New Companies Act to Enhance Business Environment

The implementation of the Companies Act 2004 in January next year, promises to enhance the environment within which businesses in Jamaica operate and consequently encourage commerce.
Deputy Chief Executive Officer at the Office of the Registrar of Companies (ORC), Shellie Leon told JIS News, that the updated law, would seek to bring Jamaica in line with the legislative provisions of other CARICOM territories and as such, would help to facilitate smooth functioning of the CARICOM Single Market and Economy (CSME), scheduled for implementation in 2005.
Highlighting the changes to the old 1965 law at a JIS Think Tank session recently, Miss Leon pointed out that the 2004 Act made the formation process for new companies “more simple.”
“Under the current law, you would have to file a Memorandum of Association, Articles of Association and a Declaration of Compliance to form a limited liability company, but, under the Companies Act 2004, only two documents are filed,” she explained.
The two documents are the Declaration of Compliance and the Articles of Incorporation. The Deputy CEO pointed out that whilst the Memorandum of Association listed extensively, the objects and powers of a company, the Articles of Incorporation was a shorter document, which took less time to prepare and therefore, minimised on the number of mistakes that could occur.
Additionally, there is now greater convenience in the formation of a company as the new law makes it possible for only one person to do so. According to Miss Leon, the formation of a private company required between two and 20 individuals, while seven or more persons were required to form a public company under the current law. However, the Companies Act of 2004 now gives credence to one-man companies and the law no longer requires that more than one person start the business.
“The Companies Act is taking into account the reality of modern-day circumstances,” Miss Leon explained, adding that “the reality is you have many one-man companies that just only use another person (a nominee) to hold the share”.
In addition, with the 2004 Act, persons wishing to form companies are able to reserve a name for the business for 90 days, thereby prohibiting anyone else from assuming that name during the period. Previously, a company’s name could be taken by a subsequent applicant, even whilst the registration process was being carried out.
In another provision, greater freedom and power has been granted to limited liability companies “to do anything that a natural person can do”, the Deputy CEO said. This means that, “previously, a company can only do what is set out in its Memorandum of Association, therefore, if some things were not listed . then that company could not do those things”, Miss Leon explained.
She added that if the company did something that was not listed in the Memorandum, it would be deemed to have acted ultra vires, that is, acted outside of its stated powers.
In addition to the ultra vires doctrine in the 1965 Act, there is also a policy known as the doctrine of constructive notice. The abolition of this doctrine, Miss Leon pointed out, would promote greater transparency and accountability in a company’s operation.
The doctrine of constructive notice means that once a document is filed at the ORC by a company, a third party doing business with that company is deemed to be aware of its content, whether or not such person had actually gone to examine it.
According to the new Act, it is not enough to conclude that a third party is aware of a document simply because it is public record. Miss Leon noted that the Companies Act of 2004, “has removed that disability and has made it easier for third parties to do business with companies”. She said that greater accountability and transparency were now encouraged, as companies would be required to be open about what they do. “You cannot rely on the fact that you have this document in a public place and that it is up to the parties dealing with you to view this document,” she stressed.
Further promoting a healthy and sound business environment, the 2004 Act relates to the codifying of the duties of Directors within the legislation.According to Miss Leon, the standard (for Directors) has been heightened and their duty now, was that “they should act honestly in good faith and to exercise due care and skill that a reasonable person in a comparable position would exercise”. She noted that previously, the standard observed by various Directors were subjective.
Nevertheless, whilst the new law states that a Director’s action may be gauged by someone in a comparable position, the law, at the same time, does not seek to add undue hardship and has taken into consideration the particular skill of the individual in question.
It also seeks to indemnify such a Director against action brought against him or her, once it is determined that the Director acted reasonably and with due care, the Deputy CEO explained.