Company Law CHAPTER 32 PAGES 399 – 415 The South African legal system recognises several business or enterprise forms, namely sole proprietorships, partnerships, companies, close corporations and business trusts. Introductio n A company is incorporated as a juristic person, separate from its members or shareholders. Debts, liabilities, profits and assets of the company belong to the company and not the shareholders. Objectives and Framework of the Companies Act The Companies Act of 2008 repeals the Companies Act of 1973 and amends the Close Corporations Act. Although the 1973 Act has been repealed, reference to it is made throughout the 2008 Act and some provisions of the old Act still apply, e.g., Chapter 14 which deals with the winding-up of a company. Companies Act of 2008 has as its main objective a consistent and harmonious regime of business incorporation and regulation. The Act provides for the creation or incorporation and the registration of different types of companies such as public and private companies, state owned companies, non-profit companies and personal liability companies Legal Personality of a Company Law recognises 2 kinds of legal subjects: natural persons and juristic or legal persons. Legal persons, also known as bodies corporate, include companies, close corporations, municipalities and universities. The consequences of such a separate existence and the aspects that are affected are as follows: Continued or perpetual succession Property ownership Profit loss Company may contract Litigation in the name of the company Acting through duly appointed representatives Separate legal company Types of Companies Private Companies Personal Liability Companies “Propriety Limited” “Incorporated” “Limited” Pty Ltd Inc Inherent Inherent characteristics – characteristics shares not – directors & offered to past directors public & jointly & transferability severally liable of shares for debts & restricted liabilities Public State-owned Companies Companies Ltd “State-owned Company” Not for Profit External or Companies Foreign Companies NPC SOC Ltd Essential All provisions of Act Objective Company or features - apply to SOC Ltd must be to do entity shares but Minister may business for a incorporated offered to grant total, partial public benefit in a country public & or conditional or for the other than transferabil exemption from benefit of South Africa ity of legal provisions if cultural or shares not they overlap with social limited. or duplicate activities or treasury for benefit of regulations or other communal & national legislation group interests Formation of a Company 1. Company name May comprise one or more words in any language and may include numbers, symbols and registration number of company. 2. Incorporation 1st step in incorporation process is the signing of a memorandum of incorporation by creators of company. Thereafter a notice of incorporation must be filed with the Companies and Intellectual Property Commission. 3. Memorandum of Incorporation (MOI) Part A of Schedule 1 of the Act contains a default MOI for a profit company, while Part B contains a default MOI for a non-profit company. MOI must be consistent with the Act, may include matters not regulated by the Act and may deviate from the Act to the extent that is permitted by alterable provisions. A pre-incorporation contract is a contract entered into before the actual incorporation of a company. PreIncorporatio n Contracts The promoter or incorporator of the company to be incorporated acts as an agent of the company when concluding a contract with a third party. The contract is not concluded in the name of the promoter or agent, but in the name of the company which is to be incorporated. Capacity and Representation A company must have the required capacity to enter into transactions with third parties. A company has the necessary capacity when the transaction falls within the scope of its business, as specified in the company’s MOI. As a juristic person, a company acts through its duly authorised representatives. A company derives its funding from share capital (or equity) and external equity such as loans and debentures. “Authorised share capital” = total amount a company is permitted by its MOI to raise by issuing shares. Capital “Issued share capital” (subscribed capital) represents that part of the authorised share capital that has been taken up by members of the company. It constitutes the effective capital of the company for the funding of the company’s operations. “Unissued share capital” is that part of the authorised capital that has not been taken up and that can still be issued. A company may authorise the alteration of its share capital by special resolution. Alteration of share capital may involve the issue of new shares, the consolidation, sub-division or conversion of shares and cancellation of unissued share. Securities As defined in the Securities Services Act of 2004, securities include shares and other securities. Shares, therefore, form part of a larger group of securities. Securities are associated with the right to vote at a general meeting of shareholders. A private company is prohibited from offering its securities to the public. Public Offers In contrast, a public company raises capital by offering investment opportunities to the public. Investors acquire a portion of the ownership of a public company by purchasing shares issued by the company. Investors can in turn divest themselves of their ownership by selling their shares to other investors and if they do so at a price higher than the price they originally paid for the shares, they make a profit. Transparency, Accountability and Access All companies have to comply with the transparency and accountability requirements contained in Part C of Chapter 2 of the Act. Public companies must further comply with the enhanced requirements found in chapter 3 of the Act. The MOI of private companies, personal liability companies and non-profit companies may, however, require them to comply with the enhanced requirements. End of Part 1 of Company Law! We will continue with more Company law next week.
