THE new Companies Act is a modern, flexible piece of legislation that will significantly change corporate SA, the Institute of Directors in Southern Africa said yesterday.
Although it was signed into law by President Jacob Zuma 18 months ago, no one would be able to say they were not aware of it coming, the institute's nonexecutive director, Nigel Payne, said.
He said even though the drafting process had been messy, resulting in significant delays and controversy in the absence of proper consultation, the act was in many respects a vast improvement on the often amended 1973 Companies Act.
"Flexibility is a major strength of the new act, and I believe it will create many more opportunities for innovation by companies. However, this is also one of the reasons why directors, company secretaries and other officers need to make sure they're prepared for the coming changes," Mr Payne said.
He said when the act comes into effect on April 1, one of the major changes which will have to be affected was that existing memorandums and articles of association would be automatically converted into a single document known as a memorandum of incorporation defining the rights, duties and responsibilities of shareholders, directors, officers and others.
"Even though a two-year period will be allowed to update the memorandum of incorporation in line with the act, many existing provisions will be void with immediate effect," said Mr Payne.
Flexibility was allowed by the new act, which does away with certain categories of companies and introduced new ones. There are also implications for some close corporations, Mr Payne said.
He said company directors and other executives had to be aware of the possible risk of lawsuits if they breached their duties. The new Companies Act provided for civil and criminal liability of directors, with draconian consequences for those who failed to comply with the law.
Eric Levenstein, a director in the commercial department at Werksmans Attorneys, said shareholders and other stakeholders would be protected from unfit and unscrupulous directors who engaged in irresponsible conduct.
Directors who engaged in such conduct could be declared delinquent under the new legislation, Mr Levenstein said, and even jailed for 10 years or fined.
The existing company laws contained provisions under which directors might be held accountable if they broke the law, but few directors had been convicted.