South African company law is that body of rules which regulates corporations formed under the Companies Act.Act 71 of 2008. A company is a business organisation which earns income by the production or sale of goods or services. This entry also covers rules by which partnerships and trusts are governed in South Africa, together with (albeit in less detail) cooperatives and sole proprietorships.
Features A company has (but is not limited to) three distinguishing features: its legal separateness from the people involved in it—specifically from its owners, called shareholders, its potential immortality, and its size.
Separateness A company is separate from its employees, shareholders or members (in the case of close corporations), in that the connection between them is, usually, a mere contract of employment, which may be terminated, leaving both parties to go their own ways. The same generally applies, however, to those businesses which are not companies. There is also, more importantly, usually a separation between the company and its owners.
The locus classicus for the principle that a company is a separate entity from its directors and shareholders is the landmark English case of Salomon v Salomon. AC 22. Shareholders are the owners of one or more units of equal value into which the company is divided and which are usually sold in order to raise capital, either for the company itself or for its founders. A share carries with it a defined set of rights and duties: most notably the right to receive a share of the company's profits and the right to receive a share of the company's assets if the company is wound up.
The separation between the shareholder and the company has one other important consequence. If a company is wound up, its shareholders will lose their stake, but their separateness from the company will prevent its creditors from pursuing them for fulfilment of its debts. If, on the other hand, an unincorporated business should go bankrupt, its owners, who do not enjoy such separation, will be liable for its debts.
Because a company can do certain things—it can acquire rights and duties and assets and liabilities—albeit only through the actions of human beings who are authorised to act on its behalf, the company is itself regarded as a juristic person. It has rights and duties, but not the body, of a natural person.
Size Companies range from the very small to the very large. There are no very large businesses which are not companies. (Even the John Lewis Partnership in the United Kingdom, which promotes itself as "the world's largest partnership", is in fact a company.) Part of what allows companies to become so much bigger than other businesses is their ability to raise capital more easily (which is in turn connected to a company's separation from its mortal owners), and the fact of their being better regulated than other businesses, which gives confidence to investors.
Shareholders It is important at the outset to appreciate what, exactly, is meant by "holding a share in a company." The fact that a person is a shareholder of Pick n Pay does not entitle him to go along to one of its branches and leave it with an unpaid-for basket of groceries in his possession. His share in Pick n Pay does not take the form of its stock.
Shareholders are the owners of one or more units of equal value into which the company is divided and which, usually, have been sold in order to raise money either for the company itself or for its founders.
History Before the Industrial Revolution, companies were a relatively rare business form. Until 1844, there was no comprehensive legislation governing companies, so that they had to be incorporated by a specific Act of Parliament, or by the granting of a royal charter in Europe. Such was the case with the British East India Company in 1600 and the Dutch East India Company in 1602.
The Joint Stock Companies Act 1844 was the first piece of legislation which would be recognised as modern company law, but it was fairly limited in scope. The concept of limited liability, for instance, was not considered. This omission was remedied by the Joint Stock Companies Act 1856, which also introduced the suffix "Ltd" to the company name. It is still in use today.
The first South African company legislation was the Companies ActAct 46 of 1926. of 1926, which was based on the Transvaal Companies Act,Act 31 of 1909. which was in turn based on the British Companies (Consolidation) Act 1908. The next major South African legislation in this area was the Companies ActAct 61 of 1973. of 1973, which remained in force until 31 April 2011.
Companies Act of 2008 The 1973 Act had over the years been amended on numerous occasions to bring it up to date; it had as a consequence, like the Income Tax Act,Act 58 of 1962. become unwieldy. Changes in society, and in the way the international community expects businesses to operate, also demanded the introduction of new concepts like stakeholder rights and corporate governance. The 1973 Act was seen as unnecessarily rigid; a more business-friendly approach was demanded, which would encourage entrepreneurship and thereby economic and employment growth. These factors combined to spur the enactment of new legislation.
Drafting The process of drafting the new Act was strife-ridden and "messy,"Temkin 2011. with the result that the Act which was passed by parliament, and then assented to by the President in April 2009, was found to contain numerous obvious flaws. After the ensuing uproar, work began immediately on amending the Act, which had not yet come into force.
Companies Amendment Bill The result was the Companies Amendment Bill,B40-2010. which was introduced into the National Assembly on 27 October 2010, and which amended about half of the Act's 225 sections. A further Amendment Bill,B40B-2010. with further corrections and changes, was published on 15 March 2011.
The Act was widely expected to come into force on 1 April 2011, but in fact did so only on 1 May 2011. (The exception to this was Chapter XIV, which is to come into force at a later date, still to be decided.)
Types of companies The types of companies provided for and regulated by the new Act are set out in sections 8 and 11(3)(c). Broadly speaking, they comprise external companies, non-profit companies and profit companies, in which last are included state-owned companies, private companies, personal liability companies and public companies. The old distinction between "widely held companies" and "limited interest companies," introduced by section 6 of the Corporate Laws Amendment ActAct 24 of 2006. has been abolished by the 2008 Companies Act.
Non-profit companies The non-profit company (NPC) is dealt with in Schedule 1 to the Act, and is regarded as a successor to the section 21 company in the 1973 Act. An NPC must be incorporated by three or more persons, and formed for a lawful purpose. That purpose must relate to the public benefit; otherwise it must have an object relating to one or more cultural or social activities, or communal or group interests. These may include the promotion of religion, arts, sciences, education, charity or recreation.
The income and property of an NPC are not distributable to its incorporators, members, directors, officers or persons related to any of these people (except to the extent permitted by item 1(3) of Schedule 1). All profits are to be applied solely to the promotion of the NPC's main object.
Upon its winding-up, deregistration or dissolution, the remaining assets of the NPC must be given or transferred to another NPC with similar objects, to be determined by the members of the association or, if they fail to do so, by a court.
An NPC is different from an NPO (non-profit organisation). An NPC may register, but is not obliged to register, as an NPO with the Registrar of NPOs. Organisations which are not companies, and therefore not NPCs (charitable trusts, for example) may also register as NPOs. The difference, in other words, is that NPOs are not limited to companies.
Profit companies A profit company is a category of company which includes a number of sub-categories. First and foremost, a profit company is incorporated for the purpose of financial gain to its shareholders. It may be incorporated by one or more persons, or by an organ of state.
State-owned companies A state-owned company is a new form of a company which was introduced by and must be registered in terms of the 2008 Act, and which either falls within the meaning of "state-owned enterprise," in terms of the Public Finance Management Act,Act 1 of 1999. or is owned by a municipality, as contemplated in the Local Government: Municipal Systems Act,Act 32 of 2000. and is otherwise similar to a "state-owned enterprise," as defined above. The name of a state-owned company ends with the expression "SOC Ltd."
Private companies A private company must have at least one member. A profit company that is not state-owned, its Memorandum of Incorporation must
prohibit it from offering any of its securities to the public; and restrict the transferability of its securities.
The 2008 Act initially proposed retaining the "(Pty) Ltd" designation from the 1973 Act. The first Amendment Bill deleted the "Ltd," and the second reinstated it, so that the name of a private company still ends with "(Pty) Ltd."
Personal liability companies The personal liability company is regarded as a successor to the section 53(b) company of the 1973 Act. This is a company
which meets the criteria, stated already, for a private company; and whose Memorandum of Incorporation states that it is a personal liability company.
The directors, both past and present, are jointly and severally liable for the contractual debts and liabilities of the personal liability company. The liability of a director is limited, however, to the company's contractual debts and liabilities, and therefore does not include delictual or statutory liability.
The name of a personal liability company ends with the designation, "Incorporated" or "Inc.".
Public companies A public company is incorporated by one or more persons associated for a lawful purpose. It may raise capital from the general public, and its shareholders enjoy free transferability of shares and interests in the company. There is a compulsory regime of disclosure for public companies.
The name of a public company ends with "Ltd."
Public versus private companies The following are a few of the differences between public and private companies:
The name of a private company ends with "(Pty) Ltd;" that of a public company ends with "Ltd." The transferability of shares is restricted for a private company, but there is free transferability of shares and interests for a public company. Private companies make no offer of shares to the public, but public companies, whose shares may be listed on a stock exchange, may raise capital from the general public. A private company need not lodge financial statements with the CIPC (formerly CIPRO, formerly the Registrar of Companies), whereas a public company must. Voting rights in a private company may be freely regulated in the Memorandum of Incorporation; voting rights in a public company are proportional to the number of shares the voter holds. A member of a public company may, but a member of a private company may not, appoint more than one proxy. Quorum for a general meeting of a private company is two members; for a public company, three. The auditor of a private company may also be the secretary or bookkeeper, but this is not permitted in a public company. The owners are fully in control at this state, all the profit generated belongs to them and they have full access of the internal business system.
External companies