- Debate on a Bill entitled 'An Act to Repeal and Replace the Companies Act' got under way in the House of Representatives on Tuesday (Jan. 27) with Minister of Industry and Commerce, Phillip Paulwell piloting the Bill.
- Outlining some of the proposed amendments, Minister Paulwell said that the Bill would adopt a no par value system of shareholding.
- Under the present Companies Act, companies having a share capital are required to state in the Memorandum of Association the capital of the company and the subdivision of that capital into shares of fixed denomination.
Debate on a Bill entitled ‘An Act to Repeal and Replace the Companies Act’ got under way in the House of Representatives on Tuesday (Jan. 27) with Minister of Industry and Commerce, Phillip Paulwell piloting the Bill.
Outlining some of the proposed amendments, Minister Paulwell said that the Bill would adopt a no par value system of shareholding. Under the present Companies Act, companies having a share capital are required to state in the Memorandum of Association the capital of the company and the subdivision of that capital into shares of fixed denomination.
Minister Paulwell said: “The reality is that par value has been an unreliable measure of the true worth of a company. Shares may be sold at a premium or at a discount and thus par value is not an accurate index of the value of the investment for the purposes of disposal. The average shareholder is primarily interested in the marketability of his shares, but he has to take account of factors other than par value if he wishes to dispose of them for gain”.
He said that in adopting the no par value approach, there was “real advantages for the shareholder, especially the unsophisticated one. The essence of a share is that it represents a proportionate interest in the net value of a company rather than a fixed nominal value arbitrarily attributed to it”.
The Minister stated that the worldwide trend was for no par value shares and that both Trinidad and Barbados had already implemented no par value share regimes.
The Bill is also proposing to reduce the minimum membership requirements for both private and public enterprises to one. “The legislation therefore, formalises the concept of a sole member company, which is a practical reality for many Jamaican businesses who are forced to add an additional name as a legal formality,” he said.
The Minister told the House: “We are trying now to broaden the scope of participation for our people in this area of law and to make it much more simple.” Under the new Bill, companies of all types will cease to be incorporated by subscription of both the Memorandum of Association and Articles of Association. Rather, the process would be simplified and a single incorporation document known, as the “Articles of Incorporation” would be signed by the prospective members and registered in the usual way.
Currently, companies are bound by the objects clause in the Memorandum of Association setting out authorised activities.
Actions exceeding this scope are ultra vires and void. Attempts by draftsmen to circumvent this doctrine have led to complex and congested Memoranda.
The new Act abolishes the ultra vires doctrine and accordingly, companies will possess the capacity rights, powers and privileges of a natural person.
Meanwhile, the Minister informed that the common law rule prohibiting a company from adopting or ratifying a contract made on its behalf prior to its incorporation will be abrogated by the new legislation.
A company, he said, would be permitted to adopt pre-incorporation oral or written agreements or contracts made on its behalf provided the adoption took place within a reasonable time after incorporation.
Public companies under the new Bill will also be required to register with a minimum paid up capital of $500,000. The current Act does not prescribe a minimum. The Minister will also be empowered to vary the minimum capitalisation figure by subsidiary legislation, in order to take account of changing economic, social or other conditions.
The debate on the Bill will continue next week when the House meets.