CORPORATE GOVERNANCE CC

1. C G CORPORATE GOVERNANCE CC web: www.corporategovernance.co.za

2. Companies Act 2008 C G CORPORATE GOVERNANCE CC • CHANGE IN THE WAY THINGS ARE DONE Introduction • In 1879 Thomas Edison demonstrated the first incandescent lighting system • In 1882 the street lights of Kimberly in South Africa used electricity while many other places, such as London still used gas • And so the streets of darkest Africa had light! • This trend has resulted in South Africa leading Africa in the governance of companies through: • Companies Act • King Reports • JSE listings requirements • (for listed Companies) .

3. Companies Act 2008 C G CORPORATE GOVERNANCE CC • CHANGE IN THE WAY THINGS ARE DONE Introduction • In 2009: we see the unveiling of updated and completely re-drafted: • Companies Act • King III report

4. Companies Act 2008 C G CORPORATE GOVERNANCE CC • CHANGE IN THE WAY THINGS ARE DONE Introduction Amongst the objectives of the Act are the following: • Update the present Act • Simplify the company structure • Simplify non-profit companies • Enable more flexibility in corporate structures • To move: • from capital maintenance regime to… • a system based on solvency & liquidity • More transparency in companies

5. Companies Act 2008 andum Memor ration of Incorpo C G CORPORATE GOVERNANCE CC 1 • MEMORANDUM OF INCORPORATION: • TO REPLACE CURRENT MEMORANDUM AND • ARTICLES OF ASSOCIATION • All companies will be required to have a single • document entitled “Memorandum of Incorporation” • in place of the current Memorandum and Articles • of Association .

6. Companies Act 2008 C G CORPORATE GOVERNANCE CC 2 • CATEGORIES OF COMPANIES • The following categories will exist: • Non-profit companies The name to end with NPC • Profit companies • Private companies: to continue to be • reflected as “Proprietary Limited” • Personal Liability Companies: to be • reflected as “Incorporated” • Public Companies: to be reflected as • “Limited” • State Owned Companies: to be • reflected as “SOC Limited” .

7. Companies Act 2008 C No Name Brand G CORPORATE GOVERNANCE CC 3 • THE FUTURE OF CLOSE CORPORATIONS • Close Corporations in existence on the effective date may continue in that form • Alternatively Close Corporations may be converted into Companies 4 • COMPANIES WITHOUT NAMES • It will become possible to form a • company which is known only by • its registration number .

8. Companies Act 2008 C G CORPORATE GOVERNANCE CC 5 • REQUIREMENT FOR AUDIT • The Annual Financial Statements of public companies will continue to require an audit • So will those of the new State Owned Companies • Other companies may be either audited, subjected to independent review, or be unaudited 6 • ANNUAL ACCOUNTABILITY & TRANSPARENCY • REPORT • All companies, including external companies, will • be required to lodge an Annual Accountability • & Transparency Report with CIPRO .

9. Companies Act 2008 C G CORPORATE GOVERNANCE CC 7 • APPROVAL OF TRANSACTIONS • A minority of shareholders holding more than 15% • may oppose a company transaction. • Provision is made for a buy-out of minorities, who • do not consent to the transaction, at an appraised • value. 8 • PROTECTION OF WHISTLEBLOWERS (Chapter 7) • The Act makes provision for the • protection of whistleblowers. .

10. Companies Act 2008 C G CORPORATE GOVERNANCE CC 9 • COMPANIES TRIBUNAL • Provision is made for a Companies Tribunal • The companies Tribunal is an adjudicator (S180) • which may informally conduct hearings • or alternatively, may question under oath 10 • ULTRA VIRES ACTS: NO LONGER RELEVANT • As is presently the case with Close Corporations, • Companies are, in future, to have the contractual • powers of a natural person. Consequently, Ultra Vires • will be a seldom used principle. • It is, of course, possible for Shareholder Agreements, • Board Charters and other documents to restrict the • powers of certain directors. This would provide a right • for the company to claim damages if the director • acts beyond his or her powers, but will not effect • a contract with third parties

11. Companies Act 2008 C G CORPORATE GOVERNANCE CC 11 • RELATED AND INTER-RELATED PERSONS AND • CONTROL (Section 2) • The definition of relatedparties/persons includes: • Married persons • Those in a relationship similar to marriage • Individuals who are separated by no more than two degrees of: • natural; or • adopted • consanguinity or affinity • An individual which is related to a juristic person which he or she controls or whose business it controls Provision is made for the Tribunal, or a Court, to grant exemption from the provisions for a related party, when independence can be proven. .

12. Companies Act 2008 C G CORPORATE GOVERNANCE CC 12 • SUBSIDIARY RELATIONSHIP • A subsidiary relationship will exist when one party: • controls the voting power at General and Annual General Meetings; • has the power to appoint the majority of the Board. 13 • SOLVENCY AND LIQUIDITY • A capital maintenance regime based on solvency and • liquidity is to be imposed. • The concept of par value shares, although it will • continue for existing companies, will no longer • apply to new companies, when the new • legislation becomes effective in 2010. .

13. Companies Act 2008 C G CORPORATE GOVERNANCE CC 14 • DIRECTORS’ DUTIES • Directors’ duties are to include: • a fiduciary duty; and • a duty of reasonable care. 15 • “WIDELY HELD” AND “LIMITED INTEREST” CONCEPTS • These categories of companies were contained in the Corporate Laws Amendment Act, which became effective on 17 December 2007 • Are from the effective date of the New Companies Act, in 2010, tofall away. .

14. Companies Act 2008 C G CORPORATE GOVERNANCE CC 16 • PRIVATE COMPANIES • Now required: • To lodge annual financial statements • To appoint a compliance person to ensure • compliance with Part C and Chapter 3 • Lodge an annual transparencyand • accountability report • Obligation to hold AGM and audit AFS: regulations to clarify 17 • SHARES – PAR VALUE Shares will no longer have a nominal , but will have a Par Value • No longer: “100 shares of R1 each” but only • “100 shares” .

15. Companies Act 2008 C G CORPORATE GOVERNANCE CC 18 • SUMMARISED ANNUAL FINANCIAL STATEMENTS Companies will in future be permitted to send summarised annual financial statements to members in place of full annual financial statements Provided there is an invitation and direction on how to obtain the full document .

16. Companies Act 2008 C G CORPORATE GOVERNANCE CC 19 • NON-VOTING MEMBERS: • POSSIBLE FOR NON-PROFIT COMPANIES The Board of: • a non-profit company, with no voting members may amend the Memorandum of Incorporation • But non-profit companies, with voting members, will require agreement with members constituting: • a quorum of 25% of all members • of whom • 75% agree to the amendment of the • Memorandum of Incorporation .

17. Companies Act 2008 C G CORPORATE GOVERNANCE CC • CONCLUSION • Whether or not the Act achieves its goals – it is evident we will have to live with it. This means adapting the way we do business • Many concepts which we have followed all our lives will disappear and be replaced by others • This legislation appears to achieve the delicate balance between: • too little control which could lead to • bankruptcy and losing the business • too much control and we could lose • enterprise….and….the business • Although there are unknown consequences it should be an effective means to balance enterprise and control . .

18. C G CORPORATE GOVERNANCE CC