Also read the chapter on forms of ownership on the study guide on the D6, pages 88-98

Companies

A company is a legal person which has capacity and powers to act on its own (i.e. the law sees a company in the same light as a natural person) - companies have legal personality

The Companies Act 71 of 2008 took effect from 1 May 2011. The Act introduces fundamental changes to South African company law and corporate actions. The companies are governed by the Companies Act 71 of 2008 and they are incorporated in terms of the Memorandum of Incorporation (MOI).

A company is incorporated by completing and filing a Memorandum of Incorporation (MOI) and a Notice of Incorporation. The MOI represents the founding statement of a company under the Act. A company becomes a juristic person from the date and time that its incorporation is registered, as stated in its Registration Certificate.

Registration of a company is effected by signature of the MOI by the requisite number of persons and by filing it together with the prescribed Notice of Incorporation at CIPC, together with payment of the prescribed fee.

Types and Categories of companies as per Company Act 71 of 2008

Types of companies:

1. Profit Companies - A company incorporated for the purpose of financial gain for its shareholders.

2. Non-Profit Companies to be reflected as NPC

Categories of Companies:

1. Categories of Profit Companies

·         Private Companies: to be reflected as Proprietary Limited or (Pty) Ltd

·         Personal Liability Companies: to be reflected as Incorporated or Inc

·         Public Companies: to be reflected as Limited or Ltd

·         State-owned Companies: to be reflected as SOC Ltd

 

Public Company

A public company is a voluntary association of 1 or more persons, governed by the company Act 71 of 2008,incorporated in terms of the Memorandum of Incorporation and its name ending with the word “Limited (Ltd”). A company that has issued securities through an initial public offering (IPO) and is traded on an open market.

Characteristics of a public company

1. The incorporators of a public company must consist of at least one person. The word “Person” includes a juristic person, as provided under section 1 of the Act. 1 or more persons (including juristic persons) may incorporate, i.e. no limit on number of shareholders or they can have an unlimited number of shareholders.

2. A public company must have at least three directors. 3 or more for a public (Ltd) company

3. The company is capable of raising capital from the general public and of being listed on the JSE Limited (South Africa’s stock exchange). Their MOI permits them to offer shares to the public, but restricts limits or negates their right of pre-emption. Shares of the public company are freely transferable.

4. The name of a public company must end with the word “Limited” or its abbreviation, “Ltd.”.

5. Financial statement of a public company requires to be audited

6. The Act imposes personal liability on directors who are knowingly part of the carrying on of the business in a reckless or fraudulent manner.

7. A public company is required to implement a reporting process for whistle-blowers.

8. A public company is compelled to attend an annual general meeting (AGM).

9. Where there are more than two shareholders (except in the case of a one-person company), the shareholder quorum at general meetings is three shareholders with voting rights, unless the MOI provide otherwise.

10. The person quorum for all meetings is the presence at the meeting of the holders of at least 25% of all the voting rights that are entitled to be exercised. The voting rights must be determined by MOI, i.e. the MOI may lower or higher the percentage.

11. A public company has a separate legal personality. Shareholders have limited liability

12. Public companies are subject to disclosure and transparency requirements and are obliged to comply with the additional transparency and accountability requirements. Information in the public company is available to shareholders and the public.

13. Each share has one general voting right unless the class of shares; preferences, rights and limitations in MOI provides otherwise.

14. All distributions to shareholders require board approval and need to satisfy the solvency and liquidity tests. Distributions are unfortunately extremely widely defined and include dividends and share buybacks. Payments will be according to the class, preferences, rights and limitations of shares held.

15. The new takeover regulations apply to every public company.

16. A nominee shareholder of a public company is required to disclose the beneficial holder of the securities.

17. A public company is required to provide a mechanism for electronic participation at shareholder meeting.

18. A public company is required to give 15 business days notice for shareholder meetings.

Advantages of a public company

1. A public company is a separate legal entity from the owners and the company can own property in its name and the liabilities for the shareholders are limited.

2. A public company can be owned and operated by only one shareholder and 3 directors. This allows individuals to establish and a public company.

3. A public company can have an unlimited number of shareholders and its life span is perpetual.

4. A public company may make it easier to attract capital investment because of shareholders' limited liability.

5. The company is capable of raising capital by issuing shares to the public.

6. The Act imposes personal liability on directors who are knowingly part of the carrying on of the business in a reckless or fraudulent manner.

7. Members of the public have an excess to the company’s information and this can motivate them to buy shares from a company.

Disadvantages of a public company

1. Public companies can be complicated and expensive to establish and administer if it is a "large company".

2. A minority shareholder may be allowed little or no input into the affairs of the company.

3. A public company requires expensive procedures to comply with reporting regulations.

4. Public companies are compelled to prepare and audited annual financial statements.

5. Public companies are subject to more disclosure and transparency requirements.

6. The company is subjected to double taxation, i.e. on the taxable income and Standard Tax on Companies (STC) payable on declared dividends

7. A meeting may not begin or a matter may not be debated unless at least three shareholders are present.

8. The meeting may not begin to be considered unless sufficient persons are present at the meeting to exercise in aggregate at least 25% of all the voting rights. The voting rights must be determined by MOI.

9. Information in a public company is available to the shareholders and members of the public.

10. All distributions to shareholders require board approval and need to satisfy the solvency and liquidity tests and the payment are also extremely widely defined

 

 

Last Edited by: Ms Kheswa