MRL2601 Company Law Summary Notes

MRL2601 Company Law Summary Notes. Public Company (‘Ltd’) Ø Shares may be offered to the public and are freely transferable; Ø Company can be listed on the JSE Limited; Ø Can be formed by 1 person Ø Must have at least 3 directors Ø Obliged to hold annual general meetings Ø Obliged to appoint an auditor Ø Obliged to appoint a company secretary Ø Obliged to appoint an audit committee A state-owned company (‘SOC Ltd’) Ø Registered in terms of the Companies Act Ø Listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act, or owned by a municipality; Ø Examples of state-owned companies: ACSA, Denel and South African Airways. Ø The majority of the provisions applicable to public companies apply to state-owned companies except if an exemption has been granted by the Minister Ø Obliged to appoint a company secretary Ø Obliged to appoint an audit committee A personal liability company (‘Inc’/ ‘Incorporated’) Ø Must meet the criteria for a private company, Ø Mainly used by professional associations (such as attorneys); Ø Memorandum of Incorporation must state that it is a personal liability company Ø Directors are jointly and severally liable along with the company for debts and liabilities contracted during their term of office. Ø Section 19(3) uses the word “contracted” and not “incurred” to limit directors’ liability to contractual debts, and to exclude delictual and statutory liabilities. Ø A provision that the directors and past directors will be liable jointly and severally, together with the company, for debts and liabilities of the company that were contracted during their periods of office must be included in the Memorandum of Incorporation of a personal liability company. Ø The effect of the inclusion of such a clause is that creditors would be able to hold the directors jointly and severally liable for the company’s contractual debts and liabilities. Ø A director who had paid the debts will have a right of recourse against his or her fellow-directors for their proportionate share. Ø Can be formed by 1 person Ø Must have at least 1 director Ø The doctrine of constructive notice applies in terms of section 19(5) of the Companies Act. Non-profit companies (‘NPC’) Ø Not formed with the aim of making a profit for its members Ø A non-profit company has members and not shareholders like profit companies. Ø Objects must relate to social activities, public benefits, cultural activities or group interests. Downloaded by Nikita van Heerden () lOMoARcPSD| Ø Must be formed by at least 3 persons who will be the company’s first directors. Ø Must have at least 3 directors Ø Directors are not allowed to obtain any financial gain from the company other than remuneration for the work they performed. Ø If these companies have members, some members may enjoy voting rights while others may not. Ø The income and property of non-profit companies are not distributable to its incorporators, members, directors, officers or persons related to any of them. Ø Upon liquidation, income and assets must be paid over to another non-profit company, voluntary association or trust with a similar purpose. Ø Objectives of the Companies Act include v the promotion of the development of the South African economy v creation of flexibility in the formation and maintenance of companies v simplicity in the formation and maintenance of companies v the encouragement of corporate efficiency v the encouragement of transparency v the provision of a predictable regulation of companies Ø The Act makes it possible to incorporate both simple and extremely complex business structures Ø When incorporating a company, the Notice of Incorporation plus a copy of the Memorandum of Incorporation must be filed with the Commission. Ø Old Act – Articles of Association and Memorandum of Association required to be filed Ø In addition, the prescribed registration fee must be paid. Ø Memorandum of Incorporation (founding document of the company) is defined, as ``the document, as amended from time to time that sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to a company and other matters. Ø Memorandum of Incorporation contains details of Incorporators, number of directors and alternate directors, share capital (maximum issued) Ø Companies Act imposes certain specific requirements on the content of a Memorandum of Incorporation, to protect the interests of shareholders in the company. Ø A number of default company rules or alterable provisions are provided for. Ø Companies may accept or alter the alterable provisions as long as the alteration remains consistent with the Companies Act. Ø In case of an inconsistency between the Memorandum of Incorporation and the Companies Act, the Memorandum of Incorporation will be invalid to the extent of its inconsistency. Ø Once the Notice of Incorporation and the Memorandum of Incorporation have been filed with the Commission and the prescribed fee paid, the Commission may either accept or reject the Notice of Incorporation. Ø The Notice of Incorporation may be rejected under the following circumstances: v if it has not been completed in full v if it has not been properly completed Ø The Commission must reject the Notice of Incorporation if: v if the initial number of directors is fewer than the prescribed minimum number v where as a result of a director's disqualification, the initial number of directors becomes fewer than the prescribed minimum number Ø A profit company must have at least one director and a non-profit company a minimum of three directors. Ø If one of the directors does not qualify to be a director, this will reduce the number of directors. Downloaded by Nikita van Heerden () lOMoARcPSD| Ø If the reduction leads to the number of directors being fewer than the prescribed number, the Commission has no choice but to reject the Notice of Incorporation. Ø The flexibility of the Act is evident in the role of the Commission when it comes to the incorporation of a company. Where there is a deviation from the design or content of the prescribed form, the deviation will only invalidate the Notice of Incorporation if it affects the substance of the Notice of Incorporation Ø Deviation will also invalidate the Notice of Incorporation if such deviation would reasonably mislead a person who is reading the Notice of Incorporation. Ø Once the Notice of Incorporation has been filed, the Commission assigns a unique number to the corporation Ø It then enters the prescribed information of the company in the Companies Register Ø It then issues and delivers a registration certificate to the company, if all the requirements have been complied with. Ø The date on the registration certificate is the date on which the company acquires legal personality. Ø If the promoters have stipulated a specific date on the Notice of Incorporation, the date on the registration certificate will be the later one of that date and the date on which the certificate is issued by the Commission. Ø The Companies Act imposes certain specific requirements on the content of a Memorandum of Incorporation, as necessary to protect the interests of shareholders in the company. Ø A number of default company rules or alterable provisions are provided for. Ø Companies may accept or alter the provisions as long as the alteration remains consistent with the Companies Act. Ø The Act is flexible and allows the incorporators of a company to include provisions not covered by the Act, in the Memorandum of Incorporation. Ø The Act specifically requires that provisions of the Memorandum of Incorporation have to be consistent with provisions of the Companies Act. Ø Where there are inconsistencies, provisions in the Memorandum will be void, but only to the extent of the inconsistency Ø Memorandum of Incorporation of a company may contain special conditions applicable to the company and requirements in addition to those stipulated in the Act, for the amendment of such conditions. Ø The Act also allows the Memorandum of Incorporation to prohibit the amendment of any particular provision in the Memorandum of Incorporation. Ø If the Memorandum of Incorporation of a company contains those provisions allowed the name of the company must be followed by the expression “(RF)”. Ø This is an abbreviation for the words “ring fencing” and is intended to warn outsiders dealing with the company that there are special conditions contained in the Memorandum which they should check. Ø The Notice of Incorporation filed by the company must also contain a prominent statement drawing attention to each such provision and where it is located in the Memorandum of Incorporation Ø Note that where the Act is silent on a particular issue, the incorporators of a company are allowed to include provisions pertaining to that issue in the Memorandum of Incorporation. The objective of flexibility with regard to incorporation is once again highlighted Ø RF follows the name of these companies. It is an important principle for representation of companies. Ø An RF-company is one of the circumstances where a third party would be deemed to know the restrictions in the Memorandum of Incorporation. Ø The other exception to the rule that a company is no longer subject to the doctrine of constructive notice is in case of personal liability companies. Ø Should the Act and the MOI be silent on certain matters that deal with governming the company then the board of directors is allowed to make rules, amend existing rules and repeal any rules. Downloaded by Nikita van Heerden () lOMoARcPSD| Ø Rules must not conflict with the Act or MOI and if it is then the rule will be void to the extent of its consistency. Ø Rules made by the board must be published in the manner stated in the MOI or if there no manner prescribed then the rules must be published as stated in the rules themselves. Ø A copy of the rules must be filed with the Commission. Ø Twenty business days after publication of the rules or after the date stated in the in the rules, the rules become effective. Ø As soon as the rules become effective they are binding on an interim basis until put to the vote in the next shareholder’s meeting. Ø A rule become permanent it needs to be ratified by an ordinary resolution at the next general meeting. Ø If the rule is rejected by a majority of shareholders, the board of directors are not allowed to make a similar rule until a 12 month period has lapsed. Ø The board of directors may only make a similar within 12 months if it is approved in advance by ordinary resolution at the shareholder’s meeting. Ø The MOI and rules are binding – it creates a contractual relationship: v Between the company and each shareholder v Among shareholders of a company v Between the company and each director or prescribed officer of the company. v Between the company and each member of the audit committee or a member of a committee of the board. Ø The Act allows for amendment of the MOI unless the MOI prohibits the amendments of a provision. Ø Amendments can be in the form of a new MOI or amendments to the existing provision of the MOI. Ø If changes are in the form of a new MOI then the new MOI replaces the old one. Ø Amendments may be made by the board of directors, shareholder who collectively exercise not less than 10% of the voting rights, in terms of procedure set out in the company’s MOI, by means of a court order for an amendment in terms of a court order Ø A court order is given effect via a board of resolution and there is no need for a shareholder’s special resolution. Ø No need to convene a shareholder’s meeting to adopt a special resolution. Ø Proposal to amend may be submitted to voting shareholders. Ø Form CoR15.2 must be filed to effect an amendment. Ø Filing fee must be paid and amended MOI must be filed. Ø An amendment may result in a profit company not meeting the criteria for that category of profit companies. Ø If an amendment causes a personal liability to change to another category of profit company the company must give 10 day prior notice of the filing of the notice of amendment to any professional or indusry regulatory authority that has jurisdiction ovr the company. Ø They must also given notice to any person who relied on the personal liability of directors and who could suffer prejudice if that liability is terminated. Ø When this happens the name of the ending expression must also be amended to reflect the new category that the company falls into. Ø Act allows for the changes or alterations to the company’s rules and to the MOI. Ø These are made with a view to correct spelling, grammar, punctuation and references. Ø Board of a company or an individual to whom the board has given authority may make these changes or alterations.