One of the transitional arrangements of the 2008 Companies Act (the Act) was that businesses had two years to migrate from their constitutional documents (‘Memorandum and Articles of Association’ for a company) to the new MOI. If you haven’t yet completed this exercise, there are good reasons why you should now consider your MOI without delay:
- The Act differs from the previous Companies Act and understanding these differences and the impact they may have on your business is a time consuming exercise
- During the two year transitional period your Memorandum and Articles of Association will take precedence over the Act (subject to certain transactions such as a take-over or duties of directors) but from 1 May 2013, if parts of your Memorandum and Articles of Association conflict with the Act, these parts will be void.
How will the MOI affect my business? It depends on the complexity of your business – for example owner-managed entities may well be able to use the default MOI in the Act, but even in simple operations you should have your accountant review your MOI and Shareholders Agreement as any provisions in them that conflict with the Act will have no legal force after 30 April next year. Finally, check your old Memorandum and Articles of Association to see if any specific clauses were inserted. If so and if they are still relevant you may choose to include them in your MOI (provided they do not clash with the Act). As you can see, even with a simple business there is quite a bit to think about. If your business has more layers in it – for example, you may have directors or managers running the business – there is more to consider. Alterable provisions come into play and there are more than forty of them in the Act. These may be curbed or removed by the owners of the business when drafting the MOI. Typically, alterable provisions give wide powers to directors to, for example, issue shares or take on business debt. The old Act gave extensive powers to the owners of the business whereas the new Act gives widespread powers to directors and/or senior managers and it is up to the owners to accept these powers or restrict them when doing the MOI. Take advice! There are other issues to take into account, so it is worth getting expert advice – there is plenty at stake. Remember the deadline for completing your MOI is looming. As an extra incentive if you miss the deadline of 30 April, you will have to pay the Companies and Intellectual Property Commission (CIPC) a fee when submitting your MOI – there is no CIPC charge until then. © DotNews, 2005-2012. This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.