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Legal Talk

Legal Talk

Author: Fawzia Khan
Date: 2013-01-11
As the deadline of 1 May 2013 looms, time will quickly run out for all those companies who have not yet complied with the New Companies Act No. 71 of 2008, where companies have to make sure that they are fully compliant with the New Companies Act or risk losing their previously enforceable rights. What does this actually mean? Well in terms of the old Companies Act, the "constitutional documents", which consisted of Articles of Association and Memorandum of Association, were signed by the company directors and shareholders. In addition to these documents, many companies also signed a shareholders agreement setting out how the internal affairs of the company would be conducted.

Almost all these shareholder agreements would contain a provision to the effect that if a conflict arose regarding a term in the shareholders agreement against say those of the articles of association of the company, the provisions of the shareholders' agreement would take precedence.

The New Companies Act which came into effect on 1 May 2011 has now fundamentally changed that scenario and companies have until 1 May 2013 to regulate matters. The Constitutional Documents now automatically become the company's Memorandum of Incorporation (MOI) which is a single document incorporating all these provisions.

In terms of the new Companies Act, the shareholders agreement must comply fully and be consistent with the provisions of the Act. Section 15(7) of the New Act requires that the shareholders agreement and the MOI must be fully consistent with New Act, and if there is any inconsistency, the provision of the shareholders agreement or MOI it will be considered "void to the extent of the inconsistency". This is in complete contrast with the previous way shareholder agreements were structured. Areas such as minority shareholders rights, the way board meetings are regulated, borrowing powers of the company, the payment of dividends and many others will need to be fully consistent with the new Companies Act. It is therefore vital that you review your current shareholder agreement. After 1 May 2013, if there is any conflict in your constitutional document or shareholders agreement with the Act you may find that rights, which you previously considered enforceable, may in reality offer you no protection whatsoever. Know your rights. Let us review your shareholders agreement. Email fawzia@thelawdesk.co.za or call 031-5025670 for any legal assistance.