Delroy Chuck THE PASSING of the Companies Act 2004 last Tuesday, February 3, is a welcome step forward in our social and economic development, or it should be. The new Act was long in coming, initiated in 1990, and remaining in the parliamentary committee and on the floor of Parliament and the Senate for six years and more. It is a monumental piece of legislation, nearly 400 pages, 396 sections and 15 schedules. Beneficial changes have been made, which should encourage businesses and social groups to incorporate, to organise and strengthen their interests.
Companies are created primarily to do business, to pursue common interests and, in commerce, to make money. They are indeed the tools and vehicles of capitalism. It is through companies that the ideas, skills, capital and entrepreneurship of a society are brought together and promoted for the mutual benefit of everyone. In fact, companies provide the formal legal framework for the efficient operation of the capitalist system. The single trader or the family business has many limitations and, ultimately, if the business or venture is to reach higher levels, if capital is needed, and if others are to participate fully, incorporation is the first step forward. Companies bring together entrepreneurs or promoters who have the ideas or business ventures, shareholders or the people with the money willing to invest, directors who create policies and programmes and chart the direction of the venture, managers who implement and carry out the operation of the company, and workers who are paid a salary out of the takings of the company.
SURPLUS
The shareholders bear the risk of the venture and, thus, enjoy the surplus created. It is the shareholders' capital that is usually at stake, they are the capitalists, and at the end of the day bear the loss or appropriate the surplus, usually in the form of annual dividends. In truth, the cut and thrust of business transactions, the profit and loss to shareholders, the wise investment of capital in worthy ventures and usually the enormous wealth created by companies are the very essence of capitalist society. If Jamaicans are to become prosperous, and they should, then there is no better way to do so than to form companies or invest in companies that are producing and creating wealth.
The new Companies Act makes formation much easier. It is now possible for a single individual to form a company. A company can now do anything lawful, no doubt. It is no longer necessary to set out in full detail its purposes and objects in a memorandum of incorporation and association. This is a major step forward, as once formed a company can engage in a variety of social and business ventures without the limitations imposed by its articles of incorporation. At the same time, shareholders have to keep a watchful eye on the excesses of the managers and directors lest the capital and assets of the company are dissipated without tangible benefit to the shareholders who are the real owners of the company.
The new Com-panies Act has also imposed additional obligations on directors, which are definitely in the interests of shareholders and the community. Nowa-days, many directors of companies fail to perform their duties and obligations and simply enjoy the privileges and perks of the company's boardroom while failing to exercise care and prudence over the company's operation. Direc-tors are usually paid, given honoraria and enjoy benefits, which are necessary and justifiable, as the board of directors is the brain centre of the company. Just like a good army must have good generals, so a good company must have good directors. Without visionary and committed directors, a company is unlikely to flourish and achieve its stated goals and full potential. Yet, it is wrong for persons to have their names placed on letterheads or to sit on boards if they are unable to discharge their duties and obligations. The new Act will definitely put absent, disengaged and negligent directors on full notice that if they cannot perform their duties then don't accept the post.
SOCIAL CLUBS
We should also not ignore the other good uses for which companies are formed. Companies are used to form social clubs, community-based organisations, for charitable purposes and, indeed, for a wide variety of activities. While most of these ventures are not intended to make money, the legal structure of the company provides for an organised, accountable and efficient operation. Still, these companies must comply with the new Act and its directors will be held no less liable if the company fails to file returns, pay statutory deductions and keep their books in good order. To the credit of the Registry of Companies, a new Executive Agency, it has started to force companies to file returns, remain active or cease operations, which is a commendable effort.
At the same time, the ordinary man or anyone doing business with companies must be on their guard. With the single-man company, one must be very careful before investing, lending money or doing any business with it. Always bear in mind that a company is a separate legal entity from the shareholders, directors or managers. It stands on its own, a legal fiction, with its own legal persona, that can sue and be sued, can lend and borrow money and, in fact, can do virtually anything that an ordinary person can do. Persons doing any type of business with limited liability companies are well advised to check out their credentials and creditworthiness before engaging in big contracts or transactions. So, while companies provide the vehicles for investment, to create wealth and to make money, they can also be fraudulently used and oftentimes are. Capitalism has its strengths but also its pitfalls.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament.
E-mail: Delchuck@Hotmail.Com.
