Chapter 3 Type of Companies

Question 1

What are the two broad categories of companies that may be formed and incorporated under the Act?

Answer 1

1. Profit companies
2. Non-profit companies

Question 2

What is a NPC?

Answer 2

A company formed for a public benefit object or an object relating to a cultural or social activity or communal or group interest, its income and property cannot be distributed to its members or directors.

Question 3

What is a for profit company?

Answer 3

A company formed for the purpose of financial gain for its shareholders.

Question 4

What are the four categories of a for profit company?

Answer 4

1. Private
2. Public
3. Personal liability
4. SOE.

Question 5

What are the categories common to all profit companies?

Answer 5

1. Purpose of incorporation is financial gain
2. Formed by one or more incorporators
3. Any number of shareholders, may be unlimited

Question 6

What are examples of a more demanding disclosure, accountability and transparency regime?

Answer 6

1. Auditing financial statements
2. Obligatory appointment of company secretaries, auditors and audit committees
3. Appointment of a social and ethics committee that monitors the extent to which the company takes stakeholder interests into account (listed public companies and SOEs)

Question 7

When is a profit company a private company?

Answer 7

If:
1. It is not an SOE;
2. MOI prohibits the offer of any of its securities to the public and restricts the transferability of its securities
3. (Pty) Ltd
4. Minimum of one director
5. Pre-emptive rights in respect of new shares to be issued by the company ito section 39 unless the company opts out of this provision in its MOI

Question 8

What is a public company?

Answer 8

Section 1 of the Act defines a public company as a profit company that is not a state-owned company, nor a private company, nor a personal liability company.

Question 9

What are the characteristics of a public company?

Answer 9

1. Securities freely offered to the public for raising capital
2. Securities may be freely transferred, unless restricted by MOI
3. Chapter 3 applies
4. Ltd
5. Minimum of 3 directors
6. Unlimited number of shareholders
7. One or more incorporators
8. AGM is compulsory
9. Annual financial statements must be audited
10. Appointment of company secretary, auditor, and an audit committee is compulsory

Question 10

When is a profit company a personal liability company?

Answer 10

If:
1. It satisfies the criteria for a private company
2. Its MOI states that it is a personal liability company
3. Inc
4. One director minimum
5. One or more incorporators

Question 11

What is the effect of a personal liability company?

Answer 11

Directors are jointly and severally liable, together with the company, for any debts and liabilities of the company that are or were contracted during their respective periods of office (section 19(3)).

Question 12

What is a state-owned company?

Answer 12

An enterprise that is registered as a company in terms of the Act and either:
1. Is listed as a public entity ito the Public Finance Managament Act
2. Is owned by a municipality
3. Directly or indirectly controlled by the State

Question 13

What are the characteristics of a State-owned company?

Answer 13

1. All provisions of the Act that apply to public companies generally also apply to state-owned companies
2. Minister has power to grant exemptions to state-owned companies, exempting them from having to comply with one or more provisions of the Act
3. Chapter 3 of Act applies
4. SOC Ltd

Question 14

What are the characteristics of an NPC?

Answer 14

1. 3 incorporators
2. An organ of state or a juristic person may incorporate an NPC
3. May be formed with or without members
4. Annual financial statements of an NPC require only an independent review
5. At least 3 directors
6. Prohibitions against loans to directors ie. direct or indirect financial assistance to directors
7. Prohibited from converting to a profit company
8. No merger with profit company
9. No disposal of any part of its assets, undertaking or business to a profit company other than for fair value

Question 15

What is a member ito an NPC?

Answer 15

A person who holds membership in, and specified rights in respect of the NPC.

Question 16

What is an external company?

Answer 16

A foreign company that carries on business or non-profit activities within SA, sub-category of a foreign company.

Question 17

When is a foreign company to be regarded as conducting business or non-profit activities in South Africa?

Answer 17

1. If the foreign company is a party to one or more employment contracts within South Africa
2. When a foreign company is engaging in a course of conduct or has engaged in a course or pattern of activities within South Africa over a period of at least 6 months, such as would lead a person to reasonably conclude that the company intended to continually engage in business or non-profit activities within SA.

Question 18

How are third parties who deal with external companies protected?

Answer 18

1. Definition of an external company
2. Requirement for registration.

Question 19

How is the requirement for registration of an external company protection?

Answer 19

The consequence of registration is that they must disclose specified information to the CIPIC upon registration and continuously as part of their annual returns.

Question 20

What are the types of external companies?

Answer 20

1. Profit
2. Non-profit

Question 21

What is a domesticated company?

Answer 21

A foreign company whose registration has been transferred to SA.