Exam (elaborations)
MRL2601 NOTES
- Institution
- University Of South Africa (Unisa)
THE BEST OR NOTHING
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Content preview
Companies Act 71 of 2008 came into effect on the 1 May 2011Number of matters that needs to be considered prior to deciding which entity will be most
appropriate for a particular business:
1. Number of persons to be involved and
2. The extent of their involvement
3. The capital required to commence the business and
4. The source of that capital
5. Requirements of customers and clients
6. Strategic objectives of those involved
7. Tax issues should also be taken into account, SA tax system is not entity neutral
Advantages of a legal personality:
A legal person is regarded as an entity that can acquire its own rights and duties separate
from its members.
In the Airport Cold Storage Pty Ltd court case it was held that one of the fundamental
consequences of incorporation is that a company is a juristic person separate from its
shareholders.
A company has perpetual existence because it cannot die like a natural person; and it is
unaffected by change in it shareholders.
In the Solomon v A Solomon court case:
• Once a company is legally incorporated it must be treated like any other independent
person with rights and duties appropriated to it.
• Motives of promoters during formation of the company are irrelevant when discussing the
rights and liabilities of such companies
Although a company has no physical existence, it can acquire ownership in assets and is liable
to pay its own liabilities.
• In Dadoo Ltd the court found that property vest in the company and cannot be regarded as
vesting in any or all of the shareholders the company.
• Incorporation entails limited liability with the result that shareholders are not generally liable
for the debts of the company
Lifting the corporate veil:
Ex parte Gore:
Dealt with piercing of the company veil in a group of companies that was in reality run, as if they were
just, one company. No distinction was drawn between the affairs and finances of the different
companies. The court held as follows:
• Unconscionable abuse was not as extreme as “gross abuse”
• Section 20(9) is not a remedy of last resort – applicant can rely on this section even if there are no
other remedies available.
• This provision does not replace common law; therefore previous judgements on piercing the
corporate veil may still be used as guidelines
Courts have made it clear they will not allow the use of any legal entity to justify wrong, to protect
fraud or to defend or hide crime. Hence courts will pierce or lift the corporate veil and hold directors
and others personally liable for acts committed in the name of the company. They will only pierce or
lift the veil in exceptional circumstances
Section 20 (9):
If, on application by any interested person or in any proceedings in which a company is involved,
A court finds that
• the incorporation of the company or
,• Any use of use of the company, or
• Any act by or on behalf of the company,
Constitutes an unconscionable abuse of the juristic personality of the company as a separate
entity, the court may
a. declare that the company is to be deemed not to be a juristic person in respect of any right,
obligation or liability relating to the abuse
The Companies Act basically adopted the common-law position relating to the lifting of the corporate
veil. An offending person can be held personally liable in a variety of circumstances for losses by his
or her wrong doing.
Branches or divisions of a company are part of the company itself and a division or branch does not
have its own separate legal existence.
Key features of a company’s juristic personality:
• Incorporation entails limited liability, shareholders not liable for the debts of the company
• Assets are exclusive property of that company, do not belong to its shareholders
• Where wrong is alleged against the company, it is the company that needs to seek redress and not
the shareholders of the company
TYPES OF COMPANIES
Two types of companies:
Profit companies – if it is incorporated for the purpose of financial gain of its shareholders. The Act
does not restrict the maximum number of shareholders. A profit company may be incorporated by
one or more persons.
4 TYPES OF PROFIT COMPANIES:
• A public company (Ltd)
o Must at least have 3 directors (Section 66(2))
o Shares may be offered to the public and are freely transferable
o Can be listed on the JSE (listed or unlisted)
o The MOI (Memorandum of incorporations) is the sole governing document of the company.
• A State-owned company (SOC Ltd)
o Registered in terms of the Companies Act and listed as a public entity in Schedule 2 or 3 of the
Public Finance Management Act or owned by a municipality.
o Examples of state-owned companies: ACSA, Denel, South African airways
o Chapter 3 of the Companies Act applies except to the extend the company is exempted by the
Minister
o State-owned companies are obliged to appoint a company secretary and an audit committee
o Majority of provisions that is applicable to a public company is applies to a state-owned
company except if exemption has been granted by the Minister.
• A Private Company ((Pty) Ltd)
o Must at least have one director (Sec 66(2)
o Its Memorandum of Incorporation prohibits the offering of any securities to the public and
restricts the transferability of its securities:
Smuts Booyens; Markplaas Pty Ltd v Booysens the SCA held the restriction on the transfer of
shares in a private company was compulsory in terms of the Act and any sale or transfer of
shares without following whatever procedure the companies articles prescribes to give effect to
the restriction, was void from its inception, irrespective of whether the purchaser knew about
the requirement.
There is no restriction on the number of shareholders in terms of the 2008 Act
,• A Personal liability company (Inc)
o Memorandum of incorporation must state that it is a personal liability company
o The directors are jointly and severally liable with the company for debts and liabilities
contracted during the term of office
o Must meet the criteria for a private company
o Mainly used by professional associations (such as attorneys)
o Must at least have one director
o
Non-Profit company: (three or more persons are required for the formation of a non-profit company)
• Must at least have 3 directors (Section 66(2))
• Must have as at least one of the objectives a public benefit object or an object relating to
social or cultural activities or communal or group interest.
• All assets and income of a non-profit company must be used to further the companies
stated objective
• A non-profit company may acquire and hold securities issued by a profit company.
• An incorporator, member or director or person appointing a director of a non-profit company may
not directly or indirectly receive any financial benefit or gain from the company other than
reasonable remuneration for work done or compensation for expenses incurred to advance the
state objectives of the company.
• When a non-profit company is being wound up or dissolved, no member or director of that
company is entitled to any part of the net-value of the company after its obligations and
liabilities have been paid. The entire net value of the company must be distributed to one or
more non-profit companies.
• Non-profit companies are not required to have members but the provision of its MOI may
provide for it to have members.
• Members are used for non-profit companies whereas the word shareholders are used for profit
companies.
• Incorporators of a non-profit company are its first directors and its first members – if its MOI
provides for it to have members.
TRANSITIONAL PROVISIONS
The 2008 Act recognises that existing close corporations should be free to retain their current
statuses until such time their members may determine that it is their interest to convert to a company
under the Act. The Act therefore provide for the indefinite continued existence of the Close
Corporation Act. Formation of new close corporation after the date of the commencement of the 2008
Act is not possible.
EXTERNAL COMPANIES
• This is a foreign company that is carrying on business or non-profit activities within RSA.
• Party to one or more employment contracts within the Republic or
• Engaged in a pattern of activities over a period of at least 6 months such as would lead a person to
reasonably conclude that the company intended to continually engage in business or non-profit
activities within the Republic
DOMESTICATED COMPANIES
• Is a foreign company whose registration has been transferred to the Republic
• Once a foreign company’s registration has been transferred to South Africa it is regarded as if it
had originally incorporated in South Africa and will be treated like any other company
, COMPANY FORMATION
Key objectives the Companies Act as found in section 7(b) include the promotion of development of
the South African economy via:
• The creation of flexibility in the formation and maintenance of companies;
• Simplicity in the formation and maintenance of companies
• Encouragement of corporate efficiency
• The encouragement of transparency
• Provision of a predictable regulation of companies
When incorporating/registration of a company: requires:
• Filing of the Notice of Incorporation (in the prescribed form)
• Filing of a copy of the Memorandum of Incorporation and
• Payment of the prescribe fee
File means to deliver the document to the Companies and Intellectual Property Commission or CIPC.
The standard form is optional – Act provides for flexibility, the MOI may be the form provided or it may
be specially drafted (unique) for that company.
The Memorandum of Incorporation is the founding document of the company. It sets out the
relationship between:
• The company and its shareholders;
• The company and its directors;
• The company and other parties in the company; and
• The company and third parties
The registration of a company is important because it allows for transparency and accountability and
the keeping of relevant information about the registered entity.
In terms of section 186 of the Act, one of the functions of the Commission is:
The maintenance of accurate, up-to date and relevant information concerning company, foreign
companies and other juristic persons and the provision of that information to the public and to other
organs of state.
The MOI as defined in section 1 as a document as amended from time to time, that sets out the
rights, duties and responsibility of all stakeholders, directors and others within and in relation to a
company and other matters as contemplated in section 15.
STEPS TO INCORPORATE A COMPANY:
A profit company requires one or more persons and a non-profit company requires 3 or more persons
to incorporate at company.
Each person should complete and sign the MOI
The notice of incorporation must be filed with the Commission together with the prescribed fee must
be companied by a copy of the MOI, unless the company uses the MOI provided for in the 2008 Act
FLEXIBILITY WITHIN THE MEMORANDUM OF INCORPORATION
Each provision of a company’s MOI must be consistent with the provision of the Act. Any
provision that is inconsistent with the provisions of the Act is regarded as void to the extent that it
contravenes or is inconsistent with, the Act. The incorporators of a company are free to include any
provision in the MOI that are not covered by the Act. The MOI is the founding document of the
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ramadhaniurimubandi. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R50,00. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
76799 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now