Amending Memoranda of Incorporation

Since the new Companies Act of 2008 came into effect on 1 May 2011, companies have been faced with challenges regarding compliance with its numerous provisions, including the Memoranda of Incorporation.

The 1973 Act prescribed that a company should have both a Memorandum and Articles of Association. These documents were rather standard, with the schedules to the Act even providing “templates” of the documents. These standardised documents could either be adopted in an unchanged format by companies, or they could be altered as required (barring certain limitations).

The 2008 Act offers no standard templates. Every company is required to apply itself to preparing a document which caters specifically for the needs and particular situation of that company. In a sense, the Memorandum of Incorporation is a combination of the Memorandum of Association, the Articles of Association and the Shareholders’ Agreement.

It is the purpose of the Memorandum of Incorporation to determine the relationships:

• between the company and its shareholders,
• among the shareholders of the company, and
• between the company and the directors or officers

It is evident that a company needs to spend enough time and effort to draft a watertight document. The true value of an agreement is often only tested when a relationship is faced with challenges. It may therefore be prudent to consult a legal or financial professional when drafting this crucial document.

The 2008 Act provides for transitional arrangements for existing companies. By operation of law, the Memoranda and Articles of Association of companies that existed on 30 April 2011 became the Memoranda of Incorporation of those companies. Companies are granted a two-year period (until 30 April 2013) during which time they have to amend these Memoranda of Incorporation in accordance with the Act.

Two years may seem like more than sufficient time to do this. However, five months have already passed. Add a few months for the process of drafting a proper document, and the clock is ticking.

For more information, contact Jaco Odendaal of Exceed Tax and Management Services on tel. 021 882 8140 or e-mail jaco@exceed.co.za