The Companies and Other Business Entities (Chapter 24:31) (The Act) was gazetted on the 15th of November 2019 and comes into effect in February 2020. It repeals the Companies Act and the Private Business Corporations Act. The Act aims to elevate the legislation regulating business enterprises to conform to the global regulatory standards. The Act also seeks to introduce various new and modified applications of existing concepts within the corporate law framework. In this short commentary we highlight some of the provisions and principles sought to be introduced in the regulation and administration of business entities

1. Non –Application of Act to certain Institutions

Section 4: Non-application of Act to certain institutions
(1) Nothing contained in this Act shall apply to any banking institution, building society, insurer, micro-finance institution, co-operative society or other entity, the formation, registration and management whereof are governed by any other enactment, save as may be otherwise expressly provided in this Act or in such enactment.
A simple reading of this section may lead to the erroneous conclusion that certain entities do not fall under the regulation of this Act. A closer reading will show that this Act applies to all the named institutions save in certain instances (which have been qualified). Should the other enactments referred to thereof not regulate the formation registration or management thereto, then all the provisions of the Act will apply.

2. Registrable Business entities

Section 5: Registrable business entities
(1) The following types of business entities are registrable under this Act—
(a) a public limited company;
(b) a private limited company;
(c) a company limited by guarantee;
(d) a co-operative company;
(e) a foreign company;
(f) a private business corporation;
(g) subject to section 278 (“Voluntary registration of partnership agreements, etc.”), partnerships, syndicates, joint ventures and certain associations of person

Comment

The Act consolidates the registration of all business entities into one piece of Legislation. It also provides for the administration and regulation of these entities. It introduces a co-operative company and curiously provides for the voluntary registration of partnerships without giving them any form of legal status
Section 87 Defines a co-operative company and consequences of default in complying with conditions for co-operative company
(1) A co-operative company is a company, other than a private company, which—
(a) in its memorandum states that its main object is one or other or both of the following—
(i) the provision for its members of a service facilitating the production or marketing of agricultural produce or livestock;
(ii) the sale of goods to its members;
The Act also provides for the registration and administration of small to medium enterprises through the registration of Private Business Corporations.
Section 247 provides;
Any one or more persons, not exceeding twenty, who qualify for membership of a private business corporation in terms of section 253 (“Requirements for membership”) may, by subscribing their names to an incorporation statement and otherwise complying with the requirements of this Act in respect of registration, form a private business corporation.
The Act has introduced the voluntary registrations of partnership agreements particularly targeting professional such as accountants, lawyers and engineers. However, although introducing registration, it is not clear what corporate status this registered entities are being given save a certificate from the Registrar.
Section 278 Voluntary registration of partnership agreements, etc.
(2) The authorised representative of any partnership, syndicate, consortium,
joint venture or unregistered association, may, on payment of the prescribed fee and in the prescribed manner register a copy of the constitutive document relating to the entity in question, and thereupon the document lodged in the Registry shall be deemed for all purposes to be the authentic record of such document.
(3) A certificate by the Registrar that—
(a) the constitutive document of a partnership, a joint venture or unregistered association is registered with the Office; or
(b) a copy of the constitutive document of a partnership agreement, a joint venture agreement or unregistered association is an authentic copy of the one registered at the Office; shall be presumptive proof of the facts thus certified and be admissible as such in all legal proceedings.

3. Duties of Directors

A Director stands in a fiduciary relationship with his company which requires him to act in good faith always for the benefit of the company. This is especially so since the director is in a position of trust and confidence with the business entities and thus the law exacts the highest degree of integrity from those who control it;
54 Duty of care and business judgment rule
(1) Every manager of a private business corporation and every director or officer of a company has a duty to perform as such in good faith, in the best interests of the registered business entity, and with the care, skill, and attention that a diligent business person would exercise in the same circumstances.
55 Duty of loyalty
(2) A manager or controlling member of a private business corporation and a director, officer or controlling member of a company has a duty to act with loyalty to Companies and Other Business Entities that registered business entity and, in the case of a company, towards any subsidiary of that company.
57 Duty to disclose conflict of interest
(1)If a person referred to in section 55 (“Duty of loyalty”) (but subject to section 56 (“Transactions involving conflict of interest”) (2)(b) or (3)), has a personal financial interest in respect of a matter to be considered at a meeting of the board of the company or meeting of the members of the private business corporation, or knows that an associate has a personal financial interest in the matter, the person—

Comment

A Director’s duty requires that he acts with such care and skill as is reasonably to be expected from him having regard to his knowledge and skill. Directors must act with unfettered discretion within the powers of the company and should not allow their personal interests to interfere with their duties. The duties of the directors have been codified so that they can co-exist with the already available duties that exist under the common law provisions.

4. Solvency and Liquidity Test

The Act introduces a solvency and liquidity test which is central to the administration and management of the business entity.
Section 102; Solvency and Liquidity Test
1) For any purpose of this Act, a company satisfies the solvency and liquidity test at a particular time if, considering all reasonably foreseeable financial circumstances of the company at that time— (at) the assets of the company or, if the company is a member of a group of companies, the aggregate assets of the company, as fairly valued, equal or exceed the liabilities of the company or, if the company is a member of a group of companies, the aggregate liabilities of the company, as fairly valued; and
(b) it appears that the company will be able to pay its debts as they become due in the ordinary course of business for a period of—
(i) twelve (12) months after the date on which the test is applied; or (ii) in the case of a distribution contemplated in paragraph (a) of the definition of ‘distribution’ in section 2 (“Interpretation”), twelve (12) months following that distribution

Comment

The concept of liquidity and solvency did not exist within the previous Act, the specific guidance provided within the new Act places a significant emphasis on the application and practical implications of this area of the Act. Companies and business entities should know the test and when it is to be applied. One of the major instances when a company has to apply the test is when making Distributions (section 138). A board that ignores the liquidity and solvency test becomes liable to the creditors of the business for the liabilities of the company

5. Minority Shareholder rights: Appraisal remedy

The Act provides for the appraisal remedy in section 143 and 228

Comment

The appraisal remedy provides that a shareholder can compel a company to buy back his /her shares for fair value in transactions which are espoused under section 143 and 228 of the Act vis being variation of share rights and mergers. The Appraisal remedy is triggered when a company undertakes any of the fundamental transactions under section 143 and 228 of the New Act and this has improved on the ability of a shareholder to obtain relief against unacceptable behavior by other shareholders and directors. However, in order to maintain the objective of the appraisal remedy there is need to regulate the process and protect it from abuse by minority shareholders. There is also need to deal with the lack of clarity on the determination of fair value as defined in terms of the New Act.

6. Electronic Registry

Section 280: Establishment of electronic registry
(1) The Registrar may establish an electronic registry, for which purpose, despite anything to the contrary in this Act, the Registrar may—
(a) digitalize every register, constitutive document or other record under his or her charge; and
(b) establish and maintain a computer system for the purpose of applying information technology to any process or procedure under this Act, including the dispatch and receipt and processing of any return, record, declaration, form, notice, statement or other record or document for the purposes of this Act.

Comment

The electronic registry is a welcome development in line with the digitalization of business. The Electronic registry will become operational on a date to be advised by the Registry.

7. Shares

Section 95; Legal nature of shares and requirement to have shareholders
(1) A share issued by a company is movable property and transferable in any manner provided for by the articles of the company or recognised by this Act or any other law.
(2) Subject to section 304 (“Transitional provisions in relation to par value shares, treasury shares, capital accounts and share certificates”), a share does not have a nominal or par value.

Comment

The Share capital maintenance concept now does not exist in the company law of Zimbabwe. This is a welcome change towards achieving uniformity with the rest of the world.

8. Requirements for Foreign Companies

The Act details the requirements for registration, administration and management of foreign companies
Section 241 Requirements as to foreign companies
(1) Subject to subsection (16), every foreign company which intends to establish a place of business in Zimbabwe shall submit to the Minister—
(a) a copy, duly certified to be a true copy of the original by a director residing in Zimbabwe or by a notary public, of its
constitutive documents and, if the instrument is in a foreign language, a certified translation thereof;
(b) a list in the prescribed form of its directors resident or who will upon the establishment of the place of business be resident in Zimbabwe containing in respect of each director similar particulars to those required by section
217 (“Register of directors and secretaries”) to be contained in the register of directors and secretaries referred to in that section;
(3) No foreign company shall establish a place of business within Zimbabwe unless it is registered and for such purpose shall lodge with the Registrar—

9. Repeals, re-registration of companies and PBCs, general transitional provisions and savings
Section 303;

The Act provides for provisions dealing with companies which are already registered and the effect of failure to register.
(9) A company or private business corporation referred to subsection (8) must within a period of twelve months from the effective date re-register under this Act by submitting the form in the Tenth Schedule as may be appropriate, together with the fee and other documentation as maybe required in terms of that form. A company or private business corporation must re-register under its existing name, without prejudice to its right after re-registration to change its name under section 26.
(12) The effect of failing to re-register in terms of subsection (9) is that the existing company or private business corporation will be struck off the register with effect from the expiry of the period of twelve months referred to in that subsection, and subject to this section, will no longer be able to carry on business as a company or private business corporation unless it registers as a new company or private business corporation under Part I of Chapter II after that date.