New Company's Act generates interest

| Wednesday July 25, 2007 00:00

Although it is appreciated that the new Companies Act is modern, simple and most likely to attract foreign direct investment to Botswana, the New Act, in my opinion, seems to be inconsistent with provisions stipulated in other Statutes. For instance, it is my considered opinion that the definition of a 'private company' under the Income Tax Act seems to be at loggerheads with the New companies Act.

It is therefore necessary to give a background about the scenario before the new Companies Act and the new scenario after the introduction of the new companies Act.
Under the Old Companies Act that has been scrapped, a private company was defined under section 31 as follows;

...a private company means a company which by its articles-
a) restricts the right to transfer its shares
b) limits the number of its members to 50,
c) Prohibits any invitation to the public to subscribe for any shares or debentures of the company....

It is interesting to note that the Income Tax Act definition of a private company is synonymous with that of the repealed Companies Act.
It is also interesting to note that the definition of a private company under the new Companies Act is provided for under section 245 of the New Act. Under Section 245, no reference or whatsoever is made to the articles and memorandum of associations, rather the New Companies Act makes reference to the constitution.

This is not surprising, as the new Companies act has made the law simple by abolishing the ultra vires clause.
As already observed under the Income Tax Act, the definition of  'private company' is assigned the same meaning as under the repealed Act 'companies Act, Chapter 42:01 of laws of Botswana' see section Section130 of the Income Tax Act.

What essentially this means, is that a private company incorporated under the New Companies Act, is not catered for under the New companies Act. The same is true for a company that existed before the new companies Act but has converted to the New Companies Act after 3 of July 2007.

However, this does not mean a private company can escape tax liabilities on the basis that section 130 of the Income Tax refers to the Old Companies Act but not the New Act. Such argument may not succeed, as the courts would usually look at the intention of Parliament when it passed the law not just a minor technicality.

It is therefore necessary for the Income Tax Act to be amended to reflect the new changes in the New companies Act. In fact most statutes need to be reviewed in light of new changes brought by the new Companies Act to avoid inconsistencies. For instance, Collective Investment Undertaking Act, Banking Act and Value Added Tax Act may need to be reviewed in light of the New Companies Act.

In future, it may be necessary for Parliament to take a holistic approach when passing laws so that implementation of laws can be easier for both practitioners and more importantly, the members of the public. Efforts by the ministry of trade to educate the members of the public are highly appreciated but one cannot deny the fact that the New Companies Act has been rushed and introduced with such a haste that already the business community is experiencing problems in complying with the Act.

One wonders why the new Act, unlike in the Case of introducing Value Added Tax. Parliament has not passed transitional arrangements to make sure the New Act is implemented properly. It should be noted that under the new companies Act, companies would have to convert to the new laws that make compliance easier but one wonders whether PPADB forms and Banking forms have been amended to accommodate these changes so that the business community could comply accordingly without the risk of penalties.

I am very doubtful whether bidding forms used at the councils and PPADB had been amended to ensure consistency with the new Act. But the big question is whether we are reviewing other laws, policies and procedures to ensure they are simpler to comply with in order to attract foreign investment as has been done with the New Companies Act. It is without doubt that the New Companies Act marks the beginning of a new era in our history, as this is a step in the right direction towards introducing Botswana to free market economies.

It therefore goes without saying that this new development would in the long term result in attraction of foreign investment to Botswana more so that currently, Botswana's economy is growing at a fast rate as evidenced by the booming mining sector. It is my humble submission that perhaps our government needs to adopt a holistic approach in our financial laws in order to attract foreign investment and more importantly address the inconsistencies in our laws, which make life difficult for an ordinary citizen and even to potential investors.

Why the New companies Act was introduced with such as haste and little public education regarding how it is to be implemented bogs my mind. I cannot overemphasize the importance of guidelines and the need for transitional arrangements to facilitate compliance when introducing new laws.

Emang Chibua