In 1994 the country changed drastically and the Constitution became the supreme law of the country.
All law is now subject to the Constitution. It is in the light of this major change, that it is inevitable that some of our statutes will eventually have to undergo a complete makeover; disregarding a process of ongoing surgery.
Linda Erasmus, CEO of Fine and Country South Africa says that the underlying message of the new Companies Act is to make provision for small, medium and large companies to be incorporated without creating too many “legal vehicles” for incorporation.
This alone makes it more user friendly for the layman who is doing business with all the different legal personas and it will also be easier to educate the younger people regarding such juristic personalities.
The Act does not make provision for the formation of any new Close Corporations (although existing ones remains in operation) – this is a clear indication that small business is invited to utilise the legal persona of a company to do business.
Membership of the old Close Corporation entity was restricted to only 10 people – which limits the small company when it is on its way up and out of the blocks.
In light of the Constitution, the purpose of the New Act is to promote compliance with the Bill of Rights when company law is applicable. The Act specifies that one of the purposes is to re-affirm the economic and social benefits of companies.
With corruption thriving in our country, some common-law provisions have been partly encoded and the duties and liabilities of directors are made clear.
In the second addition of the book ‘Companies and other business Structures’ (by Dennis Davis, Farouck Casim and Walter Geach) the writers comment expressly that the drafters of the Companies Act 2008, followed the dti policy document and the NEDLAC agreement.
A balance was achieved: on the one hand creating a flexible regulatory environment that eases the burden on entrepreneurs and others who wish to take advantage of incorporation; and on the other hand, regulation that holds the corporation and its office bearers accountable to the interest bearers they are directed to serve.”
Erasmus says that already there is less documentation to be completed when incorporating a company.
One of the changes and also one of the earlier objectives of the dti is to include a statutory provision that will guide the duties and liabilities of directors of companies; this will make directors more accountable to shareholders.
Whilst many of the provisions of the 1973 Act has been included without any change, Erasmus believes that the focus on the New Companies Act will bring about some respect for the Memorandum of Incorporation of companies, the fiduciary obligations of directors as well as the obligation of care, skill an diligence which faded away as time went by.
The New Act should be embraced to get the maximum advantage for your business and the positive consequences will be seen in the years to follow, says Erasmus in conclusion.
New Act to encourage business activity
Taking note of our rainbow nation, the lawmaker has indeed got a point when aiming to produce a statute that enhances the simplicity of business incorporation in South Africa.
This is indeed a modern approach to create an environment where business is brought much closer to home.
One of the purposes of the Act is to encourage business activity and entrepreneurship with less “red tape”; making it easier to incorporate a business; whether it is Big Business or Small Business.
The specific change to the number of persons needed to incorporate a company (being one) and an unlimited number of shareholders is a welcome change to uncomplicated the starting up of business.
On the other hand, regulation cannot be abandoned and a good balance has to be achieved between enhancing entrepreneurship and protection against failure.
Business and Society has also given their input in the New Companies Act, making sure that the end product is a law with a ‘user-friendly connotation’ – if there is such thing.