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The Companies Act 71 of 2008

09 July 2009   (0 Comments)
Posted by: Author: Ina Meiring
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The Companies Act 71 of 2008 
 
Introduction

The Companies Act 71 of 2008 (the Act) envisages two types of companies to be formed and incorporated once the Act becomes effective, namely profit companies and non-profit companies.The concepts introduced by the Corporate laws Amendment Act 24 of 2006, namely that of ‘widely held’ and ‘limited interest’ companies, have been abandoned.This is to be welcomed, since the last-mentioned concepts only added confusion.
 
Profit companies

A profit company is defined as a company incorporated for the purpose of financial gain for its shareholders.A profit company can be a state-owned company; a private company, a personal liability company or a public company, all of which may be incorporated by one or more persons.A ‘state-owned company’ is an enterprise that is registered as a company, and either (a) falls within the meaning of state-owned enterprise in terms of the Public Finance Management Act 1 of 1999; or (b) is owned by a municipality, as contemplated in the Local Government:
 
Municipal Systems Act 32 of 2000, and is otherwise similar to an enterprise referred to in (a).A public company is defined as a profit company that is not a state-owned enterprise, a private company or a personal liability company.Any provision of the Act that applies to a public company will also apply to a state-owned company, except to the extent that the Minister has granted an exemption on the grounds that those provisions overlap or duplicate an applicable regulatory scheme established in terms of any other national legislation.

State-owned companies and public companies are required to comply with extended accountability requirements set out in Chapter 3, which requires companies to appoint a company secretary, an auditor and to establish an audit committee.Private companies and personal liability companies are not required to comply with such extended accountability requirements, except to the extent that the companies’ Memoranda of Incorporation provide otherwise. 

In terms of the Act, a private company must not be a state-owned company and its Memorandum of Incorporation (MOI) must prohibit it from offering any of its ‘securities’ to the public and must restrict the transferability of its ‘securities’. ‘Securities’ has the meaning set out in section 1 of the Securities Services Act 36 of 2004, and includes shares held in a private company.
 
A personal liability company must meet the criteria for a private company, and its MOI should state that it is a personal liability company.If a company is a personal liability company, the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company as are or were contracted during their respective periods of office.The board of a private company and of a personal liability company must comprise at least one director, whilst a public company’s must comprise at least three directors.

Non-profit companies

A ‘non-profit company’ is defined as a company incorporated for a public benefit or other object as required by item 1(1) of Schedule 1; and 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.Every provision of the Act applies to a non-profit company, subject to the provisions, limitations, alterations or extensions set out in section 10, and in Schedule 1.

A non-profit company is not required to have members, but its MOI may provide for it to do so, and may provide for no more than two classes of members, that is voting and non-voting members.Three or more persons are required to incorporate a nonprofit company.The board of a non-profit company must also comprise at least three directors.If a non-profit company has no members, the MOI must set out the basis on which directors are to be appointed by its board, or other persons.A non-profit company is also not required to comply with the extended accountability requirements set out in Chapter 3, except to the extent that the company’s MOI provides otherwise.

External companies

An external company is defined as a foreign company that is carrying on business, or non-profit activities, as the case may be, within the Republic, subject to the provisions in clause 23(2).Note that clause 23(2) describes the activities which are to be regarded as "conducting business, or non-profit activities, as the case may be, within the Republic”, and does not refer to ‘carrying on business’ as in clause 1.We are of the opinion that this is a minor oversight and the intention is to describe ‘conducting business’ as being the same as ‘carrying on business’.

External companies are required to register with the Companies and Intellectual Property Commission within 20 business days after it first begins to conduct business, or non-profit activities, as the case may be, and must continuously maintain at least one office in the Republic and register the address the office. 

Company names

The name of a profit company may be the company’s registration number, in which case that number must be immediately followed by the expression ‘(South Africa)’.Otherwise, the company name must end, irrespective of its form or language, with one of the following expressions, as appropriate for the category of the particular company – 
•the word ‘Incorporated’ or its abbreviation ‘’Inc.’, in the case of a personal liability company; 
•the expression ‘Proprietary Limited’ or its abbreviation, ‘(Pty) Ltd.’, in the case of a private company;
•the word ‘Limited’ or its abbreviation,‘Ltd.’, in the case of a public company;
•the expression ‘SOC Ltd.’ in the case of a state-owned company; and 
•the expression ‘NPC’, in the case of anon-profit company.

If the company’s MOI contain any special conditions applicable to the company or prohibit the amendment of any particular provision of the MOI then the name of the company must be immediately followed by the expression ‘(RF)’.Note that a person will be regarded as having received notice and knowledge of such provisions if the company’s Notice of Incorporation or a Notice of Amendment has drawn attention to the provisions as required.

Transitional arrangement

Schedule 5 to the Act contains certain transitional arrangements and provides for the continuation of existing companies.At any time within two years immediately following the general effective date, a pre-existing company may file, without charge an amendment to its MOI to bring it in harmony with the Act, and if necessary, a notice of name change and copy of a special resolution, to alter its name to meet the requirements of the Act.We would urge all existing companies to amend their MOIs sooner rather than later and to effect name changes, if required, as soon as possible after the general effective date so as to avoid any confusion.
 
Source: By Ina Meiring (TaxTALK)
 


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