SAMRO contributes to legal form process

Joel Baloyi, SAMRO's general manager: legal and governance services, made an oral submission to parliament's portfolio committee on trade and industry regarding the draft legislation's provisions pertaining to SAMRO's corporate form.

SAMRO is one of a handful of organisations in the country that is constituted as a ‘company limited by guarantee.'

This means that while it is a non-profit organisation, it differs from a customary Section 21 (not for gain) company, which cannot distribute monies accrued through fund-raising, donations and public funding. SAMRO does not receive any funding but collects licence fees from users of music and distributes royalties to its members (composers, authors and publishers), after deducting its administrative costs.

Hence, explains Baloyi, a clear distinction needs to be made between the two types of non-profit company: one that may not distribute earnings, and one that is legally mandated to do so.

“In the first draft of the Companies Bill, our corporate form was overlooked. We met with the DTI in April to motivate our concerns, and they undertook to address them.”

Although the drafters were not keen to amend the Bill in order to provide for the continued existence of the ‘company limited by guarantee,' due to the limited use of this corporate form (it appears that only four such companies still exist in South Africa), they did undertake to make a number of important amendments to the Bill in order to accommodate it.

Firstly, they undertook to include a provision creating an exception to the restrictions placed on non-profit companies in terms of their ability to distribute income and profits to their members, by providing that such distribution would be allowed if it is in respect of any rights administered by the company, or where such distribution arises from a legal obligation binding on the company. Based on this, SAMRO would therefore continue to be able to distribute royalties to its members arising from the deeds of assignment with its members.

Secondly, they offered to remove a provision in the long title of the Bill equating a non-profit company solely to a Section 21 company. This is because SAMRO is not constituted as a Section 21 company, although it remains a non-profit organisation. SAMRO was incorporated under the now-repealed 1926 Companies Act, but its corporate form continues to be recognised under the present 1973 Companies Act as an "existing company."

The drafters further undertook to incorporate a provision allowing a company limited by guarantee the opportunity to choose, within a certain period of time after the new Act comes into operation, whether it would prefer to become a for-profit, shareholding public company or to remain as a non-profit entity.

Baloyi is pleased to note that in the revised Bill, SAMRO's concerns have largely been accommodated. However, the reference to a non-profit company as being the successor to the Section 21 company remains, and as a result Baloyi made further written submissions to the portfolio committee and had the opportunity to make an oral submission during the public hearings last week in a bid to have this outstanding issue addressed. Other aspects of Bayoli's submission relate to minor issues which he sees as clerical omissions rather than a reflection of the intention of the drafters.

“What prompted my submission last week is that a company limited by guarantee is a somewhat obscure and unknown corporate form, compared to a Section 21 company,” he explains.

“As such, there is a likelihood that when the courts interpret the law in terms of the newly defined non-profit company, they will develop the law in terms of the precedents developed in respect of Section 21 companies and may exclude a consideration of the unique circumstances pertaining to a company limited by guarantee.”

Baloyi expressed his hope that the portfolio committee would take SAMRO's final submission into account and amend the Bill before it is finally tabled before parliament.