Why the Companies Act, 2008 will benefit SMME'S

The new Companies Act, 2008 (the “Act”) seeks to introduce a flexible regulatory framework by striking a balance between over-regulation and no regulation. It provides an efficient environment for effective regulation which allows for the formation, operation and accountability of companies in a manner designed to enable them to perform their functions.

As a starting point, the Act provides a more simple process for registering a company. A person wishing to register a new company needs only to lodge a Notice of Incorporation and Memorandum of Incorporation (a simplified document replacing both the Memorandum and Articles of Association of companies incorporated under the previous legislation). One need no longer wait for a name reservation before proceeding to register the company itself as was previously the case. The streamlining of this process, coupled with the ability to register a company electronically, makes it easier for emerging small, medium and microenterprises (“SMME’s”) to commence business.

The Act also provides that certain categories of small private companies (the vast majority of SMME’s will fall within this category) do not have to file audited financial statements and this will reduce the administrative burden on the company. These companies may also select a standard to follow in preparing their annual financial statements, as long as those financial statements “satisfy the financial reporting standards as to form and content”. This means that private companies in these categories will be able to choose a reporting framework best suited to their needs.

The Act also relaxes requirements relating to shareholder meetings, and in particular only public companies are now required to hold annual general meetings. Meetings of shareholders of private companies will benefit from the flexibility offered by the use of electronic communication and the obtaining of resolutions by “circulation”.

In addition, prescribed officers and directors can, under certain circumstances, now be indemnified by their companies against liabilities owed by the company to third parties. This will make it easier for SMME’s to obtain financing from financial institutions, which normally insist upon suretyship undertakings from directors prior to their advancing any monies to the business. The company now has an option to purchase insurance to secure the suretyship, which obviously benefits both the SMME and its directors.