28 Feb 2013

Corporate & Commercial Newsletter February 28th, Should you Review your MOI?

by Claire Cowan, Partner, Durban,
Practice Area(s): Corporate & Commercial |


Although a company is not obliged to replace its Memorandum and Articles of Association (now known as the Memorandum of Incorporation or "MOI") with an MOI that complies with the provisions of the Companies Act, 2008 ("the Act"), it is certainly worth considering.  

From 1 May 2013, any provisions of a company's MOI which conflict with the provisions of the Act will be ineffective.  In addition to this, the Act and the MOI will override any conflicting provisions of a shareholders' agreement. 

This may be particularly alarming for those who are counting on their shareholders' agreements to regulate the management and administration of a company after 1 May 2013. 

Most of the typical management and administration provisions found in a shareholders' agreement have been included in the Act in the form of "alterable provisions", which are standard rights, duties and powers which will apply to a company unless they are varied in a company's MOI.  Many of the provisions in a shareholders' agreement may be comfortably included in the MOI, provided that they are tweaked where necessary to comply with the provisions of the Act.

From 1 May 2013, a company which has not reviewed, and where necessary amended, its current MOI to bring it into line with the Act, will have to figure out the provisions which apply to its management and administration through a process of eliminating the inconsistencies between its shareholders' agreement, MOI and the Act.  In all likelihood, the company will come to realise that:

  • its board of directors has wider powers than intended;
  • the company must be audited even though the Act does not require it to be;
  • the process of appointing its directors has changed completely; or
  • it is governed by other standard (possibly unfamiliar and unsuitable) provisions of the Act which it never anticipated. 

Ultimately, every company will have to review its MOI and shareholders' agreement against the standard provisions in the Act to determine their effect on the management and administration of the company.  In our view therefore, to avoid these difficulties, it is advisable for all companies to register new MOI's as soon as possible, and preferably before 1 May 2013.

If not already done then steps should immediately be taken to attend to this given the ongoing congestion at CIPC which is expected to get worse as 1 May 2013 approaches. 

Compliance with any obligation to set up compulsory committees, amend company names, alter boards, review stationery, finalise audit/independent review requirements, approve director remuneration and group financial assistance by advance special resolutions of shareholders, etc, if not already done, should be attended to at the same time.

Kabby Esat, Partner

Contact: 031 575 7403 and esat@wylie.co.za

Claire Cowan, Partner

Contact: 031 575 7404 and cowan@wylie.co.za