Professional Documents
Culture Documents
BOARD EXAMINATION
OCTOBER 2010
Corporate Secretaryship
Date:
22 October 2010
Time:
09:00 12:00
Duration:
3 hours
Marks:
100
MEMORANDUM
Page 1 of 17
QUESTION 1
1.1 (ICSA notes Chapter 2: 4)
Any 6 of the following for 6 marks:
The Companies Act does not impose a general requirement for directors to retire by rotation,
but enabling provisions do appear in the pro-forma Articles set out in the Companies Acts
Schedule 1, Table A, articles 66 to 73.
These are as follows:
1. At the first annual general meeting of the company, all the directors should retire and be
elected by the company in general meeting.
2. At subsequent annual general meetings, one third, or the nearest to one third of the
directors must retire and stand for re-election.
3. Those retiring will be the ones who have been the longest in office since their last election.
For directors appointed on the same day, the retirement is decided by agreement or, failing
that, by lot (i.e. by random choice).
4. If nobody stands against a retiring director, the director is automatically re-elected, unless it
is resolved not to reappoint the director, or not to fill the vacancy.
Marks can also be awarded (if full marks not yet allocated) for:
Managing and other executive directors are exempt from the requirement to retire by
rotation.
The rotation clauses enable the members to choose not to re-elect a director at the expiry
of his period of office.
Any reference to King III and the recommendations regarding retiring by rotation. (One
mark for each recommendation).
(6)
An alternate director is a person appointed by a member of the board to act and speak
during periods of absence or incapacity of the director.
An alternate may only be appointed if the Articles of Association so provide.
During his or her appointment the alternate director is certainly a de facto director.
The particulars of an alternate director, as with a director, should be entered in the register
of directors and a form CM29 lodged with the Registrar of Companies. Alternate directors
are subject to the same rules as directors with regard to disclosure of interests in shares
and debentures of the company and transactions with the company.
They may act only in the absence of the appointing director, who may also revoke the
alternates appointment at any time by notice to the company.
If an appointing director ceases to hold office, for whatever reason, the alternate director
will automatically cease to hold office.
Must be noted in AFS.
Must sign CM27.
Page 2 of 17
Attend and vote at any such meeting at which the director appointing him is not personally
present.
Perform all the functions of his appointer as a director in his absence.
The alternate director will not, however, be entitled to receive any remuneration from the
company for his services, although this does not preclude the negotiation of a separate fee
between the director and the alternate director.
(6)
An Incorporated or Inc. company is an unlimited company, but like a limited one, is still
regarded as a company, and is therefore subject to the same rules concerning its capacity
to enter into transactions and incur liabilities.
Unlike a limited company, however, its members are liable to contribute their personal
assets in order to satisfy its debts and liabilities in the event of winding up.
Unlimited companies are often professional practices or special types of trading
organisations that require corporate status and perpetual succession. This means that the
company can carry on regardless of the changes in membership that may occur from time
to time.
(3)
The main objects clause(s). These clauses set out what the main business and activities of
the company will be.
The subsidiary objects clause(s) (powers). These clauses set out the main ancillary
activities which a company is authorised to undertake to enable it to achieve its stated
main objects. For example, the power to borrow and lend money, purchase and sell
property, acquire and promote other businesses and to give guarantees.
The catch-all clause. This clause allows a company to do anything which could be
regarded as incidental to the main objects and is usually included as a protection against
the company overstepping the boundaries of the main and subsidiary objects clauses.
(4)
on several occasions the company secretary would need to advise the Chairman of the
options and process to follow.
(2)
1.6 (ICSA notes Chapter 11: 11.1, Section 206 of the Act)
Members have a right to inspect the minutes of general meetings and to be supplied with a
copy of any minutes within seven days of making the request.
The rights of members to inspect minutes are confined solely to minutes of general meetings
and AGMs. Members have no right to inspect the minutes of board meetings.
(2)
1.7 (ICSA notes Chapter 12: 8.1)
(half mark for each bullet point)
All minutes must include the following basic elements:
1.8 (ICSA notes Chapter 13: 1.2, 2.4, 4.2 and 14: 1.1)
Share premium - is the difference between the issue price of a share and its nominal value.
For example, if the nominal value of a share is R1 and it issued for R1.50, the premium is 50
cents.
Letters of renunciation - In the case of rights offers the existing shareholders are often
permitted to renounce the right to acquire shares offered to them in favour of another person
by completing a letter of renunciation, which is usually attached to the letter of offer.
Consolidation of shares - means that the shares of a low nominal value are aggregated into
a smaller number of shares of an increased nominal value. For example, five shares of 10
cents each may be consolidated into one share of 50 cents.
Blank transfer form - when the shareholder completes a securities transfer form (CM42) but
leaves the name of the transferee blank, this is called a blank transfer. This happens when the
shares are used as a form of security for a bank loan.
(4)
Page 4 of 17
The purpose of a profit-sharing share scheme is to give all employees a common target of
achieving at least a certain level of company profit for the year.
If the profit target is achieved, a formula is used which determines a proportion of the
profits which is set aside for the profit-sharing scheme.
The proportion of the profits is then used to either subscribe for the employers shares or to
purchase the shares in the market.
The shares are then held in a trust for a qualifying period (say at least two or three years)
before they are released to the employee.
No performance conditions usually apply in the qualifying period as the performance was
met at the outset by the company achieving the target profit level.
The employer would need to consider when drafting the scheme rules whether the
participant should have a beneficial interest during the qualifying period e.g. being eligible
to receive any dividends or to vote via proxy at general meetings.
(6)
Page 5 of 17
The board and its directors should act in the best interests of the company.
Directors must adhere to the legal standards of conduct.
Real or perceived conflicts should be disclosed to the board and managed.
The board should elect a chairman of the board who is an independent nonexecutive director. The CEO of the company should not also fulfill the role of
chairman of the board.
The members of the board should elect a chairman on an annual basis.
The chairman should be independent and free of conflict upon appointment.
A lead independent director should be appointed in the case where an executive
chairman is appointed or where the chairman is not independent or conflicted.
The role of the chairman should be formalised.
The chairmans ability to add value, and his performance against what is
expected of his role and function, should be assessed every year.
The CEO should not become the chairman until 3 years have elapsed since
relinquishing his role as CEO.
Page 6 of 17
The chairman together with the board, should consider the number of outside
chairmanships held.
The board should ensure a succession plan for the role of the chairman.
The board should appoint the chief executive officer and establish a framework
for the delegation of authority.
Not have been employed by the company or the group of which it currently forms
part in any executive capacity for the preceding three financial years.
Not be a member of the immediate family of an individual who is, or has been in
any of the past three financial years, employed by the company or the group in
an executive capacity.
Not be a professional advisor to the company or the group other than in a
director capacity;
Be free from any business or other relationship which could be seen to materially
interfere with the individuals capacity to act in an independent manner.
Not be a significant supplier to, or customer of the company or group.
Have no significant contractual relationship with the company or group.
Not be a direct or indirect interest in the company (including any parent or
subsidiary in a consolidated group with the company) which is either material to
the director or to the company. A holding of five percent or more is considered
material.
Not receive remuneration contingent upon the performance of the company.
[20 marks]
Page 7 of 17
Page 8 of 17
After the change of name takes effect, the JSE Listings Requirements require that the
company make an announcement on SENS, notifying the change and stating the date on
which it took effect.
Change the name displayed outside the registered office and other places of business,
and elsewhere such as on e-mail addresses or packaging.
Reprint company stationery including company cheques. Destroy obsolete stationery.
Attach a copy of the special resolution to all copies of the Memorandum and Articles.
Although it is not necessary to file a new copy of the Memorandum and Articles with the
Registrar, people known to hold copies of the Memorandum and Articles, such as
directors or the companys professional advisers, should be sent a copy of the special
resolution.
Include change in Annual report.
(15)
[20 marks]
Page 9 of 17
Page 10 of 17
Page 11 of 17
The board should be assisted by a competent, suitably qualified and experienced company
secretary, to whom the following applies:
Has a pivotal role to play in the corporate governance of a company.
Appointment and removal is a matter for the board.
Board should be cognisant of the duties imposed upon the company secretary and
should empower individual to enable proper fulfilment.
Gatekeeper of good governance important to maintain an arms length
relationship, as far as reasonably possible.
Should assist the nomination committee and ensure that the procedure for the
appointment of directors is properly carried out.
Should assist in the proper induction, orientation and development of directors,
including assessing the specific training needs of directors and executive
management in their fiduciary and other governance responsibilities.
Individual directors and board will look to the company secretary for guidance on
their responsibilities and duties and how such should be properly discharged in the
best interests of the company.
Central source of guidance and advice to the board and within the company on
matters of ethics and good governance and changes in legislation.
Should have a direct channel of communication to the chairman and should be
available to provide comprehensive practical support and guidance to directors, with
emphasis on supporting the NEDs, chairman and committee chairmen.
Should ensure that the board and committee charters and terms of reference are
kept up to date.
Ensure proper compilation and timely circulation of board papers and assist
chairmen with drafting of yearly work plans.
Should have the duty to obtain appropriate responses and feedback to specific
agenda items and matters arising from earlier meeting deliberations. Raise matters
that may warrant the attention of the board.
Should ensure proceedings of board and committee meetings are properly recorded
and that approved minutes are circulated in a timely manner.
Should assist the board with the yearly board evaluation, individual directors and
senior management.
Should ideally not be a director of the company.
Page 12 of 17
Section 268 of the South African Companies Act requires the boards of all public companies
with a share capital to appoint a properly qualified and experienced company secretary.
A brief list of some of the tasks and responsibilities of the company secretary should make this
point clear:
The company secretary assists the chairman of the board with preparing for, conducting
and reporting the outcome of board meetings and general meetings of the company. He or
she attends those meetings, and takes the minutes.
The company secretary will have some involvement in the counting of proxy votes from
shareholders for a general meeting. Although the detailed counting is likely to be done by
the companys registrars, the results should be sent to the company secretary. The
company secretary is therefore well informed about shareholder voting intentions.
Directors are required to notify the company of their dealings in shares of the company, by
themselves or by a related party. This information should be notified to the company
secretary, who (in the case of listed companies) must then notify the Securities Exchange
News Service (SENS). The company secretary needs to be aware whether the share
dealings breach any code.
The company secretary is responsible for assisting the chairmen of the committees of the
board, i.e. the audit committee and the remuneration committee. For example, the
company secretarys office is likely to assist a chairman by checking the availability of the
other committee members for a meeting and arranging the venue. He or she may also
attend the meetings and take minutes.
If he or she attends the meetings of the audit committee, the company secretary will have
some involvement with the external auditors and internal auditors of the company and
should be able to offer advice on matters of risk management.
In some companies, the company secretary is responsible for arranging insurance cover
for the group. In such cases, the company secretary is directly involved in risk
management.
The company secretary is close to the board of directors, without necessarily being a director.
He or she is in a position to advise and assist the board chairman. To provide this advice, he
or she should have a proper understanding of corporate governance rules and practice. The
company secretary should be involved in handling allegations by whistleblowers. He or she
might also be asked to investigate cases of illicit share dealings by directors which qualify as
insider trading, potential conflicts of interest of individual directors or the independence of a
particular non-executive.
The Companies Act makes it clear that directors of a public company are obliged to appoint a
company secretary who in their opinion is suitably experienced and qualified. Failure to do so
could result, on conviction, in a fine and/or 3 months imprisonment.
It is clear that the responsibility for the duties (as set out in section 268G) rests with the
appointed Company Secretary.
The company secretary is, however, disqualified unless they qualify (S218) under the same
criteria as directors.
Successive Companies Acts have created obligations for the maintenance and disclosure of
information regarding companies' affairs, e.g. the lodging of statutory accounts/returns and the
maintenance of various company registers. Responsibility for the performance of these
Page 13 of 17
statutory obligations now rests with the company secretary, who can be prosecuted for failure
to comply.
The Companies Amendment Act 1999 provides, in section 268G, that the company secretary
has a responsibility to advise directors of all legal obligations and it specifies his or her
other duties.
A company secretary has direct reporting responsibilities via the annual report. Any shortfall in
performance of that duty to report could result in the company secretary being held personally
liable.
In order to create some security of tenure for company secretaries, statute provides [S268I] a
right, upon resignation or removal, for a company secretary to require that his statement of
circumstances of severance is published in the directors report in the annual financial
statements.
Summary of statutory aspects:
The Companies Act 1973 requires all public companies to appoint a company secretary.
The directors of a public company to appoint.
The secretary to be a resident of the Republic.
In the opinion of the directors, the secretary shall have the requisite knowledge
and experience to perform the duties (Section 268A).
The first secretary shall be appointed by the majority of the subscribers to the
memorandum.
A consent to act as secretary shall accompany the documents lodged with the
Registrar.
Otherwise within 21 days of incorporation the directors shall appoint a secretary.
If the directors fail to appoint a secretary, the Registrar may make an appointment.
Should the directors not appoint the secretary, every director shall be guilty of an
offence (Section 268C).
A casual vacancy shall be filled by the directors within 90 days.
Duties:
A notice of failure to appoint shall be lodged with the Registrar within 7 days of the
expiry of the 90 days by the public company. A director may also lodge such notice.
Failure to comply shall constitute an offence by the directors and the Registrar or the
Court may, upon application by a director or member, order the Company to make an
appointment.
During any vacancy the directors may appoint any officer to act in his stead. (Section
268C)
A body corporate or partnership may be appointed, if one person in its employ
qualifies to be a company secretary.
If a qualified person continues to be in its employ, or a partner, a change in
membership/shareholding shall not be considered to be a casual vacancy.
Immediately upon the services of a qualified person ceasing to be available to a body
corporate or partnership, it shall immediately resign its appointment (Section 268D)
268G: A secretarys duties include, but are not restricted to:
Page 14 of 17
o Providing the directors of the company collectively and individually with guidance
as to their duties, responsibilities and powers.
o Making the directors aware of all law and legislation relevant to or affecting
the company and reporting at any meetings of the shareholders of the company
of the companys directors, any failure to comply with such law or legislation.
o Ensuring that minutes of all shareholders meetings, directors meetings and
the meetings of any committees of the directors are properly recorded in
accordance with section 242.
o Certifying in the annual financial statements of the company that the
company has lodged with the Registrar all such returns as are required of a
public company in terms of this Act and that all such returns are true, correct and
up to date.
o Ensuring that a copy of the companys annual financial statements is sent, in
accordance with section 302, to every person who is entitled thereto in terms
of this Act.
[20 marks]
Page 15 of 17
Section 73 provides for the circumstances under which a companys memorandum and
articles of association may be cancelled by the Registrar. This process is known as
deregistration and its effect is that the company ceases to exist as a corporation.
The initiative to secure the deregistration of a company may be taken by the Registrar, if
the company has failed for a period of more than six months to lodge an annual return or
if the Registrar has reasonable cause to believe that the company is not carrying on
business or is not in operation.
The Registrar may also deregister the company on receipt of a written statement signed
by all the directors of the company to the effect that the company has ceased to carry on
business and that it has no assets or liabilities.
Suggestion on best approach.
[20 marks]
END OF MEMORANDUM
Page 17 of 17