CORPORATE GOVERNANCE CC

CCORPORATEGOVERNANCE CC

Gweb: www.corporategovernance.co.za

CHANGE IN THE WAY THINGS ARE DONECHANGE IN THE WAY THINGS ARE DONE

Introduction In 1879 Thomas Edison demonstrated the first incandescent lighting system In 1882 the street lights of Kimberly in South Africa used electricity while many other places, such as London still used gas And so the streets of darkest Africa had light! This trend has resulted in South Africa leading Africa in the governance of companies through:

• Companies Act• King Reports• JSE listings requirements (for listed Companies)

Companies Act 2008 Companies Act 2008

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Introduction In 2009: we see the unveiling of updated

and completely re-drafted:• Companies Act• King III report

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IntroductionAmongst the objectives of the Act are the following:

Update the present Act Simplify the company structure Simplify non-profit companies Enable more flexibility in corporate structures To move:

• from capital maintenance regime to…• a system based on solvency & liquidity

More transparency in companies

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MEMORANDUM OF INCORPORATION:MEMORANDUM OF INCORPORATION:TO REPLACE CURRENT MEMORANDUM ANDTO REPLACE CURRENT MEMORANDUM ANDARTICLES OF ASSOCIATIONARTICLES OF ASSOCIATION

All companies will be required to have a single document entitled “Memorandum of Incorporation”in place of the current Memorandum and Articlesof Association

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CATEGORIES OF COMPANIESCATEGORIES OF COMPANIES

The following categories will exist: Non-profit companies The name to end with NPC Profit companies

• Private companies: to continue to be reflected as “Proprietary Limited”• Personal Liability Companies: to be reflected as “Incorporated”• Public Companies: to be reflected as “Limited”• State Owned Companies: to be reflected as “SOC Limited”

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THE FUTURE OF CLOSE CORPORATIONSTHE FUTURE OF CLOSE CORPORATIONS

Close Corporations in existence on the effective date may continue in that form Alternatively Close Corporations may be converted into Companies

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COMPANIES WITHOUT NAMESCOMPANIES WITHOUT NAMES

It will become possible to form a company which is known only by its registration number

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REQUIREMENT FOR AUDITREQUIREMENT FOR AUDIT

The Annual Financial Statements of public companies will continue to require an audit So will those of the new State Owned Companies Other companies may be either audited, subjected to independent review, or be unaudited

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ANNUAL ACCOUNTABILITY & TRANSPARENCYANNUAL ACCOUNTABILITY & TRANSPARENCYREPORTREPORT

All companies, including external companies, willbe required to lodge an Annual Accountability & Transparency Report with CIPRO CG

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APPROVAL OF TRANSACTIONSAPPROVAL OF TRANSACTIONS

A minority of shareholders holding more than 15%may oppose a company transaction.

Provision is made for a buy-out of minorities, whodo not consent to the transaction, at an appraised value.

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PROTECTION OF WHISTLEBLOWERS (Chapter 7)PROTECTION OF WHISTLEBLOWERS (Chapter 7)

The Act makes provision for the protection of whistleblowers. CG


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COMPANIES TRIBUNALCOMPANIES TRIBUNAL Provision is made for a Companies Tribunal

The companies Tribunal is an adjudicator (S180) • which may informally conduct hearings• or alternatively, may question under oath

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ULTRA VIRES ACTS: NO LONGER RELEVANTULTRA VIRES ACTS: NO LONGER RELEVANTAs is presently the case with Close Corporations, Companies are, in future, to have the contractualpowers of a natural person. Consequently, Ultra Vireswill be a seldom used principle.It is, of course, possible for Shareholder Agreements,Board Charters and other documents to restrict the powers of certain directors. This would provide a rightfor the company to claim damages if the director acts beyond his or her powers, but will not effecta contract with third parties CG


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RELATED AND INTER-RELATED PERSONS ANDRELATED AND INTER-RELATED PERSONS ANDCONTROL (Section 2)CONTROL (Section 2)

The definition of related parties/persons includes: Married persons Those in a relationship similar to marriage Individuals who are separated by no more than two degrees of:

• natural; or• adoptedconsanguinity or affinity

An individual which is related to a juristic person which he or she controls or whose business it controls

Provision is made for the Tribunal, or a Court, to grant exemption from the provisions for a relatedparty, when independence can be proven.

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SUBSIDIARY RELATIONSHIPSUBSIDIARY RELATIONSHIP

A subsidiary relationship will exist when one party: controls the voting power at General and Annual General Meetings; has the power to appoint the majority of the Board.

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SOLVENCY AND LIQUIDITYSOLVENCY AND LIQUIDITY

A capital maintenance regime based on solvency andliquidity is to be imposed.

The concept of par value shares, although it willcontinue for existing companies, will no longerapply to new companies, when the newlegislation becomes effective in 2010.

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DIRECTORS’ DUTIESDIRECTORS’ DUTIES

Directors’ duties are to include: a fiduciary duty; and a duty of reasonable care.

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““WIDELY HELD” AND “LIMITED INTEREST” CONCEPTSWIDELY HELD” AND “LIMITED INTEREST” CONCEPTS

These categories of companies were contained in the Corporate Laws Amendment Act, which became effective on 17 December 2007 Are from the effective date of the New Companies Act,

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in 2010, to fall away.


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PRIVATE COMPANIESPRIVATE COMPANIES Now required:

• To lodge annual financial statements• To appoint a compliance person to ensure compliance with Part C and Chapter 3• Lodge an annual transparency and accountability report

Obligation to hold AGM and audit AFS: regulations to clarify

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SHARES – PAR VALUESHARES – PAR VALUE

Shares will no longer have a nominal , but will have a Par Value

No longer: “100 shares of R1 each” but only “100 shares”

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SUMMARISED ANNUAL FINANCIAL STATEMENTSSUMMARISED ANNUAL FINANCIAL STATEMENTS

Companies will in future be permitted to sendsummarised annual financial statements to membersin place of full annual financial statements

Provided there is an invitation and direction on how toobtain the full document

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NON-VOTING MEMBERS:NON-VOTING MEMBERS:POSSIBLE FOR NON-PROFIT COMPANIESPOSSIBLE FOR NON-PROFIT COMPANIES

The Board of: a non-profit company, with no voting members may amend the Memorandum of Incorporation But non-profit companies, with voting members, will require agreement with members constituting:

• a quorum of 25% of all members of whom• 75% agree to the amendment of the Memorandum of Incorporation

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CONCLUSIONCONCLUSION

Whether or not the Act achieves its goals – it is evident we will have to live with it. This means adapting the way we do business Many concepts which we have followed all our lives will disappear and be replaced by others This legislation appears to achieve the delicate balance between:

• too little control which could lead to bankruptcy and losing the business• too much control and we could lose enterprise….and….the business

Although there are unknown consequences it should be an effective means to balance enterprise and control

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