long question a2s1

What is a "private company" in terms of s1 and s8(2)(b)?

A profit company that: (a) is not a public, personal liability, or state-owned company; and (b) its MOI prohibits offering securities to the public AND restricts transferability of its securities. Name must end with "(Pty) Ltd."

What are the two ways a private company can restrict transferability of securities?

(1) Right of pre-emption: existing shareholders have first right when shares are transferred (Sindler NO v Gees 2006). (2) Directors' discretion to refuse transfer. ALSO: s39(1)(b) — company must offer shares to existing shareholders before outsiders when issuing new shares (pre-emptive rights).

What is a "personal liability company" in terms of s8(2)(c)?

A profit company that meets the criteria for a private company AND whose MOI states that it is a personal liability company. Name must end with "Inc." Used mainly by professional associations (attorneys, auditors).

What is the key liability rule for directors of a personal liability company (s19(3))?

Directors AND past directors are jointly and severally liable, together with the company, for debts and liabilities contracted during their respective periods of office. Third parties are deemed to have notice of this liability (s19(5)(b)).

What does s16(10)-(11) require when converting a personal liability company to another type?

MOI must be amended AND notice must be given at least 10 business days before filing the amendment to: (1) the relevant professional regulatory authority; (2) any person who acted in reliance on directors' joint and several liability; (3) any person who may be adversely affected. Those persons may apply to court to protect their interests.

What is a "public company" under s1?

A profit company that is not a state-owned, private, or personal liability company. It is the default company type. Shares may be offered to the public and are freely transferable. Shares can be listed on the JSE. Name must end with "Ltd."

What is a "state-owned company" (SOC) under s1?

An enterprise registered as a company that is either: (a) listed as a public entity in Schedule 2 or 3 of the PFMA; or (b) owned by a municipality under the Municipal Systems Act. Name must end with "SOC Ltd." Examples: Eskom, SAA, NSFAS. Usually treated as a public company (s9(1)).

What does s16(6) provide regarding conversion between company types?

If a profit company amends its MOI so that it no longer meets the criteria for its category, it must simultaneously amend its name to reflect the new category (change the ending expression).

What is a "non-profit company" (NPC) under s1?

A company incorporated for a public benefit or other object (per Schedule 1) whose income and property are NOT distributable to incorporators, members, directors or officers (except as permitted by Schedule 1, item 1(3)). Name must end with "NPC."

What are the 4 permitted purposes for an NPC?

(1) Public interest/benefit; (2) Cultural activities; (3) Social activities; (4) Communal or group interests.

What happens to NPC assets on liquidation/dissolution?

Net assets must be distributed to other NPCs with similar objects (or similar entities). An NPC may NOT be converted into a profit company (Schedule 1, item 2).

What are the two classes of members an NPC may have?

Voting members and non-voting members (Schedule 1, item 4). If an NPC has no voting members, the board of directors may amend the MOI (s16(3)).

What is a "foreign company" under s1?

An entity incorporated outside the Republic, whether profit or non-profit, regardless of whether it carries on business within SA.

What is an "external company" under s1?

A foreign company that is carrying on business or non-profit activities within the Republic (subject to s23(2)). A company "carries on business" in SA if: (a) it is party to an employment contract in SA; OR (b) it conducts activities in SA for at least 6 months that would lead a person to conclude it intends to continually engage in business/non-profit activities in SA.

What are the duties of an external company under s23?

(1) Must register with the Commission (s23(1)) within 20 business days of first conducting business; (2) must continually maintain an office in SA (s23(3)(a)); (3) must submit an annual return (s33(2)).

What is a "domesticated company" under s1?

A foreign company whose registration has been transferred to the Republic in terms of s13(5)-(11). Key requirements (s13(6)): (c) whole or greater part of its assets and undertaking must be within SA; (d) majority of shareholders must be resident in SA; (e) majority of directors are or will be SA citizens.

What are the key differences in minimum directors, AGM requirements and notice periods between company types?

Private/Personal liability: min 1 director, NO compulsory AGM, 10 business days' notice for meetings. Public/SOC: min 3 directors, AGM COMPULSORY for public companies, 15 business days' notice. NPC: min 3 directors, NO compulsory AGM, 15 business days' notice.

What are the enhanced accountability requirements for public companies and SOCs?

Public companies and SOCs must have: (1) a company secretary; (2) an auditor; (3) an audit committee. These requirements do NOT apply to private/personal liability companies unless the MOI provides otherwise or AFS must be audited.

TOPIC 6 – INCORPORATION OF COMPANIES

What is the founding principle behind company formation under the 2008 Act?

Formation of a company is a RIGHT, not a privilege. The Act sets minimal requirements and formalities, consistent with the purpose of creating flexibility and simplicity (s7(b)(ii)).

Who is an "incorporator" under s1?

The person(s) who incorporated the company (the founder(s)).

What are the incorporator requirements for a profit company vs an NPC (s13(1))?

Profit company: 1 or more persons OR an organ of state. NPC: 3 or more persons acting in concert; OR an organ of state; OR a juristic person.

What are the 3 duties of an incorporator (s13(1))?

(1) Sign the MOI; (2) file the Notice of Incorporation; (3) automatically serve as first director until sufficient directors are appointed or elected (s67(1)).

What is the procedure to incorporate a company (s13)?

(1) Complete and sign the MOI; (2) file the Notice of Incorporation together with a copy of the MOI; (3) pay the prescribed fee.

What is a "Notice of Incorporation" and what must it contain?

The notice filed in terms of s13(1) by which incorporators inform the Commission of the incorporation of a company for registration. Must contain: company name; initial directors; registered office; financial year-end date; date of incorporation; ring-fencing provisions; and appointment of first company secretary, auditor and audit committee (where required).

What is "ring-fencing" in the Notice of Incorporation (s13(3))?

If the MOI contains s15(2)(b) or (c) provisions (restrictive conditions or amendment prohibitions), the Notice of Incorporation must contain a prominent statement drawing attention to those provisions and their location in the MOI.

When MUST the Commission reject a Notice of Incorporation (s13(4)(b))?

If: (1) initial directors are fewer than the prescribed minimum; OR (2) the Commission reasonably believes the initial directors are disqualified AND the remaining directors are fewer than the minimum.

When may the Commission use DISCRETION to reject a Notice of Incorporation (s13(4)(a))?

If the notice or anything filed with it is incomplete or improperly completed (subject to s6(8) which allows correction of defects).

What must the Commission do upon ACCEPTING a Notice of Incorporation (s14(1))?

(1) Assign a unique registration number; (2) enter prescribed information on the company register; (3) endorse the Notice of Incorporation and copy of MOI; (4) issue a registration certificate dated the later of the date of issue or the date stated in the Notice of Incorporation.

What is the legal effect of a registration certificate (s14(4))?

It is conclusive evidence that: (1) all requirements for incorporation have been complied with; and (2) the company is incorporated from the date stated in the certificate. From that date the company is a separate juristic person (s19(1)).

What are the requirements for a company name (s11)?

(1) May consist of words in any language (including contrived words) with letters, numbers, punctuation marks, certain symbols (+, &, #, @, %, =, -) or round brackets (s11(1)(a)); (2) may use the registration number as name for profit companies (s11(1)(b)); (3) must end with the appropriate expression for its type.

What names are prohibited under s11(2)?

(a) Same as another company's name, defensive name, registered trademark or Merchandise Marks Act mark; (b) confusingly similar to any of the above; (c) misleading — falsely implies association with another person/entity, organ of state, regulated profession, or foreign government; (d) contains propaganda for war, incitement of imminent violence, or advocacy of hatred based on race, ethnicity, gender or religion (also s9(3) Constitution).

What is "passing off" in the context of company names?

A common law rule where one business adopts a distinguishing feature (such as a name) of a competitor, creating a reasonable likelihood that the public will be confused into believing the businesses are the same or associated. A name may be registrable but still prohibited due to passing off (Adidas AG v Pepkor Retail Ltd 2013).

What does the Commission do when a company name is the same as another name/trademark (s14(2))?

Still registers the company but uses the registration number as the company name, then invites the company to file an amended Notice of Incorporation with an acceptable name.

What does the Commission do when a name is confusingly similar or falsely implies association (s14(3)(a))?

Orders the applicant to serve a copy of the application on any interested person. That person may apply to the Companies Tribunal for a determination within 3 months (s160(2)).

What does the Commission do when a name contains hate speech or incitement (s14(3)(b))?

Refers the application to the SA Human Rights Commission, which may apply to the Companies Tribunal for a determination.

How is the registered office different from the principal office under the 2008 Act (Sibakhulu Construction case)?

Under the 2008 Act, the registered office and the principal office must be at the SAME address (unlike the 1973 Act). The registered office is where the outside world transacts with the company; the principal office is where general administration is centred.

What is the MOI and what is its fundamental rule (s15(1))?

The document (as amended) that sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company. Every provision must be consistent with the Act — any inconsistent provision is VOID to that extent.

Between whom is the MOI binding (s15(6))?

Between: (1) the company and every shareholder; (2) shareholders among themselves; (3) the company and every director, prescribed officer and member of a board committee.

What are "unalterable provisions" of the MOI?

Mandatory provisions that must be included in the MOI and cannot be negated, restricted, limited, qualified or extended (s15(2)(d)). However, the MOI may impose MORE ONEROUS requirements than the Act requires (s15(2)(a)(iii)).

What are "alterable provisions" of the MOI?

Default rules set by the Act that apply unless the company alters them in the MOI (by negating, restricting, limiting, qualifying or extending the provision). Example: s36(3)(a) — the board may increase or decrease authorised shares, unless the MOI provides otherwise.

What additional content may the MOI include (s15(2))?

(1) Provisions on matters not addressed in the Act (s15(2)(a)(i)); (2) more onerous requirements than the Act (s15(2)(a)(iii)); (3) restrictive conditions and heightened amendment requirements (s15(2)(b)); (4) a provision prohibiting amendment of a specific MOI provision (s15(2)(c)).

What are the two consequences if the MOI includes s15(2)(b) or (c) provisions?

(1) The company name must end with "(RF)"; (2) the Notice of Incorporation must contain a prominent statement drawing attention to those provisions and their location in the MOI. Third parties dealing with RF companies are deemed to have knowledge of those provisions (s19(5)(a)).

What does "(RF)" after a company name signify?

That the company's MOI contains restrictive conditions (s15(2)(b)) or a provision prohibiting amendment of a specific MOI clause (s15(2)(c)).

What is a "restrictive condition" under the 2008 Act?

Under the 2008 Act, a company has all the legal powers and capacity of an individual (s19(1)(b)). If the MOI limits or restricts any of those powers or capacity, that limitation constitutes a restrictive condition. The doctrine of constructive notice is largely abolished — only RF companies retain it (s19(5)).

How is the MOI normally amended (s16(1)(c))?

By special resolution, proposed by the board of directors OR by shareholders holding at least 10% of the voting rights exercisable on the matter.

What are 3 other ways the MOI may be amended besides special resolution?

(1) By court order (s16(4)) — only a board resolution required; (2) by the board re authorised share capital and classification of shares (s36(3)); (3) by the board to correct patent errors (s17).

When does an MOI amendment take effect (s16(9))?

The later of: (1) the date of filing the Notice of Amendment with the Commission; OR (2) the date stated in the Notice of Amendment.

What are company "rules" and who makes them (s15(3)-(5A))?

Rules relating to the governance of the company made by the board of directors (unless the MOI provides otherwise). Must be consistent with the Act and MOI. Process: board publishes and files rules → binding on interim basis → shareholders vote (ordinary resolution) at next general meeting → if ratified: permanently binding; if not ratified: rules lapse (but prior acts under the rules remain valid).

What is the status of shareholder agreements (s15(7))?

Shareholders may enter into any agreement concerning any matter relating to the company, but it must be consistent with the Act and MOI — void to the extent of any inconsistency.

TOPIC 7 – SHAREHOLDERS' MEETINGS

What are the two organs of a company?

(1) The shareholders' meeting; (2) the board of directors. Their respective functions are determined by the Act, MOI and common law.

What is the relationship between the board and the shareholders' meeting (s66(1))?

The business and affairs of the company must be managed by or under the direction of its board. Shareholders may NOT usurp the board's management function. However, certain significant decisions require shareholder approval (e.g. appointing/removing directors, amending the MOI).

What is a "shareholders' meeting" (s1)?

A meeting of those holders of a company's issued securities who are entitled to exercise voting rights in relation to a particular matter.

When is the AGM compulsory and what business must be transacted (s61(7)-(8))?

Only PUBLIC companies must hold an AGM (1 per calendar year). Business includes: (a) presentation of directors' report, audited financials, audit committee report, social and ethics committee report, and remuneration report; (b) election of directors; (c) appointment of auditor and audit committee; (d) matters raised by shareholders.

What are the 4 instances where shareholders' meeting formalities are NOT required?

(1) Unanimous assent (common law) — all shareholders aware and assent (can pass special resolution: SwissInc AG v Jupiter 8 2013); (2) Single shareholder (s57(2)) — may exercise voting rights at any time; (3) All shareholders are also directors (s57(4)) — may decide referred matters at any time; (4) Written resolution (s60) — submitted for written vote within 20 business days, results delivered within 10 business days.

What is a proxy and how is one appointed (s58)?

A proxy is an individual appointed by a shareholder (in writing, dated and signed) to participate, speak and vote at a shareholders' meeting on behalf of the shareholder. The proxy may vote as they think fit unless the MOI or the proxy instrument indicates otherwise (s58(7)). If the shareholder decides to act directly, the proxy is suspended (s58(4)(a)).

What are the quorum requirements for a shareholders' meeting (s64)?

TWO requirements: (1) Percentage: persons holding 25% of voting rights exercisable on at least 1 agenda item must be present for meeting to commence; 25% of voting rights exercisable on a specific matter must be present when that matter is called. (2) Number: if company has more than 2 shareholders, at least 3 shareholders must be present. MOI may set a higher or lower percentage.

What are the two voting methods at shareholders' meetings (s63(4)-(6))?

(1) Show of hands: each person present has 1 vote regardless of shareholding (head count). (2) Poll: each person has votes proportional to their shareholding (weighted). A poll may be demanded by 5 persons OR persons holding at least 10% of voting rights (s63(7)).

What are the two types of shareholders' resolutions (s65)?

(1) Ordinary resolution: more than 50% of voting rights exercised must support it (s65(7)). (2) Special resolution: at least 75% of voting rights exercised must support it (s65(9)). Required for important decisions (see s65(11)). MOI may alter these percentages but a special resolution must always be at least 10 percentage points more than the ordinary resolution (s65(8)).

What did DH Brothers Industries v Gribnitz NO 2014 establish about abstentions?

Failure to vote for or against a resolution is an abstention, NOT a vote in favour. Persons vested with a vote may approve, reject or abstain.

Can the MOI increase the percentage required for an ordinary resolution to remove a director (s71(1))?

No. Section 65(8) prohibits increasing the percentage for an ordinary resolution for removal of a director, and s71(1) provides "despite anything to the contrary" — the Act overrides any such MOI provision. Removal always requires a simple ordinary resolution (more than 50%).

What are the rules for proxies attending electronically (s63(2)) and for public companies (s61(10))?

Generally: company may allow electronic participation if all participants can communicate concurrently. For public companies (s61(10)): every shareholders' meeting must be reasonably accessible within SA for electronic participation by shareholders, regardless of where the meeting is held.

TOPIC 8 – THE BOARD OF DIRECTORS AND DIRECTORS

What does s66(1) provide about the board's management power?

The business and affairs of a company must be managed by or under the direction of its board, which has the authority to exercise all powers and perform any functions of the company, except to the extent the Act or MOI provides otherwise.

What is a "director" under s1?

A member of the board of a company as contemplated in s66, or an alternate director, and includes any person occupying the position of director BY WHATEVER NAME designated (title not important — substance of activities matters: "de facto" director).

What is an "alternate director" under s1?

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

What are the minimum numbers of directors for each company type?

Private company and personal liability company: 1. Public company and NPC: 3 (plus directors required for board committees). The MOI may require a higher number (s66(3)). If the board falls below minimum, its authority is NOT negated and acts remain valid (s66(11)).

How does a person become a director (s66(7))?

A person is a director if: (1) appointed or elected; AND (2) has delivered a written consent to serve as director to the company.

What is an "ex officio director" (s66(4)(a)(ii))?

A person who becomes a director as a consequence of holding a specific office, title, designation or status (as provided in the MOI). Has all the powers, functions and duties of any other director unless the MOI provides otherwise (s66(5)(b)).

What are the rules for election of directors by shareholders (s68(1)-(2))?

Every director of a profit company (not ex officio, board-appointed or named-in-MOI) must be elected by shareholders for an indefinite term or term set in MOI. Voting is by series of votes — each vote is for 1 individual, vacancy filled if majority of voting rights are in favour, series continues until all vacancies are filled.

What proportion of directors must be elected by shareholders (s66(4)(b))?

The MOI of a profit company (not SOC) must provide for the election of at least 50% of directors (and 50% of alternate directors) by shareholders.

What is the difference between ineligibility and disqualification (s69)?

Ineligible: Court has NO discretion — person is absolutely prohibited from acting as director. Disqualified: Court HAS discretion to permit person to act as director despite disqualification.

Who is INELIGIBLE to be a director (s69(7))?

(1) A juristic person; (2) an unemancipated minor or person with similar legal disability; (3) a person who does not satisfy requirements in the MOI; (4) a person meeting additional grounds of ineligibility in the MOI.

Who is DISQUALIFIED from being a director (s69(8))?

(1) Person prohibited by court order or declared delinquent (s162); (2) unrehabilitated insolvent; (3) person prohibited by public regulation; (4) person removed from a position of trust on grounds of misconduct involving dishonesty.

What are the grounds for a vacancy arising (s70(1))?

Person is no longer a director (vacancy arises) if: appointed for a fixed term that expires; resignation or death; ex officio director no longer holds that office; incapacitation; declared delinquent; probation inconsistent with being director; becomes ineligible or disqualified; or removed by resolution of shareholders, board or court order.

What are the 5 methods of removing a director?

(1) Shareholders by ordinary resolution (s71(1)); (2) directors by board resolution (s71(3)); (3) Companies Tribunal (s71(8)); (4) business rescue practitioner (s137(5)); (5) person named in MOI (s66(4)(a)(i)).

What is the procedure for removal of a director by shareholders (s71(1)-(2))?

Director may be removed by ordinary resolution of persons entitled to vote in an election of that director. Before voting: director must be given notice equivalent to that given to shareholders (10 or 15 business days) AND must be given reasonable opportunity to make a presentation (Minister of Defence v Motau 2014 CC).

When can directors remove a fellow director (s71(3))?

If the company has MORE than 2 directors and a shareholder or director alleges the director: (a) has become ineligible or disqualified; or (b) is incapacitated; or (c) has neglected or become derelict in their duties — the board (excluding the director concerned) may remove by resolution. Procedure: director must receive notice, resolution and reasons with sufficient specificity to mount a response (Pretorius v PB Meat 2013). Director has 20 business days to apply to court for review (s71(5)).

When does the Companies Tribunal remove a director (s71(8))?

If the company has only 1 or 2 directors — a director or shareholder may apply to the Tribunal under the same circumstances as s71(3). (Steenkamp v Central Energy Fund Soc 2018.)

What remedies does a removed director have (s71(9))?

The director is NOT deprived of any right to claim damages for loss of office. If also an employee, retains rights under the Labour Relations Act (Old Mutual Ltd v Moyo 2020).

What are the 3 types of directors' duties?

(1) Fiduciary duties; (2) duty of care, skill and diligence; (3) statutory duties. These are mandatory and unalterable. Fiduciary duties also apply to senior employees and top-level management. Statutory duties apply to prescribed officers and members of board committees (s76(1)).

What is the fiduciary duty to act in good faith and in the best interests of the company (s76(3)(a)-(b))?

Directors must exercise powers in what they subjectively believe to be the best interests of the company. Test (Visser Sitrus v Goede Hoop Sitrus 2014): director must (1) take reasonably diligent steps to become informed; (2) subjectively believe the action is in the best interest; (3) that belief must have a rational basis. NOT a purely objective test.

What is the fiduciary duty to act for a proper purpose?

Common law and s76(3)(a). Director must exercise powers for the purpose for which they were given, not for an ulterior purpose. Test (Visser Sitrus): determine what actual purpose was → determine what purpose the power was given for → does (a) fall within (b)? Overarching purpose is always the best interest of the company.

What is the fiduciary duty to avoid conflicts of interest (s76(2)(a))?

A director must not use their position or any information obtained as director: (1) to gain an advantage for themselves or another person (other than the company/subsidiary); OR (2) to knowingly cause harm to the company or subsidiary.

What is the duty to provide information to the company (s76(2)(b))?

Director must communicate to the board at the earliest practicable opportunity any information that could affect the company, UNLESS the director reasonably believes the information is: (1) immaterial to the company; (2) generally available to the public or known to directors; OR (3) subject to a legal or ethical obligation of confidentiality.

What is the duty of care, skill and diligence (s76(3)(c))?

Director must act with the degree of care, skill and diligence that may reasonably be expected of a person: (a) carrying on the same functions in the company as those carried on by that director; AND (b) having the general knowledge, skill and experience of that director. Both a general standard AND a personalised standard.

What does s76(4)-(5) allow directors to do (delegation)?

Directors may rely on: (1) employees of the company whom the director reasonably believes to be reliable and competent (s76(5)(a)); (2) legal counsel, accountants or other professionals whose professional competence the director reasonably believes is within the matter concerned or who the director reasonably believes merits confidence (s76(5)(b)).

What is director liability under s77(2)?

Directors are liable in accordance with: (a) common law for breach of fiduciary duty — for any loss, damages or costs sustained by the company; (b) common law of delict — for any loss, damages or costs sustained by the company.

What are the specific grounds for director liability under s77(3)?

Director is liable if: (a) acted in company's name knowing they had no authority; (b) acquiesced to reckless or fraudulent carrying on of business; (c) was party to an act/omission knowing it aimed to defraud a creditor/shareholder/employee; (d) signed/consented/authorised false or misleading financial statements or prospectus.

What is the time limit for proceedings against directors (s77(7) as amended by Companies Second Amendment Act 17 of 2024)?

The Prescription Act does NOT apply. Proceedings must commence within 3 years after the act/omission. However, a court may extend this period on good cause shown, regardless of whether the period has expired or the act occurred before the 2024 amendment.

When may a court relieve a director of liability (s77(9)-(10))?

Court may relieve the director if: (1) the director acted honestly and reasonably; AND (2) having regard to all circumstances, it would be fair to excuse the director. The director may also proactively approach the court for such an order.

Who may apply to have a director declared delinquent or placed under probation (s162)?

Group 1 (s162(2)): company, shareholder, director, company secretary, prescribed officer, registered trade union. Group 2 (s162(3)): Commission, Takeover Regulation Panel. Group 3 (s162(4)): organ of state. Note: Period updated to 60 months (was 24 months) by Companies Second Amendment Act 17 of 2024.

What are the grounds for declaring a person delinquent (s162(5)(a)-(f))?

(a)-(c) (Groups 1 & 2): consented to act while ineligible/disqualified; contravened probation order; grossly abused director position; took personal advantage in breach of conflict-of-interest duty; intentionally or by gross negligence inflicted harm on company; gross negligence/willful misconduct/breach of trust; acted without authority; acquiesced to fraudulent/reckless business; party to act designed to defraud. (d)-(f) (Groups 2 & 3): repeatedly subject to compliance orders; twice convicted/fined; within 5 years was director of a company convicted of an offence.

What is the effect of being declared delinquent (s162(6))?

Disqualified from acting as director (s69(8)(a)). Period: LIFETIME (unconditional) if delinquent under s162(5)(a)-(b). At LEAST 7 years (or longer) if delinquent under s162(5)(c)-(f). May apply to court to suspend order and substitute with probation, or to set aside order (s162(11)). (Core Logistix v Rooks 2026 — 7 years declared.)

What are the grounds for placing a director under PROBATION (s162(7))?

Groups 1 & 2 (s162(7)(a)): While director and present at meeting, failed to vote against resolution where company cannot satisfy solvency and liquidity test; acted materially inconsistently with duties; engaged in oppressive and prejudicial conduct against shareholders.