Pri­vate com­pa­nies may be deemed to be pub­lic

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - VICKY EUS­TACE

AS THE two-year “grace pe­riod” is coming to an end this month, the new Com­pa­nies Act No 71 of 2008 will be in full force and its ef­fects are far-reach­ing. While the fo­cus has been on the du­ties of direc­tors, pri­vate com­pa­nies who have over the years is­sued debt in­stru­ments, listed or un­listed, are fast ap­proach­ing their cut-off line to now reg­is­ter as a pub­lic com­pany and meet the re­quire­ments of a pub­lic com­pany.

The main dis­tin­guish­ing fac­tor be­tween a pub­lic and pri­vate com­pany is that a pub­lic com­pany is far more reg­u­lated and sub­ject to greater pub­lic scru­tiny. Pri­vate com­pa­nies are more re­stricted in is­su­ing debt in­stru­ments and trans­fer­ring shares to the pub­lic.

In terms of the pre­vi­ous Com­pa­nies Act No 61 of 1973, sev­eral large pri­vate com­pa­nies were able to is­sue se­cu­ri­ties which were traded, and even listed on the stock ex­change, due to the nar­row def­i­ni­tion of “shares”. How­ever, the new broader def­i­ni­tion of “se­cu­ri­ties” in the new Com­pa­nies Act means that in terms of the def­i­ni­tion of a pri­vate com­pany in sec­tion 8 (2) (b) of the new Com­pa­nies Act, any pri­vate com­pany that has is­sued notes, bonds, deben­tures, in­stru­ments based on an in­dex and other debt in­stru­ments (which are more fully set out in the def­i­ni­tion of “se­cu­ri­ties” in the Se­cu­ri­ties Ser­vices Act No 36 of 2004) will now be deemed to be a pub­lic com­pany, and the direc­tors must make the nec­es­sary change with the Com­pa­nies and In­tel­lec­tual Prop­erty Com­mis­sion (CIPC) and en­sure cor­po­rate gov­er­nance as a pub­lic com­pany.

As set out in the ad­vi­sory opin­ion pro­vided by CIPC on April 2 2012, they may do this in one of two ways: ei­ther by fil­ing a new Mem­o­ran­dum of In­cor­po­ra­tion, or by amend­ing their cur­rent Mem­o­ran­dum of In­cor­po­ra­tion by re­mov­ing ar­ti­cles re­lat­ing to pri­vate com­pa­nies and in­sert­ing those re­lat­ing to pub­lic com­pa­nies.

The cost im­pli­ca­tions of this wider def­i­ni­tion are ex­ten­sive and the con­se­quences all-em­brac­ing. As stated above, a new ap­pro­pri­ate mem­o­ran­dum will be re­quired; an au­di­tor will have to be ap­pointed each year at the

The cost im­pli­ca­tions of this wider def­i­ni­tion are ex­ten­sive and the con­se­quences all-em­brac­ing

pub­lic com­pany’s an­nual gen­eral meet­ing in ac­cor­dance with sec­tion 90 of the new Com­pa­nies Act; the com­pany must ap­point a per­son knowl­edge­able or ex­pe­ri­enced in rel­e­vant laws as a com­pany sec­re­tary, as set out in sec­tion 86 of the new Com­pa­nies Act; the now pub­lic com­pany is re­quired to hold an­nual gen­eral meet­ings with its share­hold­ers; and the board com­po­si­tion will have to be re­viewed in line with the re­quire­ments of a pub­lic com­pany.

A pri­vate com­pany that may sud­denly be deemed to be a pub­lic com­pany may find the costs and pro­ce­dures of be­ing a pub­lic com­pany quite oner­ous and would be ad­vised to seek the ad­vice of their at­tor­neys on the nec­es­sary steps to be taken for com­ply­ing with the new leg­is­la­tion.

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