South African companies, including IT firms, are set for a shake-up this year, with the long-anticipated tabling of a new companies law in Parliament.
The legislation, set to change the way local companies operate, has been three years in the making. Interested parties now have until 19 March to comment on the Companies Bill.
The new law will replace the 1973 Companies Act and legislation dealing with close corporations. The Department of Trade and Industry (DTI) says the Bill represents a significant departure from the existing statutes and aims to modernise the regime under which South African businesses operate.
The Bill, when enacted, also promises to reduce the cost of registering and maintaining a company. It will also lessen the regulatory burden and compliance costs on small and medium businesses, while enhancing corporate governance, transparency and accountability of large and widely-held firms.
The DTI further promises the draft law will result in improved regulatory oversight and better redress for shareholders and employees. It also introduces a business rescue scheme to facilitate the turnaround of struggling firms.
Totally virtual companies?
The explanatory memorandum accompanying the Bill promises to introduce flexibility in the manner and form of shareholder meetings, the exercise of proxy rights and the standards for adoption of ordinary and special resolutions.
Reinhardt Buys of Buys Incorporated says these provisions signal "the birth of totally virtual companies - where directors and shareholders meet in cyberspace, communicate electronically and do business online regardless of location, time and distance".
He says the current law requires directors and shareholders to be physically present at meetings, but the new Bill "takes full advantage of the benefits of the Internet and new communication technologies."
Buys adds the definition of 'present at a meeting' in the Bill includes a virtual presence or representation by electronic proxy. "The Bill also allows the creation, distribution and retention of company notices and records in electronic format only and even gives an electronic copy of a document the same status as the original paper version thereof," says Buys.
"Documents like share certificates, proxies, annual financial statements, prospectuses and annual reports are freed from paper and may not only be created electronically but also be signed, retained and sent in electronic format."
However, section 25 of the Bill still requires companies, virtual or not, to "continuously maintain a registered office in the Republic" and to register the address with the relevant authority. Companies will also still have to keep a number of records - on paper or electronically - at an actual address.
Oversight
The discussion draft proposes the establishment of a new institution, and the transformation of three existing entities, to provide for a more predictable regulatory and enforcement system.
Under current law, regulatory responsibility is variously assigned to the minister of trade and industry, the Registrar of Companies, the Securities Regulation Panel (SRP), and most recently, the Financial Reporting Standards Council (FRSC).
"In practice, many of the functions of the minister and the registrar have long since been exercised by the Companies and Intellectual Property Registration Office (Cipro), within the DTI," the memorandum adds.
The Bill will see Cipro as well as the DTI's enforcement functions migrate to a Companies and Intellectual Property Commission. The draft further proposes the transformation of the existing SRP into an independent Takeover Regulation Panel, with powers similar to those currently vested in the SRP; while the FRSC will be re-established as an advisory committee.
Lastly, a Companies Ombud will be established to serve as a forum for voluntary alternative dispute resolution in any matter arising under the Bill and to carry out reviews of administrative decisions made by the Commission or the Takeover Regulation Panel, on an optional basis. The ombud's decisions will be binding on the commission or panel, but not on the other party, which has a constitutional right of access to a court for further review.
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