Companies Act and Corporate Governance Practice Flashcards

A set of vocabulary-style flashcards covering the key definitions, sections, and legal requirements of the South African Companies Act 71 of 2008 as presented in the lecture notes.

Solvency and Liquidity Test

A two-part test where a company is solvent if its fairly valued assets equal or exceed its fairly valued liabilities, and liquid if it appears the company can pay its debts as they become due in the ordinary course of business for a period of $12$ months.

Related Persons (Individual to Individual)

Persons are related if they are married, live together in a relationship like a marriage, or are separated by no more than two degrees of natural or adopted affinity.

Control (Section 3)

The ability to exercise or control the exercise of majority voting rights or the right to appoint directors who control majority votes at board meetings.

Profit Companies

Companies formed for the financial gain of shareholders, categorized into four types: State-owned companies (SOC Limited), Private companies (Pty) Ltd, Personal liability companies (Inc.), and Public companies (Ltd).

Non-Profit Companies (NPC)

Companies formed for public benefit, such as cultural or social activities, communal interests, or group interests.

Memorandum of Incorporation (MOI)

The document that sets out the rights, duties, and responsibilities of shareholders, directors, and others within a company, and by which a company is incorporated.

Reckless Trading (Section 22)

The prohibited act of carrying on business with gross negligence, with intent to defraud, for a fraudulent purpose, or under insolvent circumstances.

Public Interest Score (PI Score)

A calculation based on the sum of: points equal to average employees, $1$ point per $R1\,million$ in third-party liability, $1$ point per $R1\,million$ in turnover, and $1$ point per beneficial shareholder.

Financial Assistance (Section 44 & 45)

Providing assistance for the subscription of securities or lending money/guaranteeing loans for directors/related companies, requiring a special resolution and satisfaction of the solvency and liquidity test.

Distribution (Section 46)

A transfer of company money or property to shareholders, which must be authorized by a board resolution and comply with the solvency and liquidity test.

Proxy

An individual appointed by a shareholder to participate in, speak, and vote at a shareholders meeting on their behalf.

Ordinary Resolution

A resolution requiring more than $50\%$ of the voting rights to be exercised for approval.

Special Resolution

A resolution requiring at least $75\%$ of the voting rights to be exercised for approval, unless the MOI specifies a lower percentage.

Quorum

The minimum attendance required for a meeting, generally persons exercising at least $25\%$ of all voting rights and a minimum of $3$ shareholders (if the company has more than $2$).

Ineligible Person (Director)

A person who may not be appointed as a director, including juristic persons, unemancipated minors, or persons specified as ineligible in the MOI.

Disqualified Person (Director)

A person prohibited from being a director due to court orders, being an unrehabilitated insolvent, or having been convicted and imprisoned/fined for crimes involving dishonesty like fraud or theft.

Social and Ethics Committee

A committee required for certain categories of companies (based on turnover, workforce, or nature of activities) comprising at least $3$ members, with a majority of non-executive directors for public/state-owned companies.

Standard of Director's Conduct (Section 76)

The requirement for directors to act in good faith, in the best interest of the company, and with the degree of care, skill, and experience reasonably expected of such a person.

Audit Committee

A committee mandatory for public and state-owned companies, consisting of at least $3$ directors who are not involved in day-to-day management or related to management within the previous $3$ years.

Auditor Rotation (Section 92)

The requirement that the same individual may not serve as an auditor for longer than $5$ consecutive years and may not be reappointed within $2$ years of that rotation.