New Companies Act: Does Your Section 21/NPC Have to Adopt a New MOI

governance npos regulation Nonprofit Companies
Tuesday, 16 April, 2013 - 15:50

In this article, the author focuses on the new Companies Act and its possible implications on companies that operated as Section 21 companies (now Nonprofit Companies)

The NGO sector loves a crisis, and fresh out of the mass nonprofit organisations (NPOs) deregistration and re-registration calamity, panic is spreading again, this time about the supposed ‘deadline’ of 30 April 2013 for former section 21 companies (now called Non Profit Companies) to adopt new Memoranda of Incorporation (what the new Companies Act now calls the founding documents of all companies).

It is not true that NPCs (or any companies) have to adopt a new MOI, and it is also not true that it has to be done by 30 April.
A bit of background, first:

The Companies Act 2008 was finally, after much debate and controversy, made law on 1 May 2011. This is the Act which we refer to as the ‘new Act’, though the gloss of newness is long gone.

The Act created a new category of company, the Non Profit Company (NPC) and provided that all companies which had been registered as associations not for gain under section 21 of the previous Companies Act, as well as those registered under similar sections of prior acts, automatically became NPCs, and the end of their names were automatically changed to ‘NPC’ instead of the previous ‘Association Incorporated under section 21’.

NPCs are no longer (as section 21 companies were) public companies, but are in a category of their own.

The new Act introduces a couple of new options for NPCs, and if your NPC does want to take the opportunity to adopt these changes, or if it needs to amend its MOI for any other reason (satisfying SARS’ requirements is a common reason) then it would be appropriate and necessary to adopt a new MOI.
It is not true, though, that it is absolutely necessary for all NPCs (or all companies, for that matter) to adopt a new MOI.

The new Act defines ‘Memorandum of Incorporation’ as:

“… the document, as amended from time to time that sets out rights, duties and responsibilities of … directors and others within and in relation to a company, and other matters … by which the company was incorporated in terms of this Act… (or) a pre-existing company was structured and governed before the …effective date…”

This means that the existing Memorandum and Articles of a company which was formed before 1 May 2011 automatically becomes and is referred to by the new Act as a ‘Memorandum of Incorporation’. It is therefore not necessary to adopt new documents to have an MOI - your existing set of documents is now an MOI.
 
Schedule 5 to the new Companies Act, which deals with transition from old to new Act states that:
 

“2)At any time within two years immediately following the general effective date, a pre-existing company may file, without charge…an amendment to its Memorandum of Incorporation to bring it in harmony with this Act”;

Note, though, that section 16(1) of the new Act says that:

“A company’s Memorandum of Incorporation may be amended… c) at any other time if a special resolution to amend it i)is proposed by aa)the board of the company; or bb)shareholders entitled to exercise at least 10 percent of the voting rights that may be exercised on such a resolution; and  ii)is adopted at a shareholders meeting, or in accordance with section 60, subject to subsection (3).
 

So, you may amend your founding document at any time, but if you do so by 30 April 2013, CIPC waives its R250 registration fee.
Schedule 5 to the Act goes on to say that:

“4) During the period of two years immediately following the general effective date..  if there is a conflict between …  a provision of this Act, and a provision of a pre-existing company’s Memorandum of Incorporation, the latter provision prevails, except to the extent that this Schedule provides otherwise…”

So: 

  • During the period up until 1 May 2013 if any part of your memorandum and articles contradicts the new Act, your memo and articles win.
  • From 1 May 2013, if your memorandum and articles contradicts the mandatory provisions of the new Act, the new Act wins.

In my view, it is fairly unlikely that there will be an immediate conflict of practical significance between your old memo and articles and the new Act and, if one were to arise in the period after 30 April and before a new MOI is adopted, then you would simply refer to the Act for the ruling provision.  
 
An example of where this might occur is if your memorandum and articles (now called an MOI, remember?) provide for a higher than 50 percent majority requirement for members to vote to remove directors. Many organisations have stipulated a two thirds vote. Up until 30 April, whatever was required by your memorandum and articles would be the ruling provision. From 1 May, however, the provisions of section 71(1) of the new Act, which states that a director may be removed by ordinary (50 percent) resolution of voting members, will apply.
 
Naturally, it will be inconvenient to keep cross-checking with the Act, and I do think that it will simplify things to adopt a document which ‘harmonises’ with the new Act, but my view is that this potential inconvenience, and the R250 fee, are not enough to merit rushing the process of agreeing on and adopting a new MOI.
 
Your MOI is an important, indeed, fundamental document, and your organisation needs time for its directors and members to apply their minds to any proposed new document, to ensure that it is appropriate, useful and complies with all of the other requirements needed for raising funds and practising good governance.
 
- Nicole Copley (BA LLB LLM-tax) (Non practising attorney)
  Specialist legal consultant to NGOs, Tel: 031 266 9427,  Fax: 086 627 9420, Mobile: 083 922 0648, E-mail: nicole@ngolawsa.co.za, Website: www.NgoLawSA.co.za.

 

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