UNIT 3 COMPANIES ACT: BACKGROUND
Study with
Section 1
Homework question A
Definitions
Share One of the units into which the proprietary interest in a profit company is divided;
Shareholder Director
the holder of a share issued by a a member of the board of a company, as
company and who is entered as such in the contemplated in section 66, or an alternate
Vs
certificated or uncertificated securities director of a company and includes any person
register, as the case may be occupying the position of a director or alternate
director, by whatever name designated
Shareholder Meeting of Meeting of directors
Vs Board meeting
meeting shareholders
means the document, as amended from time to time—
(a) that sets out rights, duties and responsibilities of shareholders, directors and
others within and in relation to a company, and other matters as contemplated
in section 15; and
(b) by which—
Memorandum of
(i) the company was incorporated in terms of this Act, as contemplated in
Incorporation (MOI)
section 13; or
(ii) a pre-existing company was structured and governed before the later
of—
(aa) the effective date; or
(bb) the date it was converted to a company in terms of Schedule 2;
Annual General the meeting of a public company required by section 61(7);
Shareholders
Meeting
Board of the company the holder of a share issued by
a company and who is entered
Board of Directors Vs Shareholders as such in the certificated or
uncertificated securities
register, as the case may be
, One person Board of All the directors of the
Director Vs
Directors company
Ordinary decision Special decision
a resolution adopted— resolution adopted—
(a) at a shareholders meeting, with the support (a) at a shareholders meeting, with the support of
of more than 50% of the voting at least 75% of the voting rights exercised on the
rights exercised on the resolution, or a higher Vs resolution, or a lower percentage as
percentage as contemplated in section 65(8); or contemplated in section 65(10); or
(b) by holders of a company’s securities acting (b) by holders of a company’s securities acting
other than at a meeting, as contemplated in other than at a meeting, as contemplated in
section 60; section 60;
Profit company Non-profit company
a company incorporated for the purpose of a company—
financial gain for its shareholders (a) incorporated for a public benefit or other
object as required by item 1(1) of Schedule 1;
and
Vs
(b) the income and property of which are not
distributable to its incorporators,
members, directors, officers or persons related to
any of them except to the extent permitted by
item 1(3) of Schedule 1
Public company Private company
a profit company that is not a state-owned a profit company that—
company, a private company or a personal Vs (a) is not a company or a personal liability state-
liability company; owned company; and
(b) satisfies the criteria set out in section 8(2)(b);
Auditor meaning set out in the Auditing Professions Act;
when used with respect to any person—
(a) means a direct material interest of that person, of a financial, monetary or
economic nature, or to which a monetary value may be attributed; but
Personal financial
(b) does not include any interest held by a person in a unit trust or collective
interest
investment scheme in terms of the Collective Investment Schemes Act, 2002
(Act No. 45 of 2002), unless that person has direct control over the investment
decisions of that fund or investment;
Solvency and liquidity test set out in section 4(1);
a direct or indirect—
(a) transfer by a company of money or other property of the company, other than
its own shares, to or for the benefit of one more holders of any of the shares of
that company or of another company within the same group of companies,
whether—
(i) in the form of a dividend;
(ii) as a payment in lieu of a capitalisation share, as contemplated in section
47;
(iii) is consideration for the acquisition—
(aa) by the company of any of its shares, as contemplated in section 48;
or
(bb) by any company within the same group of companies, of any shares
Distribution/issue
of a company within that group of companies; or
(iv) otherwise in respect of any of the shares of that company or of another
company within the same group of companies, subject to section
164(19);
(b) incurrence of a debt or other obligation by a company for the benefit of one or
more holders of any of the shares of that company or of another company
within the same group of companies; or
(c) forgiveness or waiver by a company of a debt or other obligation owed to the
company by one more holders of any of the shares of that company or of
another company within the same group of companies,
but does not include any such action taken upon the final liquidation of the
company;
, Section 2
Related and inter-related persons
An individual is related to An individual is related to a A juristic person is related to
another individual if juristic person if another juristic person if
Married/live together An individual directly or indirectly Either of them directly or
(similar to marriage) controls the juristic person indirectly controls the
other (or business of the
Separated by no more other)
than two degrees of Either is subsidiary of
natural or adopted blood other
relationship Person directly or
OR affinity (relationship indirectly controls each of
between 2 or more them (or the business of
people as a result of each of them)
somebody’s marriage)
Holding, subsidiary, sub-
subsidiary and fellow
subsidiaries in a group is
“related”.
Section 4
Solvency and Liquidity test
Many resolutions that will have a financial impact (e.g. any distribution), will only be valid if the Company
passes the Solvency & Liquidity Test
What a solvency test A company satisfies the solvency and liquidity test if, considering all
and liquidity-test is reasonably foreseeable financial circumstances of the company at the
time
• Assets of the company fairly valued liabilities of the company fairly
AND
valued
• Company will be able to pay its debts as they become due in the
ordinary course of business for a period of 12 months after the
solvency and liquidity test is considered
Difference between the Solvency test Liquidity test
two concepts Assets of the company fairly valued Company will be able to pay its
liabilities of the company fairly debts as they become due in the
valued ordinary course of business for a
period of 12 months after the
Fair valuation includes contingent solvency and liquidity test is
assets and liabilities. considered
Financial information is ❖ Accounting records as required by Companies Act
based on (read through) ❖ Financial statements which satisfy Companies Act
Why this test is Helps to protect stakeholders from abuse by directors of their powers.
important
Requirements for solvency and liquidity test is accompanied with other
requirements and ensures transaction is legal.
, Section 8
Categories of Companies (NB)
Category Type Definition
Incorporated for the purpose of financial gain for its shareholders.
Profit company who is not private, personal liability
Profit company
Public company (Ltd) or state-owned company
Can be JSE listed/not
- MOI prohibits it from offering securities to public
- MOI restricts transferability of securities (existing
Private company shareholder to obtain permission from other
(Pty) Ltd shareholders to sell shares)
CANNOT be state-owned enterprise
- Meets criteria of private company
Personal liability - MOI states that it is personal liability company.
company (Inc) Clause that states “directors and past directors
are jointly and severally liable, together with
the company, for any debts and liabilities of the
company that were contracted during their terms
State-owned of office”
enterprise (SOC Ltd)
Owned/partially owned by government
Non-profit company
Incorporated for public benefit.
Property and income not distributable to
Non-profit its incorporators, members, directors,
organisation (NPC) officers or related persons except as
reasonable compensation for services
rendered.
Two extra types of companies (not that important)
1. All shares owned by related persons
2. All shareholders are directors
