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Implications If MOI Is Not Completed and Submitted to CIPC

Ettiene Rossouw and Tarryn Wright

The Presidency proclaimed 01 May 2011 as the implementation date of the Companies Act, No. 71 of 2008, as amended by the Companies Amendment Act, No. 3 of 2011 (“New Companies Act”) and the Companies Regulations. This Act replaced the Companies Act, No. 61 of 1973 (“Old Companies Act”) on 01 May 2011, other than the provisions relating to liquidations and winding-up.
Memorandum of Incorporation
The Old Companies Act required companies to have in place a Memorandum and Articles of Association, which required the acceptance of either Table A or B, in the annexure of the Articles of Association. The New Companies Act introduced the Memorandum of Incorporation (“MOI”), which replaces the Memorandum and Articles of Association. Companies were provided with a two-year period in which to submit the MOI in order to amend the Articles of Association, Status and Acts without being charged. This period lapsed on 01 May 2013.
Implications of Not Lodging an MOI with CIPC
Section 1 of the New Companies Act states that if a company has not replaced the old Memorandum and Articles of Association with an MOI, the old Companies Act documents will, by default, become the MOI of the company. This could have major implications for the company, in particular for smaller private companies.
One of the most significant implications would be that under the New Companies Act, in order to be classified as a private company, the MOI must restrict the transfer of all ‘securities’, and not only shares (ordinary or preference). The definition of securities has been expanded to include shares, as well as hybrid and debt instruments. Therefore any company which has debt instruments (for example, loans) in issue that are freely tradeable must accept that they will no longer be considered private companies. They will now be deemed to be public companies.
Implications for being deemed a public company include, amongst others:

  • No restrictions on the transferability of securities to other parties where the company is a public company;
  • More onerous compliance in terms of the New Companies Act, due to certain Old Companies Act requirements that, by default, will remain applicable to the company;
  • The company will have to submit its financial statements to CIPC as required by section 33 of the Companies Act;
  • The company will have to hold an Annual General Meeting each year;
  • The company will have at least three directors (in addition to the non-executive directors required for the audit committee and the social and ethics committee);
  • The company must have an audit committee;
  • The company must have a social and ethics committee;
  • The company must elect auditors each year and be audited;
  • More onerous requirements for quorums relating to shareholders’ meetings.

Therefore, while it is not a legal requirement to adopt an MOI, it is most certainly recommended that you contact your professional advisors to assess the implications to your company, if you have not yet already done so.