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Conversion of companies

27 September 2012

A company, of a certain type or category, may for various reasons wish to convert into another type of company. The old Companies Act 61 of 1973 contained a number of explicit and detailed provisions for the conversion of companies, including provisions dealing with notice of an intended conversion and the effect of conversion on such matters as the corporate existence of the company, its debts and liabilities, rights and obligations, contracts and legal proceedings. The new Companies Act 71 of 2008 (the Act), by contrast, is almost silent on the matter.

However, the Act does specifically preclude the conversion of a non profit company to a profit company (see Item 2(1) of Schedule I of the Act). This is an indispensable provision.

As for profit companies, the Act states that where a profit company amends its Memorandum of Incorporation in such a manner that it no longer meets the criteria for its particular category of profit company, the company must at the same time also amend its name by altering the ending expression, as appropriate, to reflect the category of profit company into which it thereafter falls (see section 16(6) of the Act). This suggests that a conversion of one type of profit company to another type of company is effected by amending the company’s Memorandum of Incorporation, generally by way of special resolution, to effect the necessary changes to the criteria for the relevant category of company. The Act does not specify any further requirements for and the effects of conversions of companies.

Although the Act is silent on the effects and consequences of conversions of companies, section 19 of the Act, which deals with the legal status of companies in general, states the general proposition that a company is a juristic person from the time of its incorporation and exists continuously until its name is removed from the companies register. The section states further that, after a company has changed its name, any legal proceedings that might have been commenced or continued by or against the company under its former name may be commenced or continued under its new name.

Deeds Office Practice
On the analogy of CRC 5 of 2012 (see Chief Registrars Circular 5/2012), an application for the conversion must be lodged in terms of section 3(1)(v) of the Deeds Registries Act 47 of 1937 and be accompanied by proof of the Conversion from the Companies and Intellectual Property Commission of South Africa.

The application must be brought by the duly authorised official of the Company and all interdependent deeds must be lodged for endorsement. No bondholders consent, etc. is required to effect the conversion.

Note that the above procedure is only applicable to companies who have converted subsequent to 1 May 2011, i.e. the date of coming into operation of the New Companies Act 71 of 2008.

Allen West
Deeds Training
Pretoria

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