After six years of deliberation, discussion and consultation, the Companies Act of 2008 saw the light. This had to affect that multiple professions had to amend the way in which they normally do business. Companies were also obliged to file an amended Memorandum of Incorporation.
The law was designed in such a way to accommodate the changing market. Giving more flexibility in a modern commercial world. The government thought it well to wait about three years before putting the act into force. The new Companies Act was signed into law on the 8th of April 2008. In the year following that, professionals like lawyers, accountants and auditors were given the opportunity learn and apply the new law. The next two years made provision for pre-existing companies to amend their Memorandum of Incorporation, free of charge, to bring their constitutional documents in harmony with the new act.
When comparing South Africa’s new act with the amended Companies Act of 2006 in the United Kingdom, it is easy to spot the difference. South Africa’s act consists of only 225 sections and five Schedules, whereas the UK’s Act consist of a whopping 1297 sections and over 16 Schedules. Luckily, this does not directly mean that the new Companies Act of South Africa is not up to standard.
The new Companies Law is considered as a to-the-point piece of legislation, which revamps and revises South Africa’s company law regime. This is all done while still preserving some parts of the previous company law policies and concepts. The new law is also more user-friendly. The Act is drafted in plain language, doing away with some of the technical legal jargon. It may help the uninformed to understand better, but unfortunately it also resulted in some areas being vague and sometimes misinterpreted.
The new Act simultaneously discards old-fashioned policies that have been replaced with new concepts. These concepts include words like, liquidity and directors, which is widely known and most often used in day to day communication.
The need for the altering of the Companies Act came along with the modern approach to doing business. A country’s Company Law has a significant impact on the economy of that country. The reason behind that is that a Companies Law can facilitate commercial enterprise and economic growth or it can restrict and decelerate economic growth.
The previous Companies Act of 1973 was amended 42 times in the 35 years that it was signed in as law. This led to the Act becoming complex and contradicting. For that reason the government thought is well to draw up a new Companies Law, ensuring that the law is clear and easy to understand.
Another reason why the law was changed, is because of the modernization of the business world. More and more people are visiting other countries to expand their business. With globalization on our doorstep, the new law will make South Africa more investor-friendly. The DTI (The Department of Trade and Industry) commented on the new Companies law and sees it as a law of the 21st Century.
The DTI has formed five pillars from their policy paper. These pillars outline the objectives of the new Companies Law:
To simplify and reduce the cost of forming a company,
To promote an effective regulatory environment,
To improve the management and efficiency of companies
To enforce high standards of corporate governance
To give South African companies a fair chance against the international market
The Companies Act 2008 has introduced various changes in respect of the corporate governance structures of companies. Despite of all the formalities and changes, the new Act offers South African Companies so much more than the previous Companies Act of 1973. The government made the right choice when they decided to change the Companies act.
For more information about our services please click here.