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

3. 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) Companies Act 2008 C G CORPORATE GOVERNANCE CC.

4. 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 C G CORPORATE GOVERNANCE CC Companies Act 2008

5. 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 C G CORPORATE GOVERNANCE CC Companies Act 2008

6. 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 C G CORPORATE GOVERNANCE CC 1. Companies Act 2008

7. 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” C G CORPORATE GOVERNANCE CC 2. Companies Act 2008

8. 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 3. COMPANIES WITHOUT NAMES It will become possible to form a company which is known only by its registration number C G CORPORATE GOVERNANCE CC 4 Companies Act 2008

9. 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 5. ANNUAL ACCOUNTABILITY & TRANSPARENCY REPORT All companies, including external companies, will be required to lodge an Annual Accountability & Transparency Report with CIPRO C G CORPORATE GOVERNANCE CC 6 Companies Act 2008

10. 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. 7. PROTECTION OF WHISTLEBLOWERS (Chapter 7) The Act makes provision for the protection of whistleblowers. C G CORPORATE GOVERNANCE CC 8 Companies Act 2008

11. 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 9 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 C G CORPORATE GOVERNANCE CC 10 Companies Act 2008

12. RELATED AND INTER-RELATED PERSONS AND CONTROL (Section 2) The definition of related parties/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. 11. C G CORPORATE GOVERNANCE CC Companies Act 2008

13. 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. 12. 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. C G CORPORATE GOVERNANCE CC 13 Companies Act 2008

14. DIRECTORS’ DUTIES Directors’ duties are to include:  a fiduciary duty; and  a duty of reasonable care. 14. “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, C G CORPORATE GOVERNANCE CC 15 in 2010, to fall away. Companies Act 2008

15. . 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 transparency and accountability report  Obligation to hold AGM and audit AFS: regulations to clarify 16 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” C G CORPORATE GOVERNANCE CC 17 Companies Act 2008

16. . 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 18 C G CORPORATE GOVERNANCE CC Companies Act 2008

17. . 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 19 C G CORPORATE GOVERNANCE CC Companies Act 2008

18. . 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 C G CORPORATE GOVERNANCE CC. Companies Act 2008

19. C G CORPORATE GOVERNANCE CC