Snippets of the Changes- New Companies Act 2016 (Now operational as at 31st January 2017)
The new Companies Act 2016 came into operation on the 31st of January 2017. The new Act brings about a transformation on the way a private company is administered and managed with minimal changes to public company. The administration of a private company now relies upon self governance and enable shareholders involvement in the day to day running of the company. Self governance is balanced by increasing sanctions on directors with severe penalties.
In this article, I have tried to capture some snippets of the changes for the benefit of those who don't have much time to spare to attend my training or reading the voluminous articles of the Act.
Under the old regime, it is a must to appoint a secretary who will assist in the incorporation of a private company. Now, it is no longer a requirement, it is an option. A company secretary will need to be appointed only 30 day from the date of incorporation.
The Act did away with the requirement of filling up multiple forms. Now, a company may be incorporated in just one form.
The Act enables a director to act as the company secretary of the company as long as it is not in a dual capacity for instance where the act is required to be carried out by a director and a company secretary.
For private companies, a single individual can have complete control of the company and yet enjoy the separate liability of the corporate entity with ability to keep separate personal income from company income. A single shareholder and single director will be able to incorporate a private company.
Requirements for Memorandum of Articles and Articles of Association (M&A) have been done away with and it is now optional. Existing companies must be on a watch though at their current M&A will be deemed as its new constitution. As without the M&As companies have unlimited capacity to act subject only the provisions of the act, Companies may tailor certain provisions as its constitutions. This is with a view to assist start-ups and special vehicle companies to place the intended restrictions to the administration of its business and any other forms of parameters as security.
Authorised share capital and par value for shares
No longer a prerequisite. Companies can issue shares at any value they choose, determined by the market / value the investors are willing to pay.
All amounts in the share capital redemption reserve will become part of Company’s share capital subject to a transitional period of 24 months for certain purposes.
This works to reduce the hassle to have the increase share capital whenever there is a new investment incoming.
Corporate rescue mechanism
An interesting mechanism is introduced with the aim to help companies restructure their debts namely, the voluntary arrangement process and judicial management. It enables negotiation and introduction of schemes for creditors to consider with minimal intervention from the courts.
- Voluntary arrangement process is a binding compromise or arrangement made with the creditors with minimal court involvement.
- Judicial management is a temporary court supervised rescue mechanism where a judicial manager is appointed and a moratorium is implemented to provide the company breathing room to maintain the company as a going concern.
Annual General Meeting
Resolutions may now be passed in written form. Private company no longer have to hold AGM. Notices for meeting may be issued electronically.
Decoupling of financial statements and annual returns submission.
Financial statements need only be lodged with the Registrar 30 days from the issuance of the audited financial statements to the shareholders.
Annual returns to be submitted 30 days from the anniversary of the incorporation date of the company.
To do list for businesses:
- Newer companies may require advice on the drafting of a fresh constitution to put in restrictions to its business as the act provides for unlimited capacity for business to carry on or undertake activities under the new Act.
- A review of existing M&A to ensure that it is in line with the new Act as otherwise there is a presumption that the M&A becomes the constitution automatically.
- To seriously consider the implementation of Corporate Resolution Policy in its constitution now that the act allows for large room for corporate rescue/restoration mechanism.