By Dennise Williams, Staff Reporter THE Financial Gleaner continues its look at the Companies Act of 2004 that is aimed at replacing the Companies Act of 1965. We are still focused on the early stages of forming a company otherwise called incorporation. Last week, we looked at the documents needed to form a company (Articles of Incorporation) and the number of persons required to form a company (the new Act recognises a one-man company). We now turn our attention to the financial requirements to form a company and the actions that the organisers can take in forming the company.
CAPITAL BASE REQUIREMENT
ON April 2, the Faculty of Law at the University of the West Indies held a seminar on the Companies Act. Ms. Shellie Leon, Deputy Chief Executive Officer of the Office of the Registrar of Companies, spoke on the section concerned with incorporation procedures. Ms. Leon explained, "Public companies will be required to have a minimum paid up capital of $500,000.00." Under the current Act, there is no minimum required. Note that public companies are ones that offer their shares to the public. For private companies, which will not offer shares to the public, there is no minimum required under the 1965 Act or the proposed 2004 Act.
SHARE CAPITAL PAR VALUE
Still on the subject of corporate finance, Edward C. Brightly, compliance manager and attorney-at-law at the Office of the Register of Companies, explained, "There is a radical change in the concept of the nature of the shares which a company will now be permitted to issue, as compared to the type of shares which can now be issued. Previously a company limited by shares and having a share capital, was required to have its authorsed capital stated in its Memorandum and Articles of Association, that is to say, the maximum amount which the company was permitted by its constitution to raise by the issue of shares, as well as the maximum number of shares
permitted to be issued."
Ms. Leon explains further. "The Act provides that the companies having a share capital should be incorporated without a par value attaching to the share. Within six months of the date of commencement of the Act, existing companies may elect to retain shares with par or normal value and may continue to issue shares as such. Failure to elect will result in shares being deemed to have converted at the end of the six months and any shares issued thereafter must be without a nominal or par value. At the end of 18 months after the date of election, where an election has been made, an existing company will be deemed to have a share capital without a nominal or par value."
PRE-INCORPORATION CONTRACTS
An interesting feature of the 2004 Act is the acceptance of the pre-incorporation contracts. Ms. Leon explains, "A company is permitted to adopt pre-incorporation contracts made on its behalf, provided that such contracts are in writing and the adoption takes place within a reasonable time after incorporation. A company may by action or conduct signify its intention to be bound. The company would then be bound by and entitled to the benefits under the contract and the person who purported to act on the company's behalf ceases to be bound by or entitled to the benefits under the contract. Where a contract or agreement is not notified within a reasonable time after incorporation either party should have an order fixing the obligation under the contract as joint and several, or, apportioning joint liability between the company and the purported agent.
ULTRA VIRES RULE
Another feature of the 2004 Act is the abolition of the ultra vires rule. This rule meant that anything that the company undertook that was not listed in its Memorandum was illegal and void. Mr. Brightly explains, "Under the 1965 Act, the Memorandum of a Company about to be incorporated was required to set out in detail the objects (activities) of the Company. Alterations of such objects had to be authorised by special resolutions of the company. With the 2004 Act, the whole concept of a company ability to carry on business being limited by its stated objects has been abolished entirely, so that the objects of a company are not required to be stated in the Articles of Incorporation.
This should result in the Articles of Incorporation becoming a much shorter and simpler document."
LEGAL CAPACITY
Mr. Brightly continues, "By virtue of the 2004 Act, a company incorporated or continued under the Act has no limits on its legal capacity and possesses all the rights, powers and privileges of an individual. It also becomes unnecessary for a by-law to be passed to confer any particular power on the company or its directors."
Additionally, Mr. Brightly points out that, "The Doctrine of Construction Notice has been abolished. As a result, companies must ensure that documents are made known to persons who are required by the Act to know of the existence of the documents and the contents thereof."
DECLARATION OF COMPLIANCE
And while the new Act will certainly cut down on the amount of documents required to legally form the company, there is still one more important document that will be required. Mr. Brightly explains, "The Articles of Incorporation is accompanied by a Statutory Declaration referred to as a Declaration of Compliance which can be signed by:
An attorney-at-law engaged in the formation of the company
A person named in the Articles of Incorporation as a director or secretary of the company
A person who is a member of the Institute of chartered secretaries and administrators engaged in the formation of the company."
