THE FRAMEWORK in which companies operate shifted when The Companies Act, 2004 (the act) became effective from February 1, 2005. Whether you operate a company or relate to one in any way, this change has an impact on you.
Some issues you need to be aware of are outlined in the provisions presented below.
DUTY OF CARE
The Act provides that every director and officer of a company in exercising his powers and discharging his duties must:
a) Act honestly and in good faith with due regard to the best interests of the company.
b) Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
In determining what are the best interests of the company, directors should have regard to the interests of the company's employees in general, as well as to the interests of its shareholders.
COMPANY NAME
A name for an intended company, or a company about to change its name, may be reserved for 90 days. During this period, no other company may be incorporated with, or be allowed to have, the reserved name.
NO PAR VALUE
The Act abolishes the par value share. As a result, shares issued before the act takes effect will now be deemed to be shares without par value. However, a company can, within six months of the act taking effect, elect to maintain its existing shares with a par value and continue to issue shares with a par value. Such an election must be communicated in writing to the Registrar of Companies.
The provisions of the Companies Act, 1965, relating to a par value regime will continue to have effect for those companies that elect to retain the par value regime within the six month period. Those companies that do not make such an election will be deemed to have converted their shares to no par value. Eighteen months after that initial six-month period, all companies will be deemed to have converted to a no par value regime. Thereafter, all companies will have shares with no par value.
PRE-INCORPORATION CONTRACTS
Companies can adopt pre-incorporation contracts (oral and/or written) that were made on their behalf, provided that the contracts are adopted within a reasonable time after the company is incorporated.
STATED CAPITAL
Companies are required to maintain 'stated capital' accounts, which are comprised of the full consideration received by the company on the issue of any of its shares. Provision is made for the reduction of stated capital account, without making an application to the court, provided that the directors of the company file a Statutory Declaration. The declaration must state that there are no reasonable grounds to believe that, after the reduction of the stated capital of the company, the company would be unable to pay its liabilities when they become due. Alternatively, also it may state that there are no reasonable grounds to believe that the company's assets would be less than its liabilities and the stated capital remaining.
DECLARATION OF INTEREST
Contracts may be made with a director of a company subject to the approval of the board of directors, excluding the director, who has an interest in the contract. There is a general duty imposed on directors to disclose their interests in the company as well as their shareholdings, including the shareholdings of their spouses and children, in affiliated companies.
DIRECTORS' SERVICE CONTRACTS
Directors' service contracts are to be open to inspection by members without charge. They are to be kept at the registered office of the company, at the place where the register of members is kept, or at the principal place of business of the company.
Raphael E. Gordon is the managing partner of KPMG Peat Marwick and chairman of KPMG CARICOM.
