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The Duties of all Important Role Players in a Business

Practical guidelines on drafting and executing a Memorandum of Incorporation in terms of the Companies Act of 2008.

Nicolene Schoeman-Louw




The Companies Act 71 of 2008 has heralded some very significant changes to the way you manage your business.

Under the Companies Act 61 of 1973 (the ‘Old Act’), each company had to register its Memorandum of Association and its Articles of Association. The previous Act imposed various requirements on the form and content of the memorandum, but it did not prescribe the content of the articles. That said: Table A or Table B (in terms of the Old Act) could have been used and would apply, unless excluded or specifically modified.

In terms of the 1973 Act, the memorandum and articles could also be altered independently of one another by special resolution of the shareholders. Furthermore, the two were binding between the members (shareholders) of the company and the company itself.

However, the Companies Act 71 of 2008 (the “new Act”) has changed this position quite drastically. Now, pre-existing companies (before the enactment of the new Act) must align their existing articles and memorandi with the provisions of the new Act. Furthermore, the new Act has set a window period within which this is to be done.

The window period closes at the end of April 2013. Accordingly, companies should consult their attorneys sooner rather than later to determine the impact this may have on their financial year-end and to reconsider their strategies.

The legal nature of the Memorandum of Incorporation

A Memorandum of Incorporation (MOI) is defined in the new Act as an instrument:

‘that sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to the company, and other matters as contemplated in section 15; and by which:

  1. The company was incorporated in terms of this Act, as contemplated in section 13; or
  2. A pre-existing company was structured and governed before the later of:

aa) the effective date; or

bb) the date it was converted to a company in terms of schedule 2’.

Accordingly, the MOI now combines the Articles of Association and Memorandum of Association in one legal document and amplifies its purpose. Currently, the articles and memorandum of companies registered before the enactment of the new Act will automatically form its MOI. However, these companies should ensure that their existing articles and memorandum conform to the provisions of the new Act.

Furthermore, under the old Act, it was common practice to override a company’s articles and memorandum (in terms of the old Act) by execution of a shareholders agreement. In terms of the new Act, this will no longer be allowed (Section 15(7)).

Therefore, the MOI is binding between the company and its shareholders, the shareholders themselves, the company and each director/prescribed officer, the company Board committees and the auditor’s committee. Accordingly, the MOI is significantly different to its predecessors.

Generally, the MOI can only be amended by a special resolution by the shareholders. Meanwhile, the governance rules that deal specifically with day-to-day governance and management matters are usually easier to amend and generally do not deal with matters that are referred to in the MOI or the Companies Act.

As a result, it is important that each company understands or seeks advice to understand the specific function of each new document created by the Companies Act of 2008.

Alterable and unalterable provisions

The Company’s Act of 2008 prescribes alterable and unalterable provisions. Alterable provisions are the sections that state: ‘Unless provided for otherwise in the company’s MOI’.

Examples for alterable provisions include:

  • Conditions for the Board and making governance rules
  • Amendment of the MOI
  • Powers and capacity of the company to be other than that of a natural person
  • Voluntary audit
  • Voting rights associated with shares etc.

Special conditions may be added to the MOI. In this case, in terms of Section 19(5), the letters/suffix ‘RF’ must follow the name of the company.

As a result, in addition to the alterable provisions listed above, any provision may be included that:

Relates to any matter not addressed in the Act that imposes a higher standard, greater restriction or similar onerous requirements that would normally apply; contained restrictive conditions and the greater requirements for the amendment of the MOI other than that prescribed in Section 16 of the Act; or may even prohibit the amendment of the MOI.

In terms of the unalterable provisions (provisions that cannot be amended by executing a MOI), the following – among other things – may not be altered:

  • The Board’s power to issue shares
  • Shareholders’ rights to execute round robin resolutions
  • Indemnification of directors against claims of breach of fiduciary duty, conflict interest, care and skill etc.

(This list is not exclusive.)

Practical examples of alterable provisions that should be considered by most companies include:

In terms of Section 36(2)(b), the Board of directors may authorise the issue and to classify shares. This right may not be waived, but may be limited. Practically, this may be amended by either special resolution to amend the MOI, by decision of the Board or in terms of the MOI as it provides otherwise. This is a particularly useful amendment that should serve to protect shareholders and ensure better management control.

In terms of Section 44(2), financial assistance for subscription or purchase of securities. Except to the extent that a company’s MOI provides otherwise, the Board may authorise the company to provide financial assistance by way of a loan, guarantee, the provision of security or otherwise to any person for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the company or a related or interrelated company, or for the purchase of any securities of the company or a related or interrelated company. Again, this is a particularly useful amendment that should serve to protect shareholders and ensure better management control.

In terms of Section 66(8), a company may pay remuneration to its directors for their service as directors. This is a contentious issue which has been abused by directors in the past. This is a particularly useful amendment that should serve to protect shareholders and the company as a whole from directors who regulate matters that are in their sole interest and not always in the best interest of the company.


The MOI is no longer a document only binding between selected parties. It is a vital, practical document that regulates the duties of all important role players in a company and should actually be applied. As such, it should be carefully tailored by an attorney to meet the specific needs of a company and promote its growth.

Nicolene Schoeman – Louw is an admitted attorney of the High Court of South Africa, as well as being a Conveyancer, Notary Public and Mediator. She is the Managing Director of Schoemanlaw Inc Attorneys, Conveyancers and Notaries Public (Schoemanlaw Inc Attorneys) in Cape Town. Visit for more information or email



Can Your Words Be Used Against You?

Yes, they most certainly can. Here’s what the RICA Act has to say about recordings.

Andrew Taylor




“This call may be recorded for quality control and records purposes…” Anyone who has been on hold with insurance companies would be familiar with these words — but what are the implications of a recorded conversation and when is it legal?

In essence, the Regulation of Interception of Communications and Provision of Communication-Related Information Act of 2002 (mercifully shortened to ‘RICA’) permits any person, who is a party to a conversation to record that conversation, provided that it is direct communication — which is defined as oral communication between two or more persons that occurs in the immediate presence of those persons.

Section 4 of the RICA Act governs this aspect of our monitoring law. What is unclear, however, is the degree to which this extends to legal persons, such as a company that monitors a call centre agent’s performance, for example.

Related: Understanding Shareholder Agreements

Evidence in legal cases

While limited to direct communications and not covered by third party interception, such as an eavesdropper, the lesson here remains pretty stark — you could legally be recorded during any conversation you have.

The implications of this are significant — just ask former Springbok player Luke Watson, who had a conversation recorded during a function in 2008 that was subsequently leaked to the media.

Furthermore, with the widespread use of smartphones, together with applications freely available on the relevant app stores, designed to record cellphone calls, the likelihood of you being recorded — whether you know it or not, is ever increasing.

Beyond the moral or ethical ambiguity of this, the legal ramifications of what is recorded are more certain — the recording may be used against you as evidence in any criminal proceedings, or equally as possible, in civil proceedings where, for example, agreement to a contract or term thereof is in question, or in the insurance company’s case, whether or not to repudiate a claim based on the information you provide to them.

Related: Protect Your SME From PoPI

Know the business exception

Section 6 of the RICA Act contains a course of business exception that allows the interception of indirect communication:

  1. a) By means of which a transaction is entered into in the ordinary course of business
  2. b) Which relates to that business
  3. c) Which otherwise takes place in the course of that business.

While there has not, to my knowledge, been a reported case that deals with this aspect of the RICA Act, the implications regarding the use of this information to evidence the valid conclusion of a contract or as to the intentions of the parties to a contract are significant, particularly given that the scope is relatively broad, although limited.

The matter has, however, come before the Constitutional Court in the 1999 criminal case of S v Kidson, where the court held, per Justice Cameron, that unless a “reasonable expectation of privacy exists” it would be difficult to prevent the recording or interception falling within the ambit of the RICA Act.

Where to from here?

From both a commercial and criminal perspective, this should serve to remind us all of our wise grandmother’s words — if you have nothing nice to say, rather say nothing at all (especially because you never know whether you are being recorded).

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Why You Shouldn’t Be Sweating The Fine Print

Signing a contract is a big deal, and you never want to sign anything you don’t fully understand.

Andrew Taylor




While it is almost always a grudge purchase, ensuring that you have had a legal eye cast over a contract you intend to conclude means that you are protected, that you understand the nature of the obligations you are taking on and perhaps, an even better deal for you.

Given that legal agreements are an important aspect of commerce, we have distilled key points for you to consider, before engaging with external counsel. This will make the process more efficient and, hopefully, less expensive.

Reviewing a contract is a tricky business, not entirely different from asking a builder to finish building a half built house. However, there are some useful techniques to ensure you get the most out of the exchange with your lawyer.

Related: Why Your Business Needs Employment Contracts

Always create a timeline

You have lived and breathed your business and this transaction, while your attorney is possibly hearing about the matter for the first time.

Setting the scene correctly puts your attorney in the picture and explains what you want out of the exchange. Print this out for your attorney.

It will help an attorney identify key areas of risk which you might not have anticipated. Be sure to also tell your external counsel how quickly you need the review to be done. Setting expectations means there is less chance of disappointment later.

Provide supporting documents

It wastes your time and money when your attorney has to come back to ask you for supporting documentation.

Try to anticipate which documents will be relevant to your transaction and bring copies of them to the meeting for your attorney to consider. If you have previous versions of the agreement, for example, bring those too.

Remember, the more background work you do, the simpler and more efficient the process will be.

Understand your needs

Are you looking for a high level overview of your document to highlight some key contractual risks or are you looking for a thoroughly sanitised document reviewed from every possible angle?

I recently had to look over Jim’s Sale of Business Agreement for the potential acquisition of his Technology Company. He came to me with limited areas of risk which he had identified and wanted me to look at these clauses.

I was able to advise him to push back on certain clauses he had already negotiated and the resulting document placed him in a stronger legal and financial position. It was easy to justify the costs associated with the review.

This is not always necessary though — where there is limited legal exposure, or you have no bargaining power, the role of the attorney can be restricted, but still worth the investment since you have assurance that your legal exposure is as restricted as possible.

Be guided by the relative value of the document and the ensuing legal responsibilities — is this a standard supply agreement with a strange payment clause or a multi-national acquisition of intellectual property? The type of expert you engage with will vary, as will the cost of the review.

Related: Protect Yourself: How to Structure Your Consulting Contracts

Areas of concern

Directly related to knowing your business and understanding your needs, is your responsibility to communicate specific areas of concern to your attorney.

A recent client’s business processed a lot of personal information, in accordance with the Protection of Personal Information Act, but, the contractor they were about to sign a service supply agreement sought to have access to some of this personal information.

Had the client signed this agreement without a review of the potential legal consequences, it would have resulted in a clear breach of an essential provision of his own terms of use.

Seen alone, there was little risk, but within the context of this business, we were able to avoid this. A trusted and qualified expert will help you navigate the complex commercial world.

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Are You Protecting Your Customer’s Data?

A company’s privacy policy dictates what personal information is processed, and the manner in which such information is collected, stored, and shared.

Kyle Torrington




The collection, usage and sharing of personal information is regulated primarily by the Protection of Personal Information Act 4 of 2013. The Act was recently promulgated and is yet to be implemented. The Act seeks to give expression to the right to privacy provided for in the Constitution.

At the time of writing, the primary enforcement arm contemplated by the Act, the Information Regulator, has yet to be appointed. Once appointed, all businesses will be required to register with the Information Regulator to make public what personal information is being collected, and what it is being used for.

The Information Regulator will be empowered to enforce compliance with the Act, and able to investigate whether an entity is lawfully processing the public’s personal information. 

Related: Protect Your SME From PoPI

How are privacy policies affected?

The Act defines the term ‘processing’ broadly, and includes “the collection, receipt, recording, organisation, collation, storage, updating or modification, retrieval, alteration, consultation or use of a person’s personal information”. To process a person’s personal information, the prior consent of the person (data subject) is needed.

Personal information includes email addresses, names, identity numbers, phone numbers, the race, gender, religion, marital status of a person, and if applicable, an entity such as a company, to name but a few. One of the purposes of a business’ privacy policy is to obtain such consent, by an indication that the privacy policy has been read and agreed to.

The primary purpose of a privacy policy is to set out in clear and concise terms what personal information is collected by the company, and exactly what the company will and will not do with that information. It should also set out whether personal information will be shared, and with whom.

The Act restricts a company’s ability to store personal information outside of the country by requiring that it be transferred only to countries in which comparable security laws and data protection measures exist.

A situation such as this arises more easily than expected. Consider the example of the humble contact form: Your website, with its local server situated in Midrand, utilises a plugin to create custom contact forms.

Although your server may be in Midrand, every person who completes the contact form on your website has their personal information transferred and stored on servers in the home jurisdiction of your plugin creator, which may be in the US. But the plugin creator may also make use of third-party service providers based in Vietnam. An in-depth investigation of all third-party plugins and processes of a website is therefore required to ensure that you comply with the Act.

Access by a data subject to personal information

A data subject is entitled to request a full disclosure of any personal information held by the company.

As the procedures governing access to personal information overlap, companies should also ensure compliance with the processes outlined by the Promotion of Access to Information Act 2 of 2000 (‘PAIA’).

Related: Five Tips for Effective Marketing that Complies with the POPI Act

In terms of PAIA, all companies are required to compile a manual that needs to be registered with the South African Human Rights Commission. This manual sets out the company’s contact information, what records are available for inspection, the identity of the leadership of the company, as well as the manner in which a person may request access to information held by the company.

However, the Minister of Justice and Correctional Services has exempted private bodies from complying with this requirement for a period of five years, starting from
1 January 2016.

To ensure compliance with all data protection, privacy, and access to information laws, a privacy policy and a PAIA manual will be required by every business.

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