South Africa

3 Chapter Corporate Law

    • Kinds of Corporate types

       

      There are two types of companies profit and non-profit companies. A non-profit company is incorporated for a public benefit or other object, the income and property are not distributable to its incorporators, members, directors, officers or persons related to any of them. Profit companies are incorporated for the purpose of financial gain for its shareholders, those are the following:

      State owned companies: Means an enterprise that is registered as a company, and either is considered as a state-owned enterprise or is owned by a municipality. The name of this type of company must end in “SOE Ltd.”

      Private companies: Its Memorandum of Incorporation prohibits it from offering any of its securities to the public; and restricts the transferability of its securities. There can be more than 50 Shareholders. The name must end in "Proprietary Limited" (Pty) Ltd. There must be at least one director at the board. All shares are owned by related persons and all shareholders are directors.

      Personal Liability company: A company whose Memorandum of Incorporation states that the company is a personal liability company

      Public Company: Means a profit company that is not a state-owned company, a private company or a personal liability company. The Incorporators of a Public company must consist of at least one person and must have three directors.

      Branch: According to Law there are two types of Branches, for profit and not for profit. The jurisdiction of the company will be in South Africa but the shareholders and directors in their country, The Branch needs a Memorandum of Incorporation as well. A resident must be appointed and registered to be responsible of operations.


    • Corporate System

       

      Law regulating companies in South Africa is the Companies Act No. 71., that replaced Companies Act, No. 61 of 1973. This law indicates the types of companies that can be established and regulations of each company. Pe-incorporation rules, requirements of the Memorandum of Incorporation (MOI), corporate governance.


      2.1.  General Shareholders Meeting.

      A meeting can be called at any time according to the Memorandum of Incorporation, for decision making needed at any time, to choose the board members. A Public company must convene an annual general meeting, initially no more than 18 months after the Incorporation. After the Incorporations the meeting shall be no more than 15 months after the previous annual general meeting.  However, private companies requiring an audit, whether due to the Companies Regulations or their MOI, will have to convene an Annual General Meeting to appoint an auditor annually. The AGM provides shareholders the opportunity to review their company’s audited financial statements and deal with relating directors’ decisions. Physical attendance is not mandatory, the meeting can be held via electronic communication.


      2.1.1.     Obligation and rights for shareholders.

      Shareholders’ approval is needed for any changes on the name of the company, increase or decrease of capital, conversion of issued capital, change on type of company, classification and authorization of shares, etc.

      The shareholders have the following rights:

      -The right to be represented by a proxy. (Valid for one year)

      -Voting rights in every meeting.

      -The right to dividends.


      Obligations:

      -The appointment and removal of Directors.

      -The Shareholders cannot take the power of the management of the company, since the Board of directors oversees this.

      2.1.2.     A process for having GSM.

      The Notice must be in writing and must include, date, time and place, the purpose of the meeting. If it’s an Annual General Meeting a financial statement must be included, with copies for the shareholders. The Notice periods are as follows:

      -15 business days for public companies.

      -10 business days for private companies.

      2.1.3.     Requirement for deciding.

      A meeting may not begin until there are enough persons present at the moment, at least 25% of all the voting rights. The Memorandum of Incorporation may specify if there is a lower or higher percentage required. If there is no satisfactory decision, the session can be adjourned or postponed for 1 week. For a special resolution according to the MOI the percentage of shares must be 75%., in an ordinary resolution is 51%. Percentages can be changed but no lower than 65% for special resolutions or higher than 60% for an ordinary resolution. The quorum for all resolutions is 25% of voting shares.


      2.1.4.     Minutes.

      The company must keep minutes of the meetings of the board, and any of its committees and must include any declaration given by notice or made by a director, every resolution adopted by the board, with dates. The minutes must be signed by the chairman and participants.

      2.2. Board of Directors.

      The board of Directors have the right to manage and execute powers of the company, (Exemptions may be indicated in the MOI).

      2.2.1.     Requirement for director.

      Each Incorporator is the first Director and serves until directors fulfil criteria to be chosen as directors and comply with the Memorandum of Incorporation. Directors must be elected by shareholders, they have voting rights for this situation, the term can be indefinite or set by MOI.

      Directors could be subject to criminal sanctions like fines, jail time, and even disqualification from serving as a director in future, if they have failed to perform their duties.  Directors can have shares by they are not required to do so.

      2.2.2.     Election and Dismissal.

      Directors are elected by the shareholders and can be removed by an ordinary resolution, if they have been Ineligible or disqualified, Incapacitated, negligent or derelict. Before any resolution the directors has to be given notice of the meeting and resolution, the director has the right to present a case before any vote could take place.  


      2.3. Corporate Auditor.

      Public companies and State-owned enterprises must appoint an Audit Committee on each Annual General Meeting. The act indicates duties of an audit committee, terms for example. The incorporators of a company may file a notice of the appointment of the company’s first company secretary, auditor or audit committee as part of the company’s Notice of Incorporation. The following mentions some types of companies that needs auditing, profit or non-profit company if during financial year held assets in a fiduciary capacity more than 5 million, or non-profit company incorporated by the state, non- profit company incorporated to carry out public function, etc.


      2.3.1.     Number of auditors.

      There has to be no more than 3 auditors in Public and state-owned companies.

      The same individual may not serve as the auditor or designated auditor of a company for more than five consecutive financial years. (If an individual has served as auditor for two or more consecutive financial years and then ceases, the individual may not be appointed again as the auditor or designated auditor of that company until after the expiry of at least two further financial years.

      If a company has appointed two or more persons as joint auditors, the company must manage the rotation required by this section in such a manner that all of the joint auditors do not work for the office in the same year.

      2.3.2.     Obligation of auditor.

      The Auditor has the right to access (at all times) to the accounting records, all books and documents, the auditor may require all type of information and explanations to the directors or officers about the company. Auditors can attend and be heard at any general shareholders meeting.


    • Shares.

       

      Shares are the units into which the ownership in profit´s company is divided. Types and number of shares are set by the Memorandum of Incorporation MOI and establishes the types of shares authorized to issue, preferences, rights and other terms associated with shares.  All shares have preferences, rights, limitations and other terms (identical to the other shares of the same class). Each issued share of a company, regardless of its class, has associated with it one general voting right. The old Act allowed par value and no-par value shares, but the new act precludes creation of new authorized par value shares. Existing par value shares remain and cannot be subdivided, but new companies cannot create or issue par value shares.


      3.1. Kinds of Shares.

      The authorized shares are the shares which the company is entitled to issue in terms of its MOI. these shares have no rights associated with them until they have been issued. The issued shares are shares that are authorized and issued to shareholders, and to which certain rights are then attached.


      3.2. Dividend.

      Dividends distribution is mentioned at the Memorandum of Incorporation, it indicates if the dividends may be cumulative, non-cumulative, or partially cumulative.


      3.3. Capital increase.

      Shareholders’ approval is needed to increase capital


      3.4. Capital decrease.

      Shareholders’ approval is needed to decrease capital


    • Dissolution.

       

      The dissolution can take place after the court gives the order, after this the master must file a certificate with a copy of the court order. After receiving the certificate, the commission must record the dissolution ad remove the company's name from the register.