Corporations Law Flashcards

Flashcards about Corporations Law.

Profit Companies

Are formed with the purpose of financial gain and May be private or public company

Non-Profit companies

Are not formed for the purposes of financial gain and Must have a minimum of 3 (three) incorporators

State Owned Companies

Companies owned by the state and to undertake commercial activities on behalf of the company

Personal Liability Companies

Satisfies the criteria of a private company but directors are severally and jointly liable for any debts and liabilities of the company.

Sole Proprietorship

A trading entity that is owned by a single natural person where the trading entity does not form a separate legal entity, distinct from its owner.

Unlimited liability in sole proprietorship

The personal assets of the owner and those of the business from a single estate, and the personal assets of the owner are at risk in the event of the business being unable to settle its debts.

No perpetual succession in sole proprietorship

Since the assets of the owner and those of the business form a single estate, the business will terminate when the owner dies.

Partnership

Legal relationship created by way of a contract between two or more persons, in terms of which each of the partners agrees to make some contribution to the partnership business, which is carried on for the joint benefit of the parties and the object of which is to make a profit.

Essentials of a Partnership

Each partner must bring something into the partnership e.g. labour, money, or skill, Business should be carried on for joint benefit and Object should be to make profit.

Anonymous Partnership

One or more of the partners is not known to the general public and These anonymous partners may not participate actively in the business of the partnership.

Partnership en commandite

Has all the characteristics of the anonymous partner, but in addition is only liable to his fellow partners for debts up to the amount of his agreed contribution.

Duty to Account (Partnerships)

Each partner must account to the others for what he has received in pursuit of the business of the partnership and keep proper records to enable him to account for his transactions.

Close Corporation

Close corporation provides a simpler and less expensive corporate form for the single entrepreneur or few participants. It has its own legal personality and enjoys the benefits of perpetual succession.

Members of a Close Corporation

A corporation may consist of between 1 – 10 natural persons.

Safeguarding the Founding Statement

The founding statement, any amended founding statement and the certificate of incorporation must be kept at the registered office of the corporation.

Section 42 (Close Corporations)

Provides that members owe a fiduciary duty to the corporation. The member shall act honestly and in good faith towards a corporation and in a manner that will benefit the corporation.

Section 53 (Close Corporations)

Is permissive and it was introduced to enable promoters to conclude agreements as agents or trustees even when the corporation does not yet exist.

The end of a close corporation comes when it deregistered

Unless and until that happens, its continued existence is not affected by changes in its membership.

Section 1 of the Companies Act 2008 - Definition of Company

Juristic person incorporated by this Act, or a juristic person that was registered in terms of Companies Act of 1973 or Close Corporations Act if it has subsequently been converted in terms of Schedule 2; or was deregistered in terms of Companies Act of 1973 and has subsequently been re-registered in terms of this Act.

Section 19 (1) (a) (Separate Legal Personality)

Upon the registration of a company, the company becomes a juristic person and continues to exist until its name is removed from the register.

Limited Liability

From the date of incorporation, the shareholders of a company have limited liability meaning, the liability of shareholders for the company is limited to the amount they have paid to the company for its shares and the shareholders are not liable for the debts of the company.

Perpetual Succession

The company retains its legal identity and continues to survive, notwithstanding changes in membership, through transfer of shares or by death or any other cause.

Property and Assets of the Company

The company’s property and assets belong to the company and not to the shareholders.

Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530

Because a company is in law a separate legal entity from its shareholders and because property owned by a company is not owned by its members, the statutory prohibition was not contravened by a company whose shares were held by Asiatics.

External Relationships (Companies)

Because it is a person separate from its shareholders, a company may enter into transactions with its shareholders or employ one of its shareholders as an employee under a contract of service

The close corporation

Provides a simpler and less expensive corporate form for the single entrepreneur or few participants with its own legal personality and enjoyment of the benefits of perpetual succession

Pioneer Concrete Services Ltd v Yelnah (Pty) Ltd (1986) 5 NSWLR

Lifting the veil’ means that although, whenever each individual company is formed, a separate legal person is created, courts will on occasions look behind the legal personality to the real controllers of such company.

Daimler Co Ltd v Continental Tyre & Rubber Co Ltd [1916]2 AC 307

The court lifted a corporate veil in order to determine whether the company was enemy alien or not and held that although the company was an English company, the controllers of the company were based in Germany therefore the company was regarded as an enemy company.

In re Darby, Ex parte Brougham [1911] 1 KB 95

A director of a company which was made for the intention to defraud interested parties was held to be personally liable.

Gilford Motor Co v Horne [1933] Ch 935 (CA)

The court held that where the company had been formed as a sham and with the intention to evade contractual obligations, the court may lift a corporate veil and render such directors liable in respect of such obligations.

Ebrahimi v Westbourne Galleries Ltd

There is room in company law for recognition of the fact that behind it, or amongst it, there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the company.

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd

If a company has been legitimately established and is legitimately operated, but is misused in a particular instance ‘to perpetrate a fraud, or for a dishonest or improper purpose, there is no reason in principle or logic why its separate personality cannot be disregarded in relation to the transaction in question’

Hulse-Reutter v Godde

There must at least be some misuse or abuse of the corporate entity by those who are in control, and which results in an unfair advantage being afforded to the latter.

Section 424 of the 1973 Act

Allows the courts to impose personal liability for debts of the company on directors and others where there has been fraudulent or reckless trading.

Section 20 (9)

Permits any interested person to bring an application in court requesting the court to pierce a corporate veil and the court will grant such order if it appears that any act by or on behalf of the company constitute an unconscionable abuse of the juristic personality of the company.

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd

Was said that if a company has been legitimately established and is legitimately operated, but is misused in a particular instance ‘to perpetrate a fraud, or for a dishonest or improper purpose, there is no reason in principle or logic why its separate personality cannot be disregarded in relation to the transaction in question

Hulse-Reutter v Godde

There must at least be some misuse or abuse of the corporate entity by those who are in control, and which results in an unfair advantage being afforded to the latter.

Section 77 (3) (b)

Director of the company will be liable for any loss, damages or costs sustained by the company as a direct or indirect consequence of the director having acquiesced in carrying on of the company’s business, despite knowing that it was being conducted in a manner prohibited by s 22 (1) of the Act.

Section 20 (9)

Permits any interested person to bring an application in court requesting the court to pierce a corporate veil and the court will grant such order if it appears that any act by or on behalf of the company constitute an unconscionable abuse of the juristic personality of the company.

Non-profit Companies

This is a company incorporated for a public benefit or other object relating to one or more cultural or social activities, or communal or group interests and the income and property of which are not distributable to its incorporators, members, directors, officers or persons related to any of them except, for example, a reasonable remuneration for goods delivered or services rendered or as reimbursement of expenses.

Requirements for Non-profit companies

The company must have three directors or more and the name of the company must end with “NPC” .

Profit Company

A company incorporated for the purpose of financial gain for its shareholders where Shareholders are entitled to profits in the form of dividends.

Kinds of Profit Companies

State-owned company, the private company, the personal liability company and the public company.

State Owned Companies Requirements

The name of the company must end with “SOC Ltd” and that All provisions of the Act that apply to a public company also apply to state owned company except if the exception is granted by the Minister.

Private Companies

Not public, personal liability or a state-owned company and its memorandum of incorporation prohibits it from offering any of its securities to the public and restricts the transferability of its securities

Private Company Requirements

Requirements for private companies include that the company name must end with “(Pty) ltd” and it must Need to have one director at a minimum unless its MOI provides otherwise.

Personal Liability Companies

Company which meets the criteria for a private company and its memorandum of incorporation states that it is a personal liability company where The MOI must both prohibit it from offering any of its securities to the public and restrict the transferability of its securities.

Liability of Directors (Personal Liability Companies)

If debts are incurred, they will be liable and cannot rely on the separate legal personality of the company

Public Company

A profit company that is not a state-owned company, a private company or a personal liability company and the name of the company must end with “Limited” or “Ltd” .

Ring Fenced Expression

The expression “RF” (“ring-fenced”) must immediately follow the name of the company if its MOI stipulates any restrictive conditions or prohibits the amendment of any provisions.

Alterable Provision

A provision of the Act in which it is expressly stated that the effect of that provision on a particular company may be negated, restricted, limited or qualified extended or otherwise altered in substance or effect by the MOI.

Reservation of Company Name

Company name may be reserved for the use at a later stage where a name of a company may be reserved for later use either for a newly incorporated company or for an amendment to the name of the existing company.

Common Law Turquand Rule

That a third party acting in good faith is under no duty to enquire whether the company has complied with its internal formalities and procedural requirements.

What happens to a Promoter Personally with Stipulatio Alteri form of contract before a company is established

Unless the contract provides so, the promoter is not personally liable on the contract, where If the company does not accept the benefits and the contract, the contract lapses unless it provides otherwise.

What happens to a Promoter Personally with Section 21 form of contract before a company is established

If the company is not subsequently incorporated or after being incorporated, the company rejects any part of such contract or action, the promoter is jointly and severally liable with any other such person for liabilities created in terms of the pre-incorporation contract.

Non Profit Companies

The company’s memorandum of incorporation (MOI) must set out at least one object and its assets and income must be applied to advance its objects.

Domesticated Company

Is a foreign company whose registration has been transferred to South Africa from the foreign jurisdiction in which it is registered.

External Companies

A foreign company which is conducting the business with South Africa and Remains a foreign company but conducts its business in South Africa.

Incorporators

Are responsible for the incorporation of the company.

Registration Certificate

Serves as conclusive evidence that all the requirements for incorporation have been complied with.

Name of the Company Requirements

The name of the company must not be the same as or confusingly similar to the name of another company.

Executive Directors

They are appointed as directors, and they also have a separate contract of employment with the company.

Non-Executive Directors

are appointed as directors only and they are not involved in the day-to-day activities of the company but play an important role in providing objective judgment on issues facing the company.

Non-Executive Independent Directors

This is a director who has no link with the company other than his or her directorship

Definition of a Director

Is a member of the board of a company, or an alternate director, and includes any person occupying the position of a director or an alternate director by whatever name designed

Alternate Director

A person appointed to serve, as the occasion requires, as a member of the board of a company in substitution for a particular elected or appointed director.

When is a Person Ineligible to be a Director (Section 69 (7))

a person is ineligible to fulfil the role of director if he / she is a juristic person; a minor or a person with legal disability; or does not satisfy any qualification or requirement of the MOI.

When is a Person Disqualified to be a Director (Section 69 (8))

a person is disqualified to be a director of the company if the Person that has been prohibited by a court of law; or has been declared delinquent by a court of law and a person is unrehabilitated insolvent.

Section 162 - Who can declare a Director Delinquent

a company, a shareholder, a director, a company secretary or prescribed officer of a company, a registered trade union that represents employees of a company or another employee representative may apply to the court to order declaring a director delinquent or to place them on probation.