Memorandum of Incorporation

Last Updated Monday, July 23, 2012 11:20:40 AM

Memorandum of Incorporation

The Companies Act, no. 71 of 2008 (the Act), has changed the way that companies will be incorporated in future. To register a company the required number of people must complete a Notice of Incorporation and register a Memorandum of Incorporation (MOI). The Memorandum of Incorporation replaces the previous Articles and Memorandum of Association.

The Memorandum of Incorporation is defined as a document that sets out the rights, duties and responsibilities of shareholders, directors and others within a company, and by which a company is incorporated in the Act or a pre-existing company was structured before the date that the Act comes into operation. All companies are required have an MOI and only certain issues can be changed as identified in the Act.

What is going to happen to companies on the effective date (the date that the Act becomes effective)?

All current articles and memorandum of associations will automatically be converted to the MOI.

Transitional provisions stating deemed provisions in terms of the MOI that will be implemented automatically

There are certain transitional provisions in Schedule 5 of the Act stating the deemed provisions in terms of the MOI:

  • An existing Section 21 company will be deemed to have amended its MOI as of the effective date to state that it is a Non-Profit Company as well as having changed its name to include the letters "NPC".
  • A Company incorporated in terms of section 54(c) of the Companies Act 61 of 1973 will have deemed to have amended its MOI to state that it is a personal liability company and that the name has changed to include the letters "INC".
  • A state-owned company will be deemed to have amended its MOI to be identified as a state-owned company and to changed its name to include the letters "SOC".
  • Company Limited by Guarantee:
    • other than a previous Section 21 company, must file a notice within 20 days after the effective date electing to become a profit company and may change its name to comply with the naming regulations, or,
    • if it fails to file a notice it will be deemed to have amended its MOI to state that it is a non-profit company and be deemed to have changed its name to include the letters "NPC".

What is going to happen within the first two years of the Act coming into existence?

Within 2 years after the effective date a pre-existing company may file for the following changes without being charged:

  • Amending its MOI to bring it in line with the requirements of the new Act 
  • If it is necessary, to file a notice of name change and a copy of a special resolution to alter its name to meet the requirements of the Act.

Certain requirements of the new Act will become effective immediately

There are certain requirements with regards to company finance and governance that will become effective immediately when the new Act becomes effective, even if your current articles and memorandum are converted to the MOI:

  • A person holding office as a director, company secretary or auditor before the effective date will continue in that office, subject to any changes in the MOI;
  • Any person who is not eligible to be director, company secretary or auditor in terms of the new Act will be regarded as having resigned that position on the effective date;
  • All companies will have to comply with the new number of board members required in terms of the Act and if they do not have the required number they must fill the positions in the manner required by S70 of the Act;
  • If a company does not have a director, company secretary or auditor, then the position must be filled in accordance with the new Act;
  • The requirements of the new Companies Act will be applicable to companies in the following instances, even if the MOI states anything to the contrary:
    •  Duties, conduct and liabilities of directors apply to all directors from the effective date,
    • The rights of shareholders to receive information or notices shall immediately apply on the effective date,
    • Chapter 5 relating to fundamental transactions and takeovers will apply immediately to all pre-existing companies.
  • Any approval for distribution, financial assistance, insider share issues or options will be subject to the Act, even if the transactions were approved prior to the effective date;
  • A person can use the Act's remedy procedures, unless the proceedings have commenced in court prior to the Act becoming effective;
  • A company would not be in contravention of section 24 stating the time period that records should be kept if the records were disposed of before the effective date;
  • Any special conditions that an existing company has have the same validity after the effective date, despite failure of the company to draw attention to the provision;
  • Section 19(4) is applicable to any provision of the MOI of a pre-existing company: this is the abolishment of constructive notice where information is not deemed to be known if it has been filed with the relevant authority. It would however be deemed to be knowledge if the MOI / Notice of Incorporation draws attention to this.

What happens if you do nothing until after the two years?

All decisions taken by the company before the effective date will be binding provisions and those provisions will continue to have force and effect for two years after the effective date. After the two year period, those provisions will only be binding only to the extent that they are consistent with the Act.

If you decide to change your MOI after the two years, then the normal fee for lodging an amended MOI will be charged, as well as a fee for the registration of the special resolution.

Requirements for amending the MOI under the new Act:

    A company can amend the MOI by:
    1. Complying with a court order; you would then require a resolution from the board, a special resolution will not be required.
    2. S 36(3) and (4) state that, unless the MOI provides otherwise, the company's board may:
      1. increase or decrease the number of shares of any class of shares;
      2. reclassify authorised shares that were not issued;
      3. classify unclassified shares; or
      4. determine preferences, rights, limitations or other terms of shares.
      If the Board decides to act in this way pursuant to its authority, they must file a notice of amendment of the MOI.
    3. By special resolution
      1. proposed by the Board or shareholders entitled to exercise at least 10% of the voting rights,
      2. that is adopted at a shareholders meeting in accordance with Section 60 that explains the process of approving resolutions in writing.
      The requirements for a special resolution under the new Act are, that for a special resolution to be approved 25%, of members having voting rights should be present and 75% of members present must support the resolution. The new MOI can however in future lower the percentage for approval of special resolutions to no less than 10% more than that required for an ordinary resolution.

What happens if the memorandum and articles is changed before effective date?

If the memorandum and articles are changed before the effective date, then the current act, the Companies Act 61 of 1973, will apply and a special resolution at a general meeting will have to be agreed on, with 21 days notice, and the number of members entitled to vote holding not less that 25% of voting rights should be present and 75% of those in attendance should approve the resolution. These documents will then be accepted as the new MOI when the Act comes into effect, as stated above. The current fees for registering the special resolution and lodging the new MOI will be payable to CIPRO.

In summary:

    The options available to companies are the following:
  • Change the memorandum and articles under the current Act to be in line with the new requirements and then have these documents automatically converted to the MOI under the transitional provisions;
  • Change the MOI under the Act within the first two years of the Act being effective for no cost by passing a special resolution; or
  • Change the MOI after two years and follow the new process of amending the MOI and paying the relevant costs.

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