Need for a new memorandum of incorporation
THERE seems to be a misconception in the market that companies have two years from the effective date of the new Companies Act to adopt a memorandum of incorporation, which replaces the old memorandum and articles of association.
The act does not actually require that a company adopt a memorandum of incorporation but in that case the memorandum and articles automatically becomes the memorandum of incorporation.
The problem however, is that once the two-year period is over companies are not allowed to have any provisions in the memorandum of incorporation that contradict the act. As it’s likely that an old memorandum and articles will contain such provisions, adopting a new memorandum of incorporation will probably be necessary.
There is good reason to do this as soon as possible.
During the “two-year transitional period” companies will generally have to comply with the provisions of the memorandum and articles where it contradicts the act.
The old memorandum and articles could, for instance, include a requirement to have an audit, and as long as that provision is not changed the company will have to comply, irrespective of what the new act requires.
The act also contains many innovative provisions that could have an effect on the way a company is governed, but to make use of these provisions a company has to tailor its memorandum of incorporation.
The act has changed dramatically from its predecessor, but to take advantage of the many useful changes it is essential to adopt a new memorandum of incorporation as soon as possible.