Need for a new mem­o­ran­dum of in­cor­po­ra­tion

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - EWALD VAN HEER­DEN

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.

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