Chapter 2 Flashcards
(28 cards)
Section 14(4) and 19(1) of the companies act
14(4)- A registration certificate is conclusive evidence that the requirements for incorporation have been complied with and that a company is incorporated in terms of the 2008 Act as from the date, and time stated in the certificate.
Dadoo ltd v Krugersdorp Municipal Council
19(1)- Reinforces the common law position that provides “from the date and time that the incorporation of a company is registered, the company is a Juristic person.
Why incorporate a business? There are a number of issues that require careful consideration, namely
1- The number of persons who will be involved in the business, the extent of their involvement.
2- The capital requirement to commence the business.
3- The source of the capital.
4- The requirements of customer and clients.
5- Tax issues.
6- The strategic objectives of those involved.
Sec 20(9) of the companies Act provides that
On application by an interested person or in any proceedings in which a company is involved, a court finds that the incorporation of the company, any use of the company, or any act by or on behalf of the company, constitutes an unconscionable abuse of Juristic personality of the company as a separate entity.
Infringement of sec 20(9) of the Companies Act, a court may
1- Declare the the company is to be deemed not a Juristic person in respect of any right, obligation or liability of the company or of a shareholder of the company, or in the case of a non profit company, a member of the company, or any other persons specified in the declaration.
2- Make any order the court considers appropriate or give effect to such declaration as above mentioned.
Lifting the corporate veil
A director of a company can be held liable for any loss, damage or costs sustained by the company as a direct or indirect consequence of the director having acted in a manner in contravention of the provisions of the act. S77
The fact that a company is a separate legal person, separate and distinct from its shareholders has a number of practical implications, namely
1- Incorporation entails limited liability of shareholders, with the result that shareholders in the capacity as shareholders are not liable for the debts of the company.
2- The assets of the company are exclusive property of that company; the assets of a company do not belong to the shareholder.
3- Where a wrong is alleged to have been committed against a company, it is the company that must seek redress and not the shareholders of the company.
Name the different types of companies
1- A public company
2- A state owned company
3- A personal liability company
4- A private company
What is a Public company
1- Any profit company that is not state owned enterprise.
2- Shares may be offered to the public and are freely transferable.
3- A public company could be listed or unlisted.
4- the Memorandum of incorporation (Moi) is in the governing document of the company.
What is a State-owned company
1- It is a profit company that is either listed as a public entity in Schedule 2 or 3 of the public finance management.
2- It is owned by a municipality.
3- It is therefore a National Government Business Enterprise.
4- It is financed by National Revenue Fund, tax, levies or other statutory money.
5- Main principle is to provide goods or services in accordance with ordinary business principles.
6- Entities such as Eskom, Telkom and Transnet.
What is a Personal liability company
1- Used mainly by professional associations such as attorneys, entrepreneurs and stockbrokers who wish to exploit some of the advantages of corporate personality such as perpetual succession.
2- Directors are jointly and severally liable together with the company for all contractual debts and liabilities incurred during their terms at office.
Sonnenberg McLoghlin Inc v Spiro
What is a Private company
1- Its Memorandum of Incorporation (Moi) prohibits the offering of shares to the public and cannot freely transfer shares.
Smuts v Booysens
Transitional provisions and close corporations
Existing close corporations will continue to exist. After the promulgation of the new companies act it will no longer be possible to register new close corporations. Companies will also not be permitted to convert to close corporations.
Companies act of 1973
Companies act of 2008
A foreign company is deemed to conduct business or non-profit activities within South Africa if it
1- Is a party to one or more employment contracts within the republic.
2- Is engaged in a course of conduct or has engaged in a course or pattern of activities within the republic over a period of at least six months, such would lead a person to reasonably conclude that the company intends to continually engage in business or non-profit activities within the republic.
What is a Domesticated company
1- It’s a foreign company who’s registration has been transferred to the Republic in terms of sec13(5) to (9) of the companies Act.
2- Sec 13 provides that a foreign company may apply to transfer its registration to the Republic from the foreign jurisdiction in which it is registered.
What are the requirements of a foreign company to be transferred to South Africa
1- The law of the jurisdiction in which the company is registered must permit such a transfer and the company must have complied with the requirements of the law in relation to the transfer.
2- The transfer must be approved by the company’s shareholders.
3- The whole or a greater part of the company’s assets and undertaking must be within the republic.
3- The majority of the shareholders must be residence in South Africe.
4- The majority of its Directors must be or become South African Citizens.
1- Company must satisfy the solvency and liquidity test.
2- Company must no longer be registered in another jurisdiction.
According to sec13(7), A Foreign company may not transfer its registration to the Republic if
1- The foreign company is permitted to issue bearer shares.
2- The foreign company is in Liquidation.
3- A receiver or manager has been appointed, whether by the court or otherwise, in relation to the property of the foreign company.
4- The foreign company is engaged in proceedings comparable to business rescue proceedings in terms of South African Companies Act.
5- An application has been made to the Court in any jurisdiction to put the foreign company into Liquidation.
What is a notice of incorporation
The notice to be filled in terms of sec13(1), by which the incorporators of a company inform inform the commissioner of the incorporation of the company, for the purposes of having it registered.
What is a memorandum of incorporation
It’s the founding document of the company, and sets out the relationship between the company and its shareholders; the company and the directors; the company and other parties in the company, and the company and third parties.
What are the key objectives of the companies act as found in sec7(b)
1- The creation of flexibility in the formation and maintenance of companies.
2- Simplicity in the formation and maintenance of companies.
3- The encouragement of corporate efficiency.
4- The encouragement of transparency.
5- The provision of a predictable regulation of companies.
Notice of incorporation may be rejected by the commissioner under the following circumstances
1- If if has not been completed in full sec13(4)(a).
2- If it has not been properly completed sec13(4)(a).
In what circumstances can the commissioner reject the memorandum of incorporation
1- If the initial number of directors is fewer than the prescribed minimum number sec13(4)(b).
2- Where as a result of a directors disqualification, the initial number of directors becomes fewer than the prescribed minimum number sec13(4)(b).
What are the steps to incorporate a company
One or more persons may incorporate a profit company.
Three or more persons may incorporate a non-profit company.
1- Each person should complete and sign the MOI.
2- The notice of incorporation must be filed with the Commissioner together with the prescribed fee and a copy of the MOI, unless the company uses the MOI provided for in the 2008 Act.
Explain the process of registration of a company
Upon acceptance of the notice of incorporation, the commissioner assigns a unique registration number to the company. The commissioner must enter the prescribed information relating to the company into the companies register. If all the formalities are in order, a registration certificate will be issued and delivered to the company. Serves as conclusive evidence that all the requirements of incorporation of the company have been complied with and that the company is incorporated from the date stated on the certificate.
What is a pre-incorporation contracts
It is a contract entered into by a person who is acting on behalf of a company that does not exist. Person who entered into the agreement has the intention that once the company comes into existence, the company is bound by the provisions of the pre-incorporation contract. Persons entering into such agreement will be jointly and severally liable if the company is not later incorporated, or where the company is incorporated by rejects any part of the agreement.
