MASERU — Parliament on Wednesday passed a proposed law that will severely punish directors who negligently cause companies to fail.
The Companies Bill 2010, which will repeal the Companies Act 1967, has now been passed on to the senate for consideration.
If enacted into law, the Bill will bring changes that will tighten the security of companies and protect shareholders’ interests against unscrupulous directors.
The Bill proposes that directors who negligently cause companies to fail be jailed for up to 15 years or face a fine of up to M200 000.
Or they could face both penalties.
If directors engage in conduct that contravenes the articles of incorporation, the Bill gives shareholders powers to take legal action against them.
They could also sue on behalf of the company for compensation.
Addressing parliament on Tuesday, Trade Minister Leketekete Ketso said the Bill was meant to “ensure efficiency and responsible management” by company directors and to protect “shareholders against abuse”.
“Suppose a board of directors resolves not to take legal action when it is necessary to do so, a shareholder can apply to the board to be allowed to take that legal proceeding in the name of the company or on behalf of the company,” Ketso said.
“Shareholders can also institute action against directors for breach of duty.”
Under the Bill, directors could be fined for failing to submit tax returns to the revenue authority.
The Bill also says if company auditors spot any criminal activity in the company’s financials they must immediately report to the director of public prosecutions so appropriate legal action can be taken against the director and employees.
Companies will also be prohibited from appointing auditors who are related to any of the directors or employees, the Bill says.
It also makes it easier for individuals to register companies.
Currently it takes three months to register a company in Lesotho but the Bill proposes to reduce that to 10 days.
Unlike the current law, the Bill allows an ordinary person to register a company without hiring lawyers, whose fees are often unaffordable to many people.
Some attorneys charge as much as M5 000 to register a company.
“You can register a company without a lawyer and there is a model that can be provided by the Registrar of Companies in the Ministry of Trade’s one-stop shop,” Ketso said.
“Clearly in my opinion the primary purpose of the Bill is to make the registration of companies short, simple and responsive to the needs of the business community.”
On Monday the chairperson of the portfolio committee on the economic and development cluster, Thabang Nyeoe, said it was sad that under the Companies Act 1967 an individual was unable to register a company without the assistance of a lawyer.
The Bill also provides for singular shareholding in a company.
Under the current law a company should have two or more shareholders.
“This Bill allows a person to form a company alone without hunting other people to enter into business with,” Nyeoe said.
After the enactment of the Bill, there will be a mass deregistration of companies that have not been filing their annual tax returns.
The Law Office, a department of the Attorney-General’s Office responsible for registering and deregistering of companies and societies, is already compiling a list of such companies.
Last month the Deputy Registrar-General, ’Mampoi Taoana, said all companies registered since 1967 but have not been filing their annual tax returns will be deregistered.
Taoana said the companies’ registry system needed to be “cleaned up” ahead of the enactment of the new companies law.
“I cannot confirm the date as yet but all I can say is we are going to announce deregistration of culprit companies very soon,” Taoana said.
“The law gives us power to delete any company that does not comply with the Companies Act which requires that companies submit their annual returns.”
Taoana said she could not estimate the number of companies that are likely to be removed from the register because her office was still in the process of compiling the list.
However, a source working in the registrar of companies’ office told this paper that as many as 10 000 companies were facing deregistration.
Some of these companies have never submitted their annual tax returns to the Lesotho Revenue Authority (LRA) since their registration, a source said.
They have also not renewed their trade licences with the Ministry of Trade and Industry because they do not have tax clearance certificates issued by the LRA.
A newly registered company acquires a trading licence only after it produces a tax clearance certificate from the LRA.
The law regulating income tax requires that companies should file their annual tax returns with the LRA before they can apply for a renewal of their trade licences.
Some companies have gone for more than 10 years without submitting their annual tax returns, Taoana said.