2.5 WHO RULES OR WHO HAS THE POWER
In terms of the management of the Close Corporation the members have all the power in accordance with the percentage ratio of their interest they hold and in a Company the directors manage the company for and on behalf of the shareholders. The shareholders in a company who hold over 50% rule.
In a cc 51% rules. A company is more complicated because management takes place through the directors for and on behalf of the shareholders. In the old act this was fairly straight forward as the shareholders had the power and had to approve material decisions.
In the New Companies Act which is more flexible because of the one size fits all approach of the act the shareholders can determine through the MOI exactly what kind of power they wish to give to the Directors. In certain cases the act will indicate what decisions the shareholders must make. There is also flexibility built in.
The New Companies Act is really about who has the power and where the Directors and the Shareholders are the same, there is really no issue, if the shares they hold are equal to one another. The directors have all the power to determine all aspects of share capital, how much authorised share capital there is, how they can issue the shares, the number of shares, the buy-back etc. Under the old Act there were severe restrictions on exactly what directors could do. Shareholders have the overriding rights and they are given these rights by stipulations in the MOI. Secretarial practitioners, directors and shareholders need to understand exactly how it all fits together and the connection between the act, alterable and non-alterable provisions and the MOI. Alterable and non-alterable provisions is a new concept in the act allowing “either or” situations.
One of the most fundamental provisions under the old Act was the maintenance of share capital which has now been changed. This was to keep the share capital of the company intact, because once the share capital is lost all stakeholders which include shareholders, creditors and employees lose out. The structure of the share capital and changes to the structure had to be advised to the CIPC.
There was the view that if one issued shares at par value (nominal value e.g. R1) then at a bare minimum the company was to retain this value for the shares. Under the old act this was meaningless as smaller companies used other means of financing like having loan accounts. Under the New Act the maintenance of share capital regime has been substituted by the solvency and liquidity test and the shares have been changed to no par value shares only. The intention here is that shares should be issued at a more realistic value based on the value of the company at different points in time, and of course this value could change as the company grows in value or loses value. The authorities believe that this would result in more protection for the creditors. The solvency and liquidity test is designed to keep the company from going into liquidation when certain distributions take place.
I don’t think that much has changed for smaller companies by changing the share capital from par value to no par value. We will discuss this later on.