topic 5: types of companies

Question 2

What is a non-profit company (NPC) in terms of South African company law?

Answer 2

A company incorporated for a public benefit or similar object, where income and property are not distributable to incorporators, members, directors, or related persons, except as permitted by Schedule 1.

Question 3

What must the name of a non-profit company end with?

Answer 3

“NPC” (as per sec 11(3)(c)(v)).

Question 4

Can a non-profit company be converted into a profit company?

Answer 4

No, Schedule 1 item 2 prohibits conversion into a profit company.

Question 5

What is a state-owned company (SOC Ltd.)?

Answer 5

A company listed in Schedule 2 or 3 of the Public Finance Management Act or owned by a municipality under the Local Government: Municipal Systems Act.

Question 6

What is the liability of directors in a personal liability company (Inc.)?

Answer 6

Directors and past directors are jointly and severally liable for debts incurred during their tenure.

Question 7

What is the meaning of a ‘profit company’ under South African company law?

Answer 7

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

Question 8

What are the types of profit companies?

Answer 8

Private companies (Pty Ltd), Personal liability companies (Inc.), Public companies (Ltd), State-owned companies (SOC Ltd).

Question 9

What is the naming requirement for a private company?

Answer 9

The name must end with ‘Proprietary Limited’ or ‘Pty Ltd’.

Question 10

How many incorporators are required to form a company?

Answer 10

At least one or more persons.

Question 11

What is a MOI in the context of company law?

Answer 11

Memorandum of Incorporation — the founding document of a company.

Question 12

What is required to incorporate a company?

Answer 12

Filing a Notice of Incorporation and a Memorandum of Incorporation with the Companies Commission.

Question 13

What is a ‘public company’?

Answer 13

A company that may offer shares to the public and must end its name with ‘Ltd’.

Question 14

What does the term ‘juristic person’ refer to in company law?

Answer 14

An entity recognized by law as having legal rights and obligations.

Question 15

Can a juristic person be an incorporator of a company?

Answer 15

Yes, either natural persons or juristic persons can be incorporators.

Question 16

How is a company’s legal existence confirmed?

Answer 16

When the Notice and MOI are successfully filed and the Commission issues a registration certificate.

Question 17

What is the role of the Companies and Intellectual Property Commission (CIPC)?

Answer 17

Registers companies and maintains the Companies Register.

Question 18

What must a non-profit company use its property and income for?

Answer 18

For the purpose stated in its Memorandum of Incorporation.

Question 19

What happens to a non-profit company’s assets upon liquidation?

Answer 19

They must be distributed to other NPCs with similar objectives.

Question 20

Can NPCs have shareholders?

Answer 20

No, NPCs cannot have shareholders.

Question 21

Can NPCs have members?

Answer 21

Yes, but they are not required to. If they do, only two classes are allowed: voting and non-voting members.

Question 22

What is required to amend the MOI if there are no voting members in a NPC?

Answer 22

Section 16(3) applies and special procedures must be followed.

Question 23

What must the name of a state-owned company end with?

Answer 23

‘SOC Ltd.’ as per section 11(3)(c)(iv).

Question 24

Are state-owned companies recognized under the 1973 Companies Act?

Answer 24

No, this category was not recognized under the 1973 Act.

Question 25

How are state-owned companies usually treated?

Answer 25

As public companies, unless exceptions are granted by the Minister.

Question 26

What must the name of a personal liability company end with?

Answer 26

‘Incorporated’ or ‘Inc.’ (section 11(3)(c)(i)).

Question 27

What does 'jointly and severally liable' mean?

Answer 27

Multiple parties can be held liable for the same act and be responsible for all restitution required.

Question 28

What legal case illustrates directors’ liability in a personal liability company?

Answer 28

Fundstrust (Pty) Ltd v Van Deventer 1997 (1) SA 710 (A).

Question 29

Who can claim against directors in a personal liability company?

Answer 29

Creditors can claim, and directors have a right to recourse against co-directors.

Question 30

What must be done to convert a personal liability company into another type?

Answer 30

The MOI must be amended and affected parties must be notified 10 business days prior.

Question 31

What must the name of a private company end with?

Answer 31

‘Proprietary Limited’ or ‘Pty Ltd’.

Question 32

What does section 8(2)(b) require for private companies?

Answer 32

MOI must prohibit offering securities to the public and restrict their transfer.

Question 33

What is a 'right of pre-emption' in private companies?

Answer 33

The right of existing shareholders to purchase shares before they are offered to outsiders.

Question 34

What must the name of a public company end with?

Answer 34

‘Limited’ or ‘Ltd’.

Question 35

Can shares of public companies be listed?

Answer 35

Yes, for example on the JSE, subject to specific listing requirements.

Question 36

What happens if a profit company no longer meets its current category’s criteria?

Answer 36

It must amend its MOI and name to reflect its new category (section 16(6)).

Question 37

Are AGMs compulsory for private and NPCs?

Answer 37

No, but they are compulsory for public companies.

Question 38

What are the audit requirements for companies?

Answer 38

Public companies, SOCs, and certain NPCs must be audited. Others may opt for voluntary audit or independent review.

Question 39

What exemption exists for audit under section 30(2A)?

Answer 39

If every shareholder is also a director, no audit or review is required unless otherwise obligated.

Question 40

What is a foreign company?

Answer 40

An entity incorporated outside South Africa, regardless of whether it is profit or non-profit.

Question 41

What is an external company?

Answer 41

A foreign company carrying on business or non-profit activities in South Africa.

Question 42

When must a foreign company register as an external company?

Answer 42

If it has an employment contract in SA or operates continuously for 6+ months.

Question 43

What are the duties of an external company in SA?

Answer 43

Register with CIPC, maintain an office, submit annual returns.

Question 44

What is a domesticated company?

Answer 44

A foreign company that transfers its registration to SA under section 13(5)-(11).

Question 45

What are the requirements to become a domesticated company?

Answer 45

Most assets, shareholders, and directors must be based in South Africa.

Question 46

What happens to a foreign company upon domestication?

Answer 46

It is treated as if it were incorporated under SA law and remains the same legal person.