A Corporate Law Reform Bill is scheduled to be put to the South African Cabinet for approval by September next year, while the drafting process is expected to be completed by the end of this year.
It is also envisaged that the legislation will be ready for signing into law by President Thabo Mbeki in June 2006.
This emerged in a briefing by Department of Trade and Industry officials Macdonald Netshitenzhe and Tshepo Mongalo to the National Assembly trade and industry portfolio committee on Friday.
In terms of a policy document — which is available on the Department of Trade and Industry website — it is expected that a single corporate entity will replace distinctions between close corporations and public and private companies.
The only distinction between companies will be whether they are listed or unlisted and the registration of foreign firms in South Africa will be simplified, according to the officials.
Kevin Cronin of Deneys Reitz attorneys said in a recent paper on the envisaged corporate law change that one of the major thrusts of the policy guidelines is the simplification of the process of forming a company.
A single form of corporate entity will be used “for both big and small business”.
However, it is recognised that the needs of these business vary and different provisions will be applicable depending on the size of the business being incorporated.
Shareholders are to be given the opportunity of electing by resolution from a requisite majority that certain provisions of the legislation not be applicable.
The department pointed out that close corporations law at present requires that only natural persons — as opposed to juristic persons — may register as members, precluding certain categories of equity financiers from investing in these business entities.
Cronin noted that the concept of par value shares “is also considered obsolete and can probably be dispensed with. The distinction between share capital and premium will therefore also fall away but consideration will need to be given from an accounting and tax point of view before changes of this nature are made”.
The guidelines express a preference for the American approach of distributions to shareholders being subject to the test of solvency and liquidity of the company, “rather than through insistence on adherence to a rigid capital maintenance regime”. — I-Net Bridge