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Company Law A > Chapter 4 FORMATION OF COMPANIES AND THE COMPANY CONSTITUTION > Flashcards

Chapter 4 FORMATION OF COMPANIES AND THE COMPANY CONSTITUTION Flashcards

1
Q

What are the underlying philosophies and principles of the Companies Act 71 of 2008?

A
  1. Formation of a company is a right
  2. Constitutional right to freedom of association
  3. Common-law right to freedom of contract
  4. Formation of companies promotes commercial enterprise and the growth and development of the economy.
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2
Q

What is the position regarding the incorporators in the 2008 Act?

A
  1. One or more incorporators for a profit company regardless of domain
  2. Three persons acting in concert for a non-profit company
  3. Profit company may be incorporated by an organ of state
  4. Non-profit may be incorporated by a juristic person or an organ of state.
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3
Q

What is the procedure for incorporation?

A
  1. Signing and completion of MOI
  2. File with the CIPC a NOI, a copy of the MOI and a payment of the prescribed fee.
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4
Q

What is an MOI?

A

The sole founding or governing document of the company, setting out rights, duties and responsibilities of the shareholders, directors and others within and in relation to the company and various other matters.

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5
Q

What is an NOI?

A

A document setting out the name of the company, its initial directors, its registered office and the date of its financial year end and it includes notice of the appointment of the first company secretary, auditor or audit committee.

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6
Q

What happens if the MOI contains any restrictive conditions, additional requirements for its amendment in addition to the requirements of section 16 or any prohibitions on the amendment of any provision of the MOI?

A
  1. Then the NOI must contain a prominent statement drawing attention to each such provision together with its location in the MOI.
  2. Company name must be followed by RF.
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7
Q

What is the process of registering a company?

A

CIPC issues:
1. a unique registration number to the company
2. Enter certain prescribed info concerning the company, including the company name, in the companies register
3. Endorse the NOI and the copy of the MOI
4. Registration certifcate.

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8
Q

What are the two kinds of rejections of the NOI by the CIPC?

A
  1. Mandatory rejection
  2. Discretionary rejection
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9
Q

What are the grounds for mandatory rejection?

A
  1. Where the number of initial directors of the company is less than the prescribed statutory minimum
  2. Where the Companies Commission reasonably believes that any of the initial directors are disqualified from being appointed as directors of the company, with the result that the remaining initial directors are fewer than the prescribed statutory minimum
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10
Q

What are the grounds for discretionary rejection?

A

Where it or anything required to be filed with it is either incomplete or improperly completed.

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10
Q

What does ‘ring-fenced’ mean?

A

The MOI stipulates restrictive conditions or prohibits the amendment of any provisions.

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11
Q

What is the purpose of RF?

A

Alert 3rd parties to the restrictions or prohibitions on the amendment of certain provisions of the MOI so that they may exercise appropriate caution.

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12
Q

What are the first group of statutory restrictions in company names?

A
  1. Company name must not be the same as or confusingly similar to the name of another entity, barring cases of company groups
  2. Company name may neither be the same as nor confusingly similar to a name registered as a defensive or as a business name under the Business Names Act or to a trademark that has been registered or filed for registration or is a well-known trademark or to a mark, word or expression the use of which is protected in terms of the Merchandise Marks Act.
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13
Q

Which common law principle is relevant to the phrase ‘confusingly similar’?

A

The principle of reasonable likelihood.

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14
Q

What is the delict of passing off?

A

It is a common-law principle that applies where the use of a name could result in a reasonable likelihood of members of the public being confused into believing that the business of the company is, or is connected with, that of another.

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15
Q

What are the two elements of passing off?

A
  1. That confusion or deception is reasonably likely to ensue
  2. If confusion or deception does ensue, it will probably cause damage to the application.
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16
Q

What is the second group of restrictions on company names?

A

Names that falsely imply a non-existent association.

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17
Q

What is the 3rd group of statutory restrictions?

A

Names that are offensive or unconstitutional forms of expression.

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17
Q

What happens in the event that the proposed name of the company is the same as that of another company?

A

CIPC will nonetheless register the company by using an interim name instead of the proposed company name.

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17
Q

What does an MOI consist of?

A
  1. Unalterable provisions
  2. Alterable provisions
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18
Q

What are unalterable provisions?

A
  1. Mandatory, core provisions designed to protect the interests of shareholders, creditors and others dealing within the company.
  2. May not be altered in substance or in effect in a company’s MOI unless it is made more onerous ito a company’s MOI.
19
Q

What are alterable provisions?

A

Default rules that would apply to a company unless it specifically opts out of these in its memorandum of incorporation.

20
Q

Which section reinforces unalterable provisions?

A

Section 15(2).

21
Q

Which section allows for the unalterable provisions to be made more onerous?

A

Section 15(2)(a)(iii).

22
Q

What is the purpose of the company’s NOI including prominent statement drawing attention to restrictive or unusual provisions in MOI and the suffix of RF to company name?

A

It provides a statutory basis for the limited application of the doctrine of constructive notice.

23
Q

How does the doctrine of constructive notice apply in the context of company law?

A

Third parties are regarded as having received notice and knowledge of any restrictive condition or of any prohibition on the amendment of a particular provision of the company’s constitution, provided that the company’s NOI has drawn attention it.

24
Q

What are the requirements of the doctrine of constructive notice of the restrictive conditions or prohibitions on amendment?

A
  1. NOI must have drawn attention to restrictive conditions or prohibitions of the company’s constitution
  2. ‘RF’ must be suffixed to the company’s name.
25
Q

What does the 2008 Act do ito doctrine of constructive knowledge?

A

It created deemed notice and knowledge to preserve the doctrine of constructive notice in respect of the restrictive conditions and prohibitions on the amendment of particular provisions of the MOI.

26
Q

How is a company’s MOI amended?

A

By a special resolution.

27
Q

What is the principle governing company rules and shareholder agreements?

A

It must be consistent with the Act and the company’s MOI.

28
Q

Ito section 15(6) of the Act, how is a company’s MOI and any company rules binding?

A

Between the company and:
1. Each shareholder
2. Among shareholders
3. Each director or prescribed officer in the exercise of their functions within the company
4. Any other person serving the company as a member of a committee of the board in the exercise of their functions within the company.

29
Q

Which section governs the legal status of the MOI and the rules?

A

Section 15(6).

30
Q

What is the common-law position regarding pre-incorporation contracts?

A
  1. A company cannot be a party to a contract prior to its incorporation since the company comes into existence only upon its incorporation.
  2. Agreements entered into prior to the formulation of the company cannot be ratified once the company is formed.
31
Q

What is the effect of the common law position regarding pre-incorporation contracts?

A
  1. Null and void
  2. Agent may be held personally liable on the contract
32
Q

What is the legislative solution to overcome the hurdle of the non-ratification rule at common law?

A

Section 21.

33
Q

What does section 21 do?

A

Put persons or promoters, acting as agents, in a position to contract on behalf of the company, even though the company does not yet exist by permitting the company, once formed, to ratify a pre-incorporation contract entered into by an agent.

34
Q

What are the main methods of contracting on behalf of a company to be formed?

A
  1. Section 21
  2. Stipulatio alteri (contract for the benefit of a 3rd party)
  3. Offer made to the promoter or their nominee
  4. Cession of an option by the promoter to the company once it comes into existence
  5. Cession of the rights and delegation of the obligations, under a contract concluded between the promoter and the third party to the company once it is formed.
35
Q

What is the difference between the statutory method and the common law method of contracting on behalf of the company?

A
  1. Reliance on section 21 is acting in the capacity of an agent on behalf of the company to be formed
  2. Reliance on stipulation alteri is acting in their own name as a principal for the benefit of the company to be formed.
36
Q

What are the requirements of a section 21 pre-incorporation contract?

A
  1. Written agreement
  2. Agreement entered into before the company comes into existence
  3. Entered into by a 3rd party and a person in their capacity as an agent who purports to act in the name of or on behalf of the company
37
Q

What does section 21 apply to?

A
  1. Pre-incorporation contracts
  2. Actions purported to have been made or done in the name of or on behalf of a company that is yet to be incorporated.
38
Q

When does a pre-incorporation contract become enforceable against the company?

A

Ito section 21 once it is ratified by the company.

39
Q

Who has the power to ratify pre-incorporation agreements?

A

Board of directors of the company.

40
Q

When must the company ratify the pre-incorporation contract?

A

Within 3 months after its incorporation.

41
Q

What happens if the board fails to ratify or reject a pre-incorporation contract or other purported actions on behalf of the company?

A

Company is regarded as having ratified it. (deemed ratification)

42
Q

What is the effect of ratification?

A
  1. Enforceable against company
  2. Liability of the agent in respect of the agreement or action is discharged.
43
Q

Which section provides for promoter’s liability?

A

Section 21(2).

44
Q

What does section 21(2) hold?

A

The promoter is jointly and severally liable for liabilities created in terms of the pre-incorporation contract in two circumstances:
1. If the company is not subsequently incorporated
2. If the company, once incorporated, rejects any part of the pre-incorporation agreement or action

45
Q

What does section 21(7) provide?

A

That a promoter, who bears any liability for a rejected pre-incorporation contract or action, may assert a claim against the company for any benefit it has received, or is entitled to receive, in terms of the agreement or action.

46
Q

What is stipulatio alteri?

A

A common-law device by which two parties contract with each other for the benefit of a 3rd party in their capacity as principals.

47
Q

What must occur under the stipulatio alteri?

A
  1. Once incorporated company ahs an election to accept or adopt the benefit
  2. Election must be made within reasonable time depending on the facts of the case
  3. Acceptance must be communicated to the promisor
  4. Acceptance=contracting party with promisor
48
Q

What is the rule during the time that the election must be made?

A
  1. Parties to the contract are the promoter and the promisor
  2. Promisor cannot unilaterally withdraw from or cancel the contract.
49
Q

Is the promoter personally liable in the even that the company is not incorporated or if the company chooses not to adopt the benefit of the contract?

A
  1. Unless the contract so provides, the promoter does not become personally liable on the contract.
  2. Provided that the contract does not state otherwise, the contract simply lapses in these circumstances.

Company Law A (6 decks)

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