BER220 Theme 1 memorandum of incorporation MOI Terms in this set (15) Functions. Of MOI • The current Companies Act 71 of 2008 ('the Act') which regulates companies in South Africa, requires one document as the constitutive document of

BER220 Theme 1 memorandum of incorporation MOI Terms in this set (15) Functions. Of MOI • The current Companies Act 71 of 2008 ('the Act') which regulates companies in South Africa, requires one document as the constitutive document of the company. • This document is known as the Memorandum of Incorporation ('MOI') • It is used as the incorporation (establishing) document of the company. • This is the governing document in the company and it regulates relations within a specific company and with third parties. • However, the MOI must be consistent with the Act. • If not, then it is void to the extent of inconsistency. Rules of the board and shareholders • Directors may create rules and • Shareholders may create shareholders' agreements. • And they should also be consistent with the Act. Doctrine of constructive notice • In the past, third parties concluding contracts with the company, were required to know the contents of the constitutive documents due to the filing and provision of access at the office of the company. It has been partly abolished in the current Act. • Some companies MOI's contain special restrictive conditions on the capacity of the company and authority of those who are representing companies and requirements of amendment and prohibition of the amendment of such conditions in the MOI. • NOI and NOA should inform third parties about such provisions. Draw their attention. • Company name must end with RF'. • Compliance with the provision is required when concluding contracts Legal status of the MOI and rules The MOI and the rules of the board are binding: • Between the company and each shareholder. • Between shareholders themselves • Between the company and each directors • Between the company and prescribed officers • Between the company and any member of the board committee or an audit committee. • MOI and rules should be consistent with the Act otherwise they are void to the extent of their inconsistency. Shareholders agreements • Shareholders may also agree on certain matters and such agreements will regulate relations between them in the company. • Should be consistent with MOI and the Act. Alterable rules • E.g. Section 44(2) of the Act provides the board with authority to authorise financial assistance for the purchase of company's shares. • Such provisions include words such as these. Except to the extent that the MOI provides otherwise... Unalterable (cannot be changed in the MOI) • e.g. Section 76(3)(a) and (c) of the Act provides that directors of the company when representing the company must exercise their powers and perform their functions • in good faith and for proper purpose • in the best interests of the company • with the degree of care, skill and diligence... • N:B Unalterable provisions can only be changed in the MOI if the change provides a more rigorous or stricter provision. amendment of MOI • The MOI is the constitutive document of the company and it is required when registering a company. • It regulates the rights, duties and responsibilities of shareholders, directors and other persons in the company. • Since the MOI is an important governing document in the company, it requires a rigorous process to amendment. • The board or • Shareholders holding an aggregate of 10% or more of the shares/voting rights in the company can propose an amendment. • Court order - no special resolution required. • The amendment will require a special resolution (75% or more of voting rights) • The NOA must be filed at the CIPC and fee paid. • The date amendment will be the later date between the acceptance of filing of amendment by the CIPC or date specified in the Notice of Amendment. Company's capacity What a company is able to do in the sphere of business. E.g concluding transactions. Ultra vires doctrine: • In the past companies had the capacity to conclude contracts that were provided for in their objects clause. • E.g If a company was in the catering business, the object clause in its governing documents would provide that it could only conclude contracts that were in line with catering. This meant that such a company could not purchase an expensive luxury sports car or horse. • This was known as the doctrine of ultra vires . • Transactions that were outside the scope of the company were void • This was unfair to third parties who contracted with the company. • Section 19 and 20 of the Current Act remedied the injustice presented by the ultra vires doctrine. • Section 19(1)(b) provides that a company has all the legal powers and capacity of a natural person except to the extent that the company cannot exercise such powers or cannot have such capacity or the MOI provides otherwise. E.g. Companies cannot get married. Capacity continues Section 20: • However, section 20(1) provides an imperative provision by providing that in instances where the MOI of the company prohibits, limits or restricts any actions by the company or directors do not have the capacity to represent the company because of the prohibitions, limits or restrictions in the MOI, those actions are nonetheless valid between the company and third parties. Section 20 Continues • In other words, section 20(1) provides that the contract is not invalid because the MOI prohibits a transaction or director lacks authority because the MOI prohibits a transaction. • The transaction is valid between the company and the third party as long as it is not against the Act. • Section 20(1) provides that such contracts are only invalid between company and shareholders, prescribed officers and director or between shareholders, directors and prescribed officers. Section 20 continues: • This means that the company can use the fact that the contract is prohibited in the MOI to hold a director who acted contrary to the MOI personally liable for damages. • In such circumstances directors will be in breach of their fiduciary duty. • In other words, they woul Ratification Ratification • Section 20(2) allows the general meeting to ratify or accept the contract that is contrary to the MOI with a special resolution. Restraint - interdict • Section 20(4) allows organs and other stakeholders such as unions representing employees to apply to court to restrain a transaction that is contrary to the Act. Interdict • Section 20(5) provide that organs (shareholders, directors) may apply to the High court to restrain the company or directors from concluding any transaction that contravenes the MOI. This does not affect the damages of the third party, provided the BER220 Theme 1 memorandum of incorporation MOI Section 20(6) Claim for damages by each shareholder: • Section 20(6) provides that each shareholder has a claim against any person who intentionally, fraudulently or with gross negligence causes the company to contravene the Act and MOI unless the transaction is ratified in terms of subsection (2). Company representation • In terms of section 66 of the Act, the board of the company has the power to control and bind the company. • Companies can also be bound by agents of the company who are granted actual authority which is express authority or implied. • Agents can also bind companies based on ostensible authority where the company created an impression that the agent has authority whereas this is not the case. • Express authority is granted to an agent in the MOI or by a board resolution. • Agents must accept delegation of powers. • Implied authority is when an officer in the company performs the functions of the office. • The board may appoint one director to represent the board in concluding contracts or appoint another officer. Instances of ostensible authority • The company must have intentionally or negligently misrepresented to the third party. • The misrepresentation must be serious enough to reasonably mislead the third party. • The third party must have been lead to act because of the misrepresentation. • The third party must have suffered damages due to acting based on misrepresentation. Turquand • In some companies, authority to bind companies is dependent on internal management requirements or indoor management requirements. • This places a burden on the shoulders of the third parties who want to contract with the company to inquire as to whether the internal requirement was complied with. • This is unfair to third parties concluding contracts with companies as they have to spend money to find out whether internal requirements have been complied with.