these were rights in terms of the old Companies Act or rights in terms of the Memo and Articles.

3. Only if a company amends its existing Memo & Articles – (remember it’s now called the MOI whether you’ve done anything to these documents or not) – after 1 May 2011, will the shareholders need to check if their rights have changed or not.

4. Companies have 2 years to replace their old Memo and Articles with a new MOI in line with the new Act, free of charge. Note that “an amendment” will in all likelihood mean complete substitution of a new MOI as it is not possible to tweak your old Memo and Articles to be in line with the new Act.

5. Some companies will need a name change as a result of the new Act – for example, a company has to have NPC after its name if it’s a Non Profit Company or “RF”, which stands for Ring Fencing, after its name if that company has special conditions relating to the amendment of the company’s MOI. (The rationale for this is that the “RF” will stand as a warning to the public that this company has special or unusual conditions.)Even without doing anything, the company will be deemed to have changed its name to comply with the Act. If a name change is required, the company has two years to file the notice of name change along with the special resolution that authorised it.

If my company has a shareholders agreement can we continue unfazed by the new Companies Act?

• Yes, if you have a valid shareholder’s agreement, this will continue to be of full force and effect up to 30 April 2013 and will take precedence over the Act and take precedence over whatever is contained in the company’s MOI (by which I mean the old Memo & Articles). So as you were then.

• But after 2 years, if you have done nothing, your MOI will now take precedence over your Shareholder’s Agreement. And if you haven’t replaced your old MOI with one that’s in line with the new Act, things could get very confusing.

• If during the next 2 years, the Company changes its MOI, then this new MOI will take precedence over the shareholder’s agreement. This means that you can no longer amend the MOI without simultaneously updating or creating a new shareholder’s agreement. According to many lawyers, shareholders agreements will now deal with fewer issues and sometimes be dispensed with altogether as the MOI has become a more substantial document of greater binding effect.

• Shareholders need to find out when the company plans to update its company documents to ensure they understand the effect, if any, upon their rights.

What is the situation if we never had a shareholders agreement?

If, at present, you don’t have a shareholders agreement and the company is governed only by its Memo and Articles, then immediately from 1 May 2011, the MOI is subject to the Act when it comes to certain BINDING provisions. In other words, if your current Memo and Articles contain something that conflicts with the new Act concerning the issues below, then the provisions in your documents are void, what the Act says will trump them. These binding provisions deal with:

• directors duties, conduct and liability;

• shareholders’ rights to receive notice or have access to any information;

• directors’ and shareholders’ meetings and adoption of resolutions;

• fundamental transactions, take-overs and offers, except to the extent that it is exempted in terms of Chapter 5 of the new Act.

Our advice to you in this case is to dig out your Memo and Articles, highlight the sections dealing with the above things and then start to read the new Companies Act (only 330 pages) and Regulations (166 pages) to see what the new position is. Or you can call for a lawyer’s assistance.

Just to clarify: shareholders agreements will only reign supreme for the next 2 years provided the company doesn’t make changes to its MOI. As soon as any changes are made to any constitutional documents (Shareholders Agreement, existing Memo & Articles) then the new regime will come into play. To give a practical example: the new Act section 66(8) says a company may decide whether or not to remunerate directors for their services and put this in the MOI. Because there is a choice we call it an “alterable” provision. However, the next sub-section 66(9) is unalterable or binding because it states that if a company does decide to pay its directors, it may only do so subject to a special resolution being passed by the shareholders on that issue within the last 2 years. The company doesn’t get to decide whether not this bit applies, therefore it is a binding provision.

What this means, is that unless you have a valid shareholders agreement in place now that says a special resolution is NOT required for this issue, then the Act applies and a special resolution is required. (It doesn’t matter what your current Memo & Articles say on this because they are subject to the Act if the matter concerns a binding provision).

The notion of what trumps what is definitely a little confusing when you first try and get to grips with it. The new order of importance is Act, then MOI, then shareholders agreement. This new order kicks in 2 years from 1 May 2011 or, as soon as changes to any company documents have been made.

So what happens if you get things wrong? The transitional arrangements state that until you file your amended MOI, neither the Commission nor the Takeover Panel may issue a compliance notice if the company does something that is inconsistent with the Act, but consistent with the company’s own MOI or shareholders agreement. But be advised that while you might not be issued with a compliance notice, a far scarier prospect will be an aggrieved shareholder who feels his rights to receive notice or the adoption of a resolution was not legal. You have been warned! It is in your best interests to mitigate the risks by getting professional legal advice or appointing a lawyer as an enterprise risk director to advise your board on the new Act for the next year or so.

Written by Amanda Boardman of Robyn Hey & Associates