WITH the new Companies Act set to kick in on April 1, the Institute of Directors in Southern Africa says companies should be well on their way to preparing for the many changes the act will bring.

"Having been signed into law by the president 18 months ago, no one will be able to say they weren't aware of it coming, even though the drafting process has been messy, occasioning significant delays," says non-executive director Nigel Payne, who writes andfacilitates on behalf of the IoDSA.

However, despite the delay and much controversy in the absence of proper consultation, he adds that the act is in many respects a vast improvement on the often-amended 1973 act.

According to Payne, the new act is a modern, flexible piece of legislation that will significantly change corporate South Africa.

"Flexibility is a major strength of the new act, and I believe it will create many more opportunities for innovation by companies.

"However, this is also one of the reasons why directors, company secretaries and other officers need to make sure they're prepared for the coming changes."

Payne says that, on the date the act comes into effect, the existing memorandum and articles of association will be automatically converted into a single document known as the memorandum of incorporation.

This defines the rights, duties and responsibilities of shareholders, directors, officers and others.

"Even though a two-year period will be allowed to update the memorandum of incorporation in line with the act, many existing provisions will be void with immediate effect, while others will be void after the two-year period."

The act also contains a number of default provisions that will immediately apply to matters not specifically addressed by the memorandum of incorporation or the old articles.

Significant flexibility is provided, to the extent that matters normally addressed in a shareholders' agreement may in future be dealt with in the memorandum of incorporation.

"However, existing shareholders' agreements require urgent attention as they may immediately be invalid to the extent that they conflict with the act or the memorandum of incorporation."

Payne says that, under the new act, certain categories of companies have been done away with, while others have been introduced.

"Each category has different requirements in terms of the act, so close attention needs to be paid to these ... there are also implications for some close corporations."

In addition, board decisions taken in consequence of invalid governance arrangements could themselves be void or voidable.

"The IoDSA therefore strongly recommends that companies urgently consider and make any necessary changes to their articles and shareholders' agreements."

The act also abolishes the doctrine of constructive notice, which could require greater diligence when dealing with other companies.