In-depth MercLaw 292 summary notes on Topic 1-Topic 6.
Tutorials with solutions and past paper questions included for each section.
Topics: Introduction, Trusts, Partnerships, Types of Companies, Pre-incorporation Contracts, Incorporation of Companies and Company Management (board of directors & sh...
,Table of Contents
1: INTRODUCTION........................................................................................................................................ 1
BUSINESS TRUSTS: ..................................................................................................................................... 25
PARTNERSHIPS .......................................................................................................................................... 46
TOPIC 4: TYPES OF COMPANIES - PART 1 ................................................................................................... 69
4: INCORPORATION OF COMPANIES - PART 2 ........................................................................................... 78
PRE-INCORPORATION CONTRACTS ............................................................................................................ 95
COMPANY MANAGEMENT ...................................................................................................................... 105
COMPANY GOVERNANCE AND THE BOARD OF DIRECTORS: ................................................................... 110
EXTERNAL RELATIONS: ............................................................................................................................ 123
Case studies: ............................................................................................................................................ 143
(http://www.justice.gov.za/sca/judgments/alpha/s.html) .................................................................... 143
,1: INTRODUCTION
Business models
1. Sole Proprietor:
- No Juristic Personality
- Natural persons
- Little legislation governing
- Little financing options
2. Closely Held Undertakings:
A) Partnerships
- No Juristic Personality
- Agreement between 2 or more: make contributions with intention to make profit
B) Private Company “(Pty)Ltd.”
- Has Juristic Personality
- Company Act: “a profit company that – (a) is not a public, personal liability, or state-owned company and (b)
satisfied criteria in sec 8(2)(b)”
- S8(2)(b): Prohibit offering any securities to public & Restrict transferability of securities
- 1973 Act = restricted to 50 members; 2008 Act= no restrictions on no.of members
- More Flexible, and easy to register
C) Close Corporations
- Has Juristic Personality
- No shares à “Members’ interest” [a %, not a number held]
- Cant create new CCs
- Close Corporation Act
D) Business Trust
- Does NOT have Juristic Personality BUT Companies Act treats it as if it does
- 3 parties: founder, trustee & beneficiary
- similar to normal trust
3. Public Companies: “Ltd”
- widely-held undertaking
COMPANIES ACT 71 OF 2008:
Background
- Companies Act 46 of 1926 & Companies Act 61 of 1973
- Close Corporations Act 69 of 1984
- Companies Act 71 of 2008
- Amendment Bill, 2010
- Draft Regulations, 2010 & forms
• CONFLICT with other legislation
1) between provision of Act & legislation: provisions of both apply to the extent they can
2) inconsistency with the Companies Act & legislation listed bwloe – legilsation applies
for Acts: Auditing, Labour Relations, Access to Info, Justice, Public Finance, Securities Service, Banks,
Municipal Finance System
otherwise companies Act applies
, Common Law
- Non-statutory (Roman-Dutch): Specifically for Company Law: also heavily influenced by English law...
- Interaction with New Act:
Common law is all law that is not found in legislation and not a codification of company law.
Common law is partly of English and partly of Roman-Dutch origin.
o Reasons for the new act:
MERCCSS
1. Capital Maintenance = principles of liquidity and solvency replaced capital maintenance which is more appropriate
2. Economic development = the need to stimulate economic growth and to avoid excessive regulation. i.e. to do away
with unnecessary hurdles that impede growth and entrepreneurship (2008 Act, s7)
3. Business Rescue = in the 1973 Act, provisions on judicial management as a mechanism for business rescue made things
impracticable.
4. Constitution = the need to bring company legislation in line with the 1996 Constitution. There is
also clearly a desire to make the formation of a company a right of all persons, and not a privilege.
5. Corporate Governance = a higher standard for corporate governance, corporate social responsibility and ethics is for
the benefit of not only investors, but for all stakeholders.
6. Criminal Sanctions = there were problems with the enforcement of the 1973 Act and misplaced reliance on criminal
sanctions.
7. Simplification = the 1973 Act was unnecessarily complicated.
The purposes of the 2008 Companies Act (s7):
Promoting compliance with the Bill of Rights in the Constitution (a)
Makes provision for simplification and flexibility and encourages high standards of corporate
governance (b)
Transparency (b)
Corporate efficiency (g) and (j)
Predictable regulation in the interests of effective enforcement (l)
Promotion of economic objectives and the importance of companies for the local and global
economies (b), (c), (d), (e) and (f)
Promotion of the effectiveness of non-profit companies (h)
Provision for business rescue (k)
- The Act must be interpreted and applied in a manner that gives effect to the purposes in section 7
(purposive interpretation). (s5(1))
WHY A NEW COMPANIES ACT?
§ Constitution
§ Economic growth and development
§ Simplification / less complicated
§ De-criminalising legislation
§ Judicial management / business rescue
§ Capital maintenance
§ Corporate governance and corporate social responsibility
Reform & interested parties
§ Classic shareholder-orientated model
§ Enlightened shareholder value approach
§ Pluralist approach
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