Articles

New Companies Act

by Nicci - Posted 26 March 2010

The new Companies Act has introduced two new concepts, being the “alterable provisions” and the “unalterable provisions” contained in the Memorandum of Incorporation (MoI).   These are defined as:

“alterable provision” means a provision of the Act in which it is expressly contemplated that its effect on a particular company may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect by that company’s MoI.

“unalterable provision” means a provision of the Act that does not expressly contemplate that its effect on any particular company may be negated, restricted, limited, qualified, extended or otherwise altered in substance or effect by a company’s MoI.

The MoI is the founding document of the Company and the founders  are given a great deal of flexibility in structuring the way in which the company is governed and the issuing and classification of its shares.

The MoI is binding –

a)      Between the company and each shareholder;

b)      Between the shareholders of the company; and

c)      Between the company and each director and any person serving on the audit committee or as a member of a committee of the Board.

Therefore, companies will insert provisions which are specifically suitable to their own circumstances, rather than being forced to follow a prescribed set of rules. The MoI also automatically binds successors-in-title, whereas a shareholders’ agreement must contain an express provision to this effect.

The following provisions are alterable:

a)      S16(2) – may provide for different requirements for amending the MoI.

b)      S36 – the authorization and classification of shares, numbers of shares of each class and the preferences, rights, limitations and other terms associated with each class of shares.  A class of shares may be set out without rights and terms which are determined by the Board and issued thereafter.

c)      S43 – securities other than shares (debt instruments).

d)      S44 – financial assistance for subscription of securities.

e)      S45 – loans or financial assistance to directors.

f)       S47 – may approve the issuing of capitalization shares.

g)      S56 – shares may be held by and registered in the name of one person for the beneficial interest of another person.

h)      S58 – shareholders right to be represented by proxy.

i)        S61 – shareholders meetings.  May also specify a lower percentage than 10% of shareholders required to call a meeting.

j)        S62 – notice of meetings.

k)      S63 – conduct of meetings.  May prohibit a shareholders meeting to be conducted by electronic communication.

l)        S64 – meeting quorum.  May specify a lower or higher percentage in place of the 25% required.

m)   S65 – shareholder resolutions.  May require a higher percentage of voting rights than 50% necessary for an ordinary resolution.  May permit a lower percentage of voting rights than 75% to approve a special resolution.

n)      S66 – Board, Directors and prescribed Officers.  May specify a higher number of required directors.

o)      S72 – Board committees.

p)      S73 – Board meetings.  May specify a higher or lower percentage than the prescribed 25% or 2 directors when required to do so.

q)      S74 – directors acting other than in meeting.

r)       S78 – can advance expenses to a director to defend litigation if the matter is abandoned or he is found not liable.   May indemnify a director in respect of liability.  May purchase insurance to protect a director against liability/expenses for which the company is allowed to indemnify the director.

The alterable provisions therefore relate to the allocation of power between shareholders and directors, the procedure relating to convening shareholders and directors meetings, the quorums required for the meetings and the majority vote requirements to pass ordinary and special resolutions at the meetings.

The following provisions are unalterable:

a)      May not limit a directors liability ito S75, S76 and S77.

b)      S78 – indemnification and directors’ insurance.  May not negate, limit or restrict the legal consequences from wilful misconduct or wilful breach of trust on the part of a director.

c)      S159 – may not limit protection for whistle-blowers.

The MoI may be amended by:

a)      a Court Order;

b)      Special Resolution adopted at a shareholders meeting if proposed by 1) the Board; or 2) shareholders holding 10% of the voting rights.