New Companies' Act: Forget the past

Sujeewa Mudalige, Senior Partner, PriceWaterhouse Coopers said that despite the teething problems in the new Act, it is essential for corporates to understand the law. "The new Act brings in 'simplicity' to the law," he said. Adding that the procedure of incorporation of a company itself is made easier with only Articles of Association needed to be submitted to the Registrar of Companies

Top corporate stakeholders called out to firms to embrace the new Companies' Act, citing it as a progressive piece of legislation and requested them to 'forget' the old Act.

A top lawyer said that the interpretation of some clauses may have led to a confusion among investors and the debate on Bonus Issues, though the Act does not specifically prohibit a company to issue bonus shares, Harsha Cabraal, PC, said addressing a top gathering of corporate decision makers at a seminar an Companies' Act recently.

"However, the usual way of issuing bonus shares by capitalising reserves at the par value will not be possible in the future. Some say that this can be interpreted so that in the event of a capitalisation of reserves, the new shares must be issued at or near the prevailing market price of the share as any other consideration can be interpreted as not being 'fair and reasonable to the company and all existing shareholders'," he explained.

Kanag-Isvaran, PC, reiterated that under the new law bonus shares can be issued. "The earlier concepts of capital maintenance, par value of shares have been eliminated," he said, adding that under the new Companies' Act, 'you can issue shares, no matter where the money comes from.' He explained that the Act identifies capital - "Stated Capital"- as the 'total of all amounts received by the company or due and payable to the company in respect of issue of shares and in respect of calls on shares'.

"Therefore, concepts such as the Authorised share capital, Issued share capital and Share premium no longer exist and instead a Stated Capital Account will be in place. The shares now have no par value but instead a basis value at which the share is issued to the market which must be fair and reasonable," he told The Sunday Times FT, adding that many are used to getting things for free. "That may be the main reason why there is confusion about the bonus share issue," he said.

Sujeewa Mudalige, Senior Partner, PriceWaterhouse Coopers said that despite the teething problems in the new Act, it is essential for corporates to understand the law. "The new Act brings in 'simplicity' to the law," he said. Adding that the procedure of incorporation of a company itself is made easier with only Articles of Association needed to be submitted to the Registrar of Companies. "There is a clear reduction in the amount of documentation needed with the Memorandum of Association being taken out completely. The Articles of Association, however, is required and may contain the objects of the company, the rights and obligations of shareholders of the company and provide for the management and administration of the company," he explained.