The New Companies & Business Entities Act - Short Notes & Comments

2/9/2021 The New Companies & Business Entities Act: Short Notes & Comments
The New Companies & Business

Entities Act: Short Notes &
Comments
By
 Companies Law | Newsletter | Registrations
 01/03/2020
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The following article is the rst of a series of articles aimed at highlighting

the signi cant areas of the Act that may affect companies within
Zimbabwe.
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 modi ed 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- nance 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 quali ed). 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 De nes 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
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lawyers and engineers. However, although introducing registration,

it is not clear what corporate status this registered entities are being
given save a certi cate 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
certi cate by the Registrar that— (a) the constitutive document of a
partnership, a joint venture or unregistered association is registered
with the Of ce; 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 Of ce;
shall be presumptive proof of the facts thus certi ed and be
admissible as such in all legal proceedings.
3. Duties of Directors
A Director stands in a duciary relationship with his company which
requires him to act in good faith always for the bene t of the
company. This is especially so since the director is in a position of
trust and con dence 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 of cer 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,
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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 con ict of interest (1)If a person
referred to in section 55 (“Duty of loyalty”) (but subject to section
56 (“Transactions involving con ict of interest”) (2)(b) or (3)), has a
personal nancial 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 nancial 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 codi ed 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 satis es the solvency and liquidity test at a particular time
if, considering all reasonably foreseeable nancial 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
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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
de nition 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 speci c guidance provided within the new Act
places a signi cant 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
minorityyou can opt-out if you
shareholders. wish.
There Cookie
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to deal with the lack of
clarity on the determination of fair value as de ned 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 certi cates”), 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 certi ed 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 certi ed 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.
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2/9/2021 The New Companies & Business Entities Act: Short Notes & Comments

The New Companies & Business

 Companies Law | Newsletter | Registrations

you can opt-out if you wish. Cookie settings ACCEPT

The following article is the rst of a series of articles aimed at highlighting

Section 5: Registrable business entities (1) The following types of

For more agreements particularly

lawyers and engineers. However, although introducing registration,

For more member

controlling member of a company has a duty to act with loyalty to

For more appears that

clarity on the determination of fair value as de ned in terms of the

The Act details the requirements for registration, administration

← Prev: Low Carbon Energy Development in Zimbabwe & The Challenges

Next: A Short Commentary on the New Customer Protection Act →

You May Also Like…

Jan 14, 2021

IntroductionIn Zimbabwe the process and

This website uses cookies to ensure theUnpacking theuser

For more information about cookiesJul

In the recent case of Isoquant Investments (Pvt)

Capital Gains Tax Exemptions on Property

Jun 22, 2020

Capital Gains Tax (CGT) is levied on the capital

you can opt-out if you wish. Cookie settings ACCEPT

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