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Implement the Companies Act electronically

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John Giles

The new Companies Act 71 of  2008 (“Companies Act”) has been signed into law and commenced on 1 May 2011. It addresses various aspects not adequately dealt with in the old 1973 Companies Act, including the use of:

  • information in electronic form;
  • electronic communications; and
  • technology.

The new Companies Act enables you to use technology and the electronic form of information and communications to save you time and money

The administration of companies has been brought into the twenty first century – the information age.  It is worth taking note because these inclusions can save you time and money.  However, there are also some issues and regulatory requirements – this article will help you avoid them.  If you are a vendor of ICT goods or services to companies, there will be opportunities for you to help companies make use of these new provisions.

The Companies Act recognises electronic communications as defined in the Electronic Communications and Transactions Act 25 of 2002 (“ECT Act”), to be a:

communication by means of data generated, sent, received or stored by electronic means and includes:

(a) voice, where the voice is used in an automated transaction; and

(b) a stored record“.

The Companies Act provides for electronic compliance.  In many ways it eases the administrative burden by enabling people to use technology and the electronic form of documents and communications. Let us look at some ways in which the Act can make your life easier.  More articles on some specific areas will follow soon.

Meetings

The meaning of “present at a meeting” includes participating in the meeting by electronic communication.  So, if you participate in a meeting using video conferencing facilities or Skype, then you are present.  This could save much time and effort – no more flights across the country for board meetings or shareholder meetings!  You can now attend all of them entirely through electronic means.  Video conferencing facilities will definitely become a lot more popular. The flip side of the coin is that directors should always remember that “electronic presence” will bring about the same liabilities in terms of section 77 of the Companies Act as physical presence at meetings.

Original documents – Section 6(7)

Where an original document can be used in terms of the Companies Act, an unchanged electronically generated reproduction of a document may be substituted for the original. Section 6(7) states that:

“An unaltered electronically or mechanically generated reproduction of any document, other than a share certificate, may be substituted for the original for any purpose for which the original could be used in terms of this Act, if that reproduction satisfies any applicable prescribed requirements as to the form or manner of reproduction”

Remember though that this does not apply to share certificates.

Notices – Section 6(10)

Where the Companies Act requires or permits a notice (like a notice of a shareholders meeting) to be given, the notice may be transmitted electronically – on condition that the notice be transmitted:

  1. directly to the person; and
  2. in a matter that enables the person to conveniently print it within a reasonable time and at a reasonable cost.

This means that you can give notice of annual general meetings or shareholder meetings by email.

Document retention – Section 6(11)(a)

The Companies Act requires that companies retain certain documents, records or statements. Examples of these include:

  1. a copy of its Memorandum of Incorporation, and any amendments or alterations,
  2. a record of its directors with certain specified details, and
  3. accounting records.

In terms of this section, it is sufficient if an electronic original or reproduction of the document is retained as provided for in section 16 of the ECT Act (the Companies Act mistakenly refers to section 15, but it should be section 16).  In terms of section 16 of the ECT Act, a company will meet the requirement of the Act to retain information if:

  1. the information is accessible “so as to be usable of subsequent reference“,
  2. it is in the format in which it was generated, sent or received, or in a format which can be demonstrated to represent accurately the information generated, sent or received, and
  3. the origin and destination of that data and the date and time it was sent or received can be determined.

Document publication – Section 6(11)(b)

Where the Companies Act requires that a document be published (for example an amendment to the company rules or Memorandum of Agreement or the company’s financial statements) it is sufficient for a company to publish an electronic original or reproduction of that document by an electronic communication. As long as it is in such a manner and form that the document can conveniently be printed by the recipient within a reasonable time and at a reasonable cost.  “Document” includes a record or statement and “published” includes provided or delivered.  So no more printing of financial statements!

Electronic signatures – Section 6(12)

Where the Companies Act requires a document to be signed or initialled, the person may sign or initial by using an electronic signature as provided for in the ECT Act.  For example, a Memorandum of Incorporation (MOI) can now be signed electronically.

So can a resolution – no more posting resolutions around the country, or printing, signing and scanning them.  And once financials have been approved by the Board, an authorised director may sign the financials with an electronically signature.

Resolutions can now be easily signed with an electronic signature

This of course begs the question whether an electronic signature will suffice or whether an advanced electronic signature must be used? In the ECT Act, an electronic signature is defined to mean:

data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature“.

An advanced electronic signature is defined as an:

electronic signature which results from a process which has been accredited [in terms of the ECT Act]“.

The Companies Act allows you to use an electronic signature “in any manner provided for in the ECT Act“. So you can use merely an electronic signature, it does not have to be an advanced electronic signature. To find out more read our article about getting documents signed in seconds.

The Companies Act does not define “writing”, therefore we turn to the ECT Act where the requirement of writing is met if a document or information is:

“(a) in the form of a data message;

(b) and accessible in a manner usable for subsequent reference”.

Reservation of names, incorporation or registration of companies, Filing of information – Section 6(13)

Once the Companies and Intellectual Property Commission (CIPC) is established under the Companies Act, the Commission may establish a system to facilitate automated:

  1. reservation of names in terms of the Companies Act or other legislation that deals with name reservation (listed in Schedule 4 to the Companies Act). Section 11 and 12 of the Companies Act prescribes the criteria and process to reserve company names.
  2. incorporation and registration of companies. Sections 14 and 15 of the Companies Act prescribes the criteria for incorporation and registration of a company.
  3. filing of any information – this means that notices might be able to be filed electronically. For example, notices of amendments, annual returns and resolutions can be filed by electronic means.

So the crux of this clause lies in the CIPC having to establish a system for use of electronic communications.  Hopefully cheaper and quicker than in the past.

Use of Company name – section 32(4)

In line with the provision for electronic filing and publication of documents, the Companies Act prescribes that the regulatory requirements apply to documents in electronic format.  For example, all notices and other official publications in electronic format must include the name and registration number of the company.  In the past, there was doubt as to what had to appear on e-mails.

Appointment of proxy – section 58(2)

The Companies Act prescribes that the appointment of a proxy must be in writing, dated and signed by the shareholder. As mentioned above the Companies Act  allows for any electronic signature as provided for in the ECT Act. This means that a shareholder can appoint a proxy by email as a signature at the bottom of an email will suffice.

The appointment is valid for a year after the date of signature, but can be shorter or longer if expressly set out in the appointment. The appointment can be revoked unless it expressly states otherwise. The appointment of the proxy is suspended if the shareholder chooses to act directly and in person as a shareholder.

Shareholder meetings – section 63(2)

A company can now conduct shareholder meetings by electronic communication, as long as the Memorandum of Incorporation does not prohibit it. The entire meeting can be conducted electronically, alternatively certain shareholders can participate through electronic means. If the latter, all persons must be able to communicate concurrently without an intermediary. Shareholders must also receive notice that electronic participation will be available. Various software products on the market allows for concurrent electronic meetings to take place or video conferencing facilities can be used.

Board meetings – section 73(3) and 74(1)

A company can now also conduct board meetings by way of electronic means, as long as the Memorandum of Incorporation does not provide otherwise. As with shareholder meetings, either all directors or only certain directors may participate electronically, on the same conditions mentioned above under shareholder meetings.  A decision to be voted on at a board meeting can now also be adopted through written (including “electronic writing”) consent of the majority of directors, provided that all directors have been notified of the matter and provided that the Memorandum of Incorporation does not prohibit it. So, an email vote will suffice.

Inspection of documents – section 187(5)

You can now inspect (or obtain a copy or extract of) a document filed under the Companies Act and open for inspection or a certificate from the Commission as to the contents of such a document filed and open for inspection, through an electronic medium approved by the Commission.  Examples of these may include inspection of a register of members, register of directors, or an uncertificated securities record. However, the normal provisions (like payment of a prescribed fee) will still apply.  So, you will be able to view documents online through a portal on the web or by receiving it in email form.

Serving documents – section 220

A notice, order or other document that must be served on a person, will be duly served if sent by registered mail to that person’s last known address. This brings us to the very interesting question regarding electronic registered mail. The ECT Act provides in section 19(4) that where a law permits service by registered or certified post or similar service, that requirement is met if an electronic copy of the document or information is:

  1. sent to the South African Post Office Limited,
  2. registered by the Post Office, and
  3. sent by the Post Office to the electronic address provided by the sender.

Once this service is made available by the Post Office, you will be able to use the e-registered post system instead of the paper based registered or certified mail currently offered by the Post Office.

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