The Act, MOI Flashcards
What is company law?
Company law can be defined as those legal rules which regulate the incorporation and deregistration of a company and which regulate the relationship between the company, its shareholders, directors and third parties.
Distinguish between unalterable provisions, alterable provisions and default provisions of the Act?
In defining the relationships between companies and their respective shareholders or members and directors the Act contains
• Unalterable provisions;
o “unalterable provision” means a provision of the Act that does not expressly contemplate that its effect on any particular company may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect by a company’s Memorandum of Incorporation or rules (In short the MOI cannot abolish unalterable provisions by providing for more lenient provisions);
• Alterable provisions
o “alterable provision” means a provision of the Act in which it is expressly contemplated that its effect on a particular company may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect by that company’s Memorandum of Incorporation (In short the MOI may change alterable provisions to suit the needs of the company);
• Default provisions
o Default provisions are provisions of the Act which will automatically apply if the MOI is silent on the matter (In short a default provision apply where the MOI is silent on the matter);
Discuss MOI with regards to the act?
The MOI and the provisions of the Act
The MOI must be consistent with all provisions of the Act and any provision in the MOI contrary to the Act is void. The MOI may provide for the following:
• Issues not addressed in the Act: The MOI of a company may provide for any provisions not addressed by the Act.
• Issues addressed in the Act:
o Unalterable provisions: Unalterable provisions are provisions of the Act which the MOI cannot abolish by providing for more lenient provisions. The MOI may however alter the “unalterable provisions” by imposing on the company a higher standard, greater restriction, longer period of time or any similarly more onerous requirement, than would otherwise apply to the company in terms of an unalterable provision of this Act. Unalterable provisions include:
▪ director duties (s76)
▪ provisions regulating the protection for whistle-blowers.
o Alterable provisions: Alterable provisions are provisions of the Act which the MOI may alter to suit the needs of the company. Alterable provisions include:
▪ Private, non-profit and incorporated companies may elect to comply with the extended accountability requirements of Chapter 3 of the Act (Sect 34(2));
▪ Shares within the same class has the same rights, limitations and terms, unless the MOI provides otherwise (Sect 37(1));
▪ MOI may exclude the right of first refusal of current shareholders of a private company in respect of shares issued by the company (Sect 39(3));
▪ MOI may forbid the board to render financial assistance to parties wanting to acquire shares in the company (Sect 45(2));
▪ MOI may provide for longer minimum notice periods for meetings;
▪ Electronic notice and electronic participation in meetings are allowed unless MOI prohibits it (Sect 63(2));
▪ Companies may determine a higher number of minimum directors than what the Act prescribes (Sect 66(2)).
What are the specific issues dealt with by the MOI?
Specific issues dealt with in the MOI
The Companies Act imposes certain specific requirements on the content of a Memorandum of Incorporation, as necessary to protect the interests of shareholders in the company. The MOI deals with the following issues:
• the objects and powers of the company
• authorised share capital and types of shares
• any restrictions or limitations on the powers of the company
• what happens to the assets if the company is dissolved
• composition of the board of directors
• election and removal of directors
• alternate directors
• frequency of board meetings
• committees of the board
• personal liability of directors
• indemnification of directors
• powers of directors and powers of shareholders
• restrictions on powers of directors and powers of shareholders
• rights of shareholders, including voting rights
• disposal by shareholders of their shares
• ability to create new rules of the company
• amendment of the MOI
Discuss amendments to the MOI?
The Board, or shareholders entitled to a minimum of 10% of the voting rights in the company, may propose an amendment of the MOI. The MOI must contain the requirements for its amendment (including special conditions for or prohibitions against amendments).
• Special resolution: Amendments are affected by way of a formal or informal special resolution. A formal special resolution refers to a resolution taken at a shareholders meeting by at least 75% of the voting rights; An informal special resolution refers to a resolution taken by at least 75% of the holders of a companies’ securities, by submitting the resolution to the shareholders and the shareholders then vote on the resolution in writing within 20 days after the submission. The Memorandum may permit a special resolution to be adopted by less that 75% on condition that the difference between an ordinary and special resolution must be at least 10%). The special resolution is effective from the date the notice of an amendment is filed at and resisted by the CIPC.
• By the Board of Directors: If the MOI allows the board to do so; the board may amend the MOI regarding matters relating to shares.
• Required in terms of a Court order: Amendments required in terms of an order of court is affected by a resolution of the company’s board and does not require a special resolution by the shareholders.
After amending the MOI, the company needs to file a Notice of Amendment (together with the prescribed fee) to the Commission.
Discuss rules of the company
The board of directors of a company have the authority to make rules regarded as either necessary or incidental if the matter is not covered by the Act or the MOI. The rules must be consistent with the MOI and the Act. Any rule that is inconsistent with the MOI or Act will be void. The rules made by the directors must be published to the shareholders and filed. The rules will become operational 20 days after date of publication (or later if so stated in the rules published). The rules are only binding in the interim until the shareholders vote on it at a general meeting. The rules will only be binding on a permanent basis after ratification by the shareholders/members take place through an ordinary resolution at a general meeting. If the general meeting does not ratify the rule, the board may not institute a similar rule for 12 months after the previous rule, unless they get advance permission through an ordinary resolution at a shareholder meeting.
