AUE Flashcards
1
Q
An individual is related to another individual if:
A
• In terms of the Act, a person is related to another if such a person is related to the other person, within the second degree of consanguinity or affinity.
• Consanguinity: “blood relationship”
• Affinity: Relationship exists due to a valid marriage
• In other words - - - - - -
Married or living together as if married Brothers/Sisters
Parents
Grandparents
Children (includes adopted children) Grandchildren
2
Q
An individual is related to a juristic person if:
A
• The individual directly/indirectly controls the juristic person:
• Individual holds majority of shares in company (51% or more)
• Individual together with related person holds majority of shares (e.g. John, his wife and his
brother holds 51% or more)
• Individual’s wife or brother or child or parents holds 51% or more (even though the
individual may hold nothing)
• Individual, although holding 0% or less than 50% of the shares, has the right to appoint or
choose directors who controls the board.
• In case of the juristic person being a close corporation, that person must own the majority of
members’ interest, or controls directly, or has the right to control, the majority of members’
votes in the CC.
• In case of the juristic person being a trust, that person has the ability to control the majority
of the votes of the trustees or to appoint the majority of the trustees, or to appoint to change the majority of beneficiaries of the trust
3
Q
A juristic person (company) is a subsidiary (related) of a juristic person (company) if:
A
• Company A holds 51% or more of the shares in Company B
• John and/or his wife holds 51% or more of the shares in both Company A and Company B
• Company A is able to appoint or choose directors who controls the board of Company B
• Company A holds 51% in Company B and Company B holds 100% in Company C (all three are
related and part of the same group)
• A company is a wholly-owned subsidiary of another juristic person if all of the shares are
held, alone or in combination, by the subsidiary(alone)/ subsidiaries(group).
4
Q
Solvency test:
A
• Assets fairly valued =/> Liabilities fairly valued
5
Q
Liquidity test:
A
• Company can pay its debts:
• As it becomes due
• In the normal course of business (i.e. going on with business as usual e.g. selling goods. i.e.
not having to sell their building and cars or obtain additional loans to pay their debt.)
• For a period of 12 months after the date of the test
• Current assets fairly valued =/> Current liabilities fairly valued
6
Q
Solvency and Liquidity tests are used when:
A
- Share capital reduction (Buying back shares)
- Share capitalisation
- Financial assistance for purchase of own shares
- Financial assistance to directors or related persons
- Declaring a dividend (distributions).
7
Q
Non-profit companies
A
- Formed for public benefit
- Except for reasonable compensation for services rendered, the income and property of these companies are not distributable to incorporators/members/directors/officers. -They apply their assets and income to advance their objectives
- They have a minimum of 3 incorporators
- They have a minimum of 3 directors
8
Q
Profit companies
A
• State- owned companies (SOC) • Public companies (Ltd) -Minimum of one incorporator -Minimum of 3 directors • Private companies (Pty (Ltd)) -When its MOI prohibits it from offering any securities to the public -When its MOI restricts the transferability of its securities -Minimum of one incorporator -Minimum of one director • Personal liability companies (Inc.) -When it meets the criteria of a private company, but its MOI states that it is a personal liability company
9
Q
The MOI may include:
A
Any provision dealing with a matter that the Companies Act does not address
• Any provision altering the effect of any “alterable” provision of the Companies Act (this
means provisions that are allowed to be altered)
• Any provision imposing on the company a higher standard, greater restriction, longer period
of time or any similarly more onerous requirement, than would otherwise apply to the
company in terms of an unalterable provision of the Companies Act.
• Restrictive conditions applicable to the company and extra requirements for the
amendment of these conditions, in addition of the requirements for amendments of MOIs in
Section 16
• Prohibit the amendment of any particular provision of the MOI
10
Q
Except to the extent that a company’s MOI provides otherwise, the board of a company may make, amend or repeal any necessary or incidental rules relating to the governance of the company in respect of matters that are not addressed in the Companies Act or MOI:
A
- By publishing a copy of those rules, in any matter required by the MOI and filing a copy of those rules
- The rule takes effect on the date that is the later of 10 business days after the rule is filed, or the date specified in the rule
- The rule is binding on an interim basis until it is put to a vote at the next General Shareholders Meeting of the company and on a permanent basis only if it has been ratified by an ordinary resolution at the General Shareholders Meeting of the company
- If the rule that has been filed is ratified as contemplated above, the company must file a notice of ratification within 5 business days in the prescribed manner or form
- If the rule that has been filed is not ratified, the company must file a notice of non- ratification within 5 business days in the prescribed manner or form and the company’s board may not make a substantially similar rule within the next 12 months, unless it has been approved in advance by ordinary resolution of the shareholders.
- Any failure to ratify the rules of the company does not affect the validity of anything done in terms of those rules during the interim period
11
Q
Amending the Memorandum of Incorporation:
A
• A MOI may be amended
o Incompliancewithacourtorderor
o ByfilingaNoticeofAmendmentofitsMOIsettingoutchanges(sharessec36)or
o At any time if a special resolution to amend it is proposed by the board of the company
or the shareholders exercise at least 10% of the voting rights that may be exercised on
such a resolution and
o Isadoptedatashareholdersmeeting
• A company’s MOI may provide other requirements than those above
• If a non-profit company has no voting members they can use a special resolution as proposed by
the board of the company
• An amendment required by court order must be effected by a resolution of the company’s board
and doesn’t require a special resolution
• An amendment by special resolution may take the form of a new MOI or an alteration to the
existing MOI
• If the alteration places the company into a new category of profit company, the company needs
to amend its name to match the new category
• The company needs to file the Notice of Amendment together with the prescribed fee within the
prescribed timeframe. The commission may require the company to file a full copy of its MOI.
• If a company amends its name it will be issued with an amended registration certificate and
updated in the companies register
• If a person is entitled to receive a notice of amendment, they may apply to a court for protection
of their interests
12
Q
Pre-Incorporation contracts:
A
• Means that business does not yet exist (still intends to incorporate the company)
• Must be in writing
• If the company is not incorporated , the person who entered the contract will be personally
liable
• If, after its incorporation, the company enters into an agreement on the same terms as, or in
substitution for, the previous agreement, the liability for those persons are discharged
because of the new agreement
• After incorporation the directors have 3 months to ratify or reject the pre-incorporation
contract
• After 3 months have expired the contract becomes automatically ratified
• If the contract is rejected the person who entered the contract will be liable, but may also
claim any benefits already received, or is entitled to receive from the company
• If the board of a company has completely or partially rejected the contract, or completely
or partially ratified the pre-incorporation contract, the company must within 5 business days
file a notice of its decision with respect to that contract to CIPC and
• Deliver a copy of that notice to each person who is a party to the contract or is materially
affected by the action
13
Q
Reckless trading:
A
- A company may not trade recklessly, with gross negligence, with intent to defraud any person or for any fraudulent reasons or under insolvent circumstances
- If the Commission has reasonable grounds to believe that a company is engaging in conduct prohibited by above, or is unable to pay its debts as they become due, the Commission ma issue a notice to the company to show cause why the company should be permitted to continue carrying on its business
- If that company fails withing 20 days to satisfy the Commission that it is not engaging in conduct prohibited by above or that it is able to pay its debts as they become due, the Commission may issue a compliance notice to the company requiring it to cease carrying on business
14
Q
All company records must be kept:
A
In written format
• For 7 years (if company has existed for a shorter time, the company is required to retain
records for that shorter time)
15
Q
Every company must maintain (Also for 7 years):
A
• A copy of its MOI and any amendments or alterations to it, and any rules the company made in terms of Section 15
• A record of its directors including, in respect of each director, that person’s: -Full name and any former names
-ID Number/Date of birth
-Nationality and passport number – only if the person is not South African -Occupation
-Date of their most recent election or appointment as director of the company
-Name and registration number of every other company or foreign company of which the person is a director, and in case of a foreign company, the nationality of that company -Any other prescribed information
-With respect to past directors, the information required above should also be kept for 7 years after retirement
• Copies of all:
-Annual financial statements
-Reports presented at Annual General Meetings (AGM) -Accounting records required by this act
• Notice and minutes of all shareholders meetings including all resolutions adopted by them and any document that was made available by the company to the holders of securities in relation to such resolution
• Copies of any written communications sent generally to all holders of any class of securities, for period of 7 years
• Minutes of all meetings and resolutions of directors, or director’s committees, or the audit committee
• A securities register or its equivalent, in case of a profit company, or a member’s register in the case of a non-profit company that has members
• To protect personal privacy, the Minister, by notice in the government Gazette, may exempt Directors having to give their former names from before attaining majority, been adopted, got married, divorced or widowed.
16
Q
Financial statements must:
A
• Satisfy the financial reporting standards as to form and content, if any such standards are prescribed
• Provide a reasonable representation of the company’s business
• Explain the financial position and transactions of the company
• Set out the date on which the statements were published, and the accounting period to
which the statements apply
• State whether the financials have been audited/reviewed/neither
• State the name and capacity of the person who prepared the financials
• May not be incomplete, false or misleading
• Annual financial statements must be prepared within 6 months of each year end
17
Q
The following Financial Statements must ALWAYS be audited by a Registered Auditor:
A
• All state owned companies (SOC)
• All public companies (Ltd)
• All companies who holds assets in a fiduciary capacity (i.e. assets that are held for other
persons such as consignment stock, deposits, trust monies etc.) that exceeds R5 million
18
Q
The other companies should calculate their Public Interest Score:
A
• 1 point for every R1 million in turnover, or part thereof
• 1 point for every R1 million in 3rd party liabilities, or part thereof (NB! Not all liabilities should
be included, only 3RD PARTY liabilities)
• 1 point for every known security holder (such as shareholders)
• 1 point for every 1 employee employed on average during the year
19
Q
PI Score of 350 or more:
A
• Must be audited! (RA)
20
Q
PI Score of more than 100, but less than 350:
A
- Is the financial statements compiled by a person that works for the company?
- If yes, then must be audited (RA)
- If no, then: Is all the shareholders also directors?
- If no then must be independently reviewed (RA/CA(SA))
- If yes then no audit/review is required
21
Q
PI Score of less than 100:
A
- Is all the shareholders also directors?
- If no then must be independently reviewed (RA/CA(SA))
- If yes then no audit/review is required
22
Q
Companies can elect to have a voluntary audit as per:
A
- MOI requirement
- Shareholders’ resolution or
- Board resolution
23
Q
The annual financial statements of a company must:
A
• Include and auditor’s/independent reviewer’s report
• Include a report by the directors
• Be approved by the board and signed by an authorised director
• Be presented to the first shareholders meeting after the statements have been approved by
the board
24
Q
The annual financial statements of a company must include:
A
• The remuneration paid by the company to or receivable by current or past directors or individuals holding any prescribed office in the company
-Remuneration includes:
-fees paid to directors/ prescribed officers for services rendered by them or on behalf of the company; including any amount paid to a person in respect of the person accepting the office of director
-salary, bonuses and performance-related payments
-expense allowances, to the extent that the director is not required to account for the allowance
-financial assistance to a director, past director, future director or any person related to them, for the subscription of options or securities, or the purchase of securities of the company or any inter-related company
-any loan or other financial assistance granted to a director, past director, future director or any person related to them, or securing a loan, debt or other obligation for that person that has a loan/debt at a third party.
• The amount of pension paid by the company or payable to current or past directors or individuals who hold or have held any prescribed office in the company
• Any amount paid or payable by the company to a pension scheme with respect to current or past directors or individuals who hold or have held any prescribed office in the company
• The amount of any compensation paid in respect of loss of office to current or past directors
or individuals who hold or have held any prescribed office in the company
• The number and class of any securities issued to a director or person holding any prescribed
office in the company, or to any person related to them, and the consideration received by
the company for those securities
• Details of service contracts of current directors and individuals who hold any prescribed
office in the company
25
Par-value shares:
Also called the nominal/face value shares. The par value of a share represents the minimum amount that must be paid per share. The difference between par and no par value stocks, therefore, is the presence or absence of this baseline valuation.
26
Par-value shares requirments
• A company may not issue shares to itself
• An authorised share of a company has no rights associated with it until it has been issued
• Shares that have been acquired by the company (bought back – NOT ISSUED), have the same
status as shares that have been authorised but not issued. They have no voting rights
• A share issued by a pre-existing company, and held by the shareholder immediately before
the effective date, continues to have all the rights associated with it before the effective date, irrespective of whether those rights existed in terms of the company’s MOI or Act, subject only to:
-Amendments to the company’s MOI after the effective date
-The same rules for when the company acquires its own shares or a holding company’s shares
27
Authorisation for shares:
| A company’s MOI:
```
• Must set out the classes of shares and the number of authorised shares in each class
• Must set out, with respect to each class of shares:
-A distinguishing designation for that class (i.e. Ordinary/Preference shares)
-The preferences, rights, limitations and other terms associated with that class
• May authorise a stated number of unclassified shares
• May set out a class of shares:
-Without specifying the associated preferences, rights, limitations and other terms associated with that class
-Which must not be issued until the board of the company has determined the associated preferences, rights, limitations and other terms associated with that class
```
28
The amendment of the company’s MOI to change the authorisation, classification or number of shares can be done by means of:
A special resolution of the shareholders
A decision by the company’s board
The board may (unless prohibited by the MOI):
• Increase/decrease the number of authorised shares of any class of shares
• Reclassify any unissued, authorised shares
• Classify unclassified shares
• Determine the preferences, rights, limitations and other terms of authorised shares
• This is done through a board resolution
NB!!! In both cases the company must file a Notice of Amendment of the MOI
29
Preferences, rights, limitations and other share terms:
* All the shares of a particular class must have the same preferences, rights, limitations and other terms
* Each issued share, regardless of its class, has associated with it one general voting right, subject to the provision of the Companies Act and the MOI.
30
Rights refer to:
• Control rights – which relate to voting rights at meetings
• Financial rights – which relate to the right to dividends and the right to any excess upon
liquidation
31
The “provisions of the Act” mentioned above are as follows:
* If there is only one class of shares, those shares must have voting rights in respect of all voting matters and must be entitled to the surplus at liquidation
* If there is more than one class of shares, the MOI must provide that at least one class of shares must have voting rights in respect of all voting matters. Further, at least one class of shares (not necessarily the voting class) must be entitled to the surplus at liquidation (the monetary value available after liquidation)
* Shares with limited voting rights will, irrespective of the provisions of the MOI, nevertheless have voting rights on any proposal to amend the rights associated with that share
32
Subject to any other law, a company’s MOI may establish, for any particular class of shares, preferences, rights, limitations or other terms that:
• Confer special, conditional or limited voting rights
• Provide for shares of that class to be redeemable or convertible as specified in the MOI
-At the option of the company, the shareholder, or another person at any time, or upon the occurrence of any specified contingency
-For cash, indebtedness, securities or other properties
-At prices and in amounts specified, or determined in accordance with a formula
• Entitle the shareholders to distributions calculated in any manner, including dividends that may be cumulative, non-cumulative, or partially cumulative
• Provide for a class of shares to have preference over any other class of shares with respect to distributions, or rights upon the final liquidation of the company
33
If the MOI has been amended to materially and adversely alter the preferences, rights, limitations or other terms of a class of shares, any holder of those shares is entitled to seek relief if that shareholder:
* Notified the company in advance of the intention to oppose the resolution to amend the MOI; and
* Was present at the meeting, and voted against that resolution
34
If the MOI has been amended to materially and adversely alter the preferences, rights, limitations or other terms of a class of shares, any holder of those shares is entitled to seek relief if that A person:
• Acquires the rights associated with any particular securities of a company
-when that person’s name is entered in the company’s certificated securities register; or -as determined in accordance with the rules of the Central Securities Depository, in case of uncertificated securities
• Ceases to have the rights associated with any particular securities of a company
-when the transfer to another person, re-acquisition by the company, or surrender to the company has been entered in the company’s certificated securities register; or
-as determined in accordance with the rules of the Central Securities Depository, in case of uncertificated securities
35
Issuing shares:
• The board of directors has the authority to issue shares in as far as those shares are authorised in the MOI of the company
• This decision is exercised by means of a board resolution
• Unless: if the shares are issued to a director/future director or a prescribed officer/future
prescriber officer, or to a person related to them, then a special resolution is required
36
If a company issues shares:
• That have not been authorised; or
• Exceed the number of authorised shares according to the MOI
• Then the issuance of those shares may be retroactively authorised by means of a special
resolution within 60 days after the date on which the shares were issued
37
If a resolution seeking to retroactively authorise an issue of shares is not passed (not adopted when put to a vote) then:
* All shares issued that exceeds authorisation is not valid/nullified
* Subscribers must be repaid (including interest)
* Share certificates are nullified
* Entries in share register is void
* Any director who was party to such an issue may be held liable for losses suffered by the company due to the invalid issue
38
Subscription of shares:When a public company or personal liability company proposes to issue shares, the existing
shareholders have a right before others to subscribe for a percentage of shares offered:
* Equal to the voting power immediately before the offer (for example 35%)
* Within reasonable time
* Subject to any limitations, negations, restrictions or other conditions in the MOI
39
Except to the extent that a private or personal liability company’s MOI provides otherwise:
• A shareholder may subscribe for fewer shares than he/she is entitled to
• Shares not subscribed for within a reasonable time may be offered to other persons to the
extent permitted by the MOI
40
The board of a company may issue authorised shares only:
* for adequate consideration to the company, as determined by the board
* in terms of conversion rights associated with previously issued securities of the company; or
* as a capitalisation share as contemplated in section 47
41
Distributions can be in the form of:
```
• Dividends
• Capitalisation shares
• The company buying back its own shares
• A subsidiary acquiring shares
• Incurrence of a debt or other obligation by the company for the benefit of a
shareholder/subsidiary
• Forgiveness/waiver by the company of a debt or other obligation owed to the company by a
shareholder/subsidiary
```
42
The following requirements should be met for Distributions to be authorised by the board:
• The distribution must be a court order/authorised by means of a board resolution
• The board of the company, by means of a board resolution, must acknowledge that it has
applied the solvency and liquidity test and reasonably concluded that the company will satisfy the solvency and liquidity test immediately after completing the proposed distribution
• The company then has 120 days to make the distribution
• If it is not done within 120 days, the solvency and liquidity tests must be repeated with
respect to the remaining distribution
43
If, after considering(Distributions to be authorised by the board:) the solvency and liquidity test, it appears to the company that this section prohibits its immediate compliance with a court order
• The company may apply to a court for an order varying the original order; and
• The court may make an order that
-is just and equitable, having regard to the financial circumstances of the company; and -ensures that the person to whom the company is required to make payment i.t.o the original court order is paid at the earliest possible date compatible with the company satisfying its financial obligations as they fall due and payable
44
If these requirements for Distributions to be authorised by the board: are not adhered to:
* The directors responsible for an invalid distribution, i.e. those directors who, despite knowing that the requirements were not satisfied, had nevertheless voted for or had assented to the authorisation of the distribution
* Would be personally liable to restore to the company the amount of the unlawful distribution less the amount, if any, that is recovered by the company from the persons to whom the distribution was made
45
Company or subsidiary acquiring company’s shares:
• The board of a company may decide that the company will acquire a number of its own shares (share buy-backs), by means of a board resolution
• A board of a subsidiary company may decide that it will acquire shares of its holding company by means of a board resolution, but:
-It may not be more than 10% of the number of issued shares of any class of shares held by all of the subsidiary companies, taken together
-It also has no voting rights
• If the shares are bought back from a director or from a prescribed officer, or a person related to a director or prescribed officer, then a special resolution is required
• The company/subsidiary of the company may not acquire shares of the company if, as a result of that acquisition, there are no longer shares in issue other than
-shares held by one or more subsidiaries of the company
-convertible or redeemable shares
• The company must meet the requirements for distributions (Section 46) before buying back shares
46
Securities register and numbering:
| Every company must:
* Establish a register of its issued securities in the prescribed form; and
* Maintain its securities register in accordance with the prescribed standards
47
After issuing securities a company must enter in its securities register, in respect of every class of securities that it had issued:
• The total number of those securities that are held in uncertificated form
• With respect to certificated securities
-the names and addresses of the persons to whom the securities were issued
-the number of securities issued to each of them
-the number of, and prescribed circumstances relating to, any securities that have been placed in a trust or whose transfer has been restricted
If a company has issued uncertificated securities, or has issued securities that have ceased to be certificated, a record must be administered and maintained by a participant or Central Securities Depository in the prescribed form, as the company’s uncertificated securities register, which forms part of that company’s securities register
Unless all the shares of a company rank equally for all purposes, the company’s shares, or each class of shares, and any other securities, must be distinguished by an appropriate numbering system
48
A certificate evidencing any certificated securities of a company:
• Must state on its face
-the name of the issuing company
-the name of the person to whom the securities were issued
-the number and class of shares
-any restriction on the transfer of the securities evidenced by that certificate
• Must be signed by 2 persons authorised by the company’s board; and
• Is proof that the named security holder owns the securities, in absence of evidence to the
contrary
The signature contemplated above may be affixed to or placed on the certificate by autographic, mechanical or electronical means
A certificate remains valid despite the subsequent departure from office of any person who signed it
49
A company must enter into its securities register every transfer of any certificated securities, including in the entry:
* The name and address of the transferee
* The description of the securities or interest transferred
* The date of the transfer
50
A company may make an entry of the transfer only if the transfer:
* Is evidenced by a proper instrument of transfer that has been delivered to the company; or
* Was effected by operation of law
51
A person who wishes to withdraw all or part of the uncertificated securities held by that person in an uncertificated securities register, and obtain a certificate in respect of those withdrawn securities, may so notify the relevant participant or Central Securities Depository, which must within 5 business days:
* Notify the relevant company to provide the requested certificate; and
* Remove the details of the uncertificated securities from the uncertificated securities register
52
After receiving the notice of the participant or Central Securities Depository, as the case may be, a company must:
• Immediately enter the relevant person’s name and details of that person’s holding of securities in the company’s securities register and indicate on the register that the securities so withdrawn are no longer held in uncertificated form; and
• Within business days (or 20 business days in the case of a security holder who is not resident within the Republic):
-prepare and deliver to the relevant person a certificate in respect of the securities; and -notify the Central Securities Depository that the securities are no longer held in uncertificated form
*A company may charge the holder of the security a reasonable fee to cover the actual costs of issuing a certificate, as contemplated in this section
53
If a profit company, other than a state-owned company, has only one shareholder:
* That shareholder may exercise any or all of the voting rights pertaining to that company on any matter, at any time, without notice or compliance with any other internal formalities, except to the extent where the MOI provides otherwise
* Sections 59 – 65 do not apply to the governance of that company
54
If a profit company, other than a state-owned company, has only one director:
* That director may exercise any power or perform any function of the board at any time, without notice or compliance with any other internal formalities, except to the extent where the MOI provides otherwise
* Sections 71 (3) to (7), 73 and74 do not apply to the governance of that company
55
If every shareholder of a particular company, other than a state-owned company, is also a director
of that company:
• Any matter that is required to be referred by the board to the shareholders for decision may be decided by the shareholders at any time after being referred by the board, without notice or compliance with any other internal formalities, except to the extent where the MOI provides otherwise, provided that
-every such person was present at the board meeting when the matter was referred to them in their capacity as shareholders
-sufficient persons are present in their capacity as shareholders to satisfy the quorum requirements
-a resolution adopted by those persons in their capacity as shareholders has at least the support that would have been required for it to be adopted as an ordinary or special resolution, at a properly constituted shareholders meeting
• When acting in their capacity as shareholders, those persons are not subject to the provisions of section 73 – 78 relating to duties, obligations, liabilities and indemnification of directors
The board of a company that holds any securities of a second company may authorise any person to act as a representative at any shareholders meeting of that second company
That person acting as the company’s representative may exercise the same powers as the authorising company could have exercised if it were an individual holder of securities
56
At any time, a shareholder of a company may appoint any individual (including an individual who is not a shareholder of that company) as a proxy to:
• Participate in, and speak and vote at, a shareholders meeting on behalf of the shareholder
• Give or withhold written consent on behalf of the shareholder regarding voting rights that
are done in writing
57
A proxy appointment:
• Must be done in writing, dates and signed by the shareholder; and
• Remains valid for
-one year after the date on which it was signed; or
-any longer/shorter period expressly set out in the appointment, unless it is revoked or expires earlier, as explained below
58
Except to the extent that the MOI provides otherwise:
* A shareholder may appoint 2 or more persons concurrently as proxies, and may appoint more than one proxy to exercise voting rights attached to different securities held by the shareholder
* A proxy may delegate the proxy’s authority to act on behalf of the shareholder to another person, subject to any restriction set out in the appointment of the proxy
* A copy of the appointment of the proxy must be delivered to the company before the proxy exercises any rights of the shareholder at a shareholders meeting
59
Irrespective of the form of instrument used to appoint a proxy:
• The appointment is suspended at any time the shareholder chooses to act directly and in person in the exercise of any rights as a shareholder
• The appointment is revocable unless stated otherwise in the proxy appointment; and
• If the appointment is revocable, a shareholder may revoke the proxy appointment by
-cancelling it in writing, or making a later inconsistent appointment of a proxy; and -delivering a copy of the revocation instrument to the proxy and the company
60
The company must deliver a notice of each shareholders meeting to all shareholders at least:
• 10 business days before the meeting is to begin
• 15 business days before the meeting is to begin (only for public and non-profit companies
that has voting members)
• A company’s MOI may provide for longer/shorter minimum notice periods
61
A company may call a meeting with less notice than required by the Companies Act or its MOI, but such a meeting may only proceed if every person who is entitled to exercise voting rights in respect of any item on the meeting agenda:
* Is present at the meeting; and
| * Votes to waive the required minimum notice of the meeting
62
A notice of a shareholders meeting must be in writing and must include:
• The date, time and place of the meeting
• The purpose of the meeting
• A copy of the proposed resolutions, and the percentage of votes required for that resolution
to be adopted
• In the case of an Annual General Meeting of the company
-the financial statements to be presented or a summarised form thereof -directions for obtaining a copy of the complete annual financial statements for the preceding financial year
• A reasonably prominent statement that the shareholder is entitled to appoint a proxy
• That the shareholders must provide identification at the meeting
If there was a material defect in the giving of notice of the shareholders meetings, the meeting may proceed, only if every person who is entitled to exercise voting rights in respect of any item on the meeting agenda is present at the meeting and votes to approve the ratification of the defective notice
If the material defect relates only to one or more particular matters on the agenda for the meeting, any such matter may be severed from the agenda, and the notice remains valid with respect to any remaining matters on the agenda, OR the meeting may proceed to consider the severed matter if every person who is entitled to exercise voting rights in respect of that matter is present at the meeting and votes to approve the ratification of the defective matter
An immaterial defect in the giving of notice of the shareholders meetings, or an accidental or inadvertent (not resulting from or achieved through deliberate planning) failure in delivery of the notice to any particular shareholder to whom it was addressed, does not invalidate any action taken at the meeting
63
A shareholder who is present at a meeting, either in person or by proxy:
• Is regarded as having received or waived notice of the meeting, if at least the required minimum notice was given
• Has a right to
-allege a material defect in the form of notice for a particular item on agenda for the meeting; and
-participate in the determination whether to waive the requirements for notice if less than the required minimum notice was given, or to ratify a defective notice
64
Conduct of meetings:Unless prohibited by the MOI, a company may provide for:
• A shareholders meeting to be conducted entirely by electronic communication; or
• One or more shareholders/proxies to participate by electronic communication in all or part
of a shareholders meeting that is being held in person
• AS LONG AS THE ELECTRONIC CUMMUNICATION EMPLOYED ENABLES ALL PERSONS
PARTICIPATING IN THE MEETING TO COMMUNICATE CONCURRENTLY WITH EACH OTHER WITHOUT AN INTERMEDIARY, AND TO PARTICIPATE REASONABLY EFFECTIVELY IN THE MEETING
65
If a company provides for participation of a meeting through electronic communication:
* The notice of that meeting must inform shareholders of the availability of that form of participation, and provide any necessary information to enable shareholders/proxies to do so
* Access to the electronic communication is at the expense of the shareholder/proxy, except to the extent that the company determines otherwise
66
Voting at a shareholders meeting may be done either by show of hands, or by polling:
* Show of hands – any person who is present at the meeting , whether as shareholder/proxy, and is entitled to exercise voting rights has ONE vote, regardless of the voting rights associated with their securities held
* Polling – any person who is present at the meeting , whether as shareholder/proxy, has the number of votes determined in accordance with the voting rights associated with the securities held
67
Despite wat the MOI says, a polled vote must be held if a demand for such a vote is made by:
• At least 5 persons having the right to vote on that matter
• A person who is, or persons who together are, entitled to exercise at least 10% of the voting
rights on this matter
68
Meeting quorum and adjournment:
| THIS SECTION DOES NOT APPLY TO THE GOVERNANCE 0F A COMPANY WITH ONLY ONE SHAREHOLDER
A shareholders meeting may not begin until at least 25% of shareholders who are able to vote are present (meeting quorum)
A matter to be decided at the meeting may not begin until at least 25% of the shareholders who are able to vote on THAT matter is present (voting quorum)
A company’s MOI may specify a lower or higher percentage in place of the 25% required on both the above
Despite the percentage figures set out in the Companies Act or MOI, if a company has more than 2 shareholders, a meeting may not begin, or a matter begin to be debated, unless at least 3 shareholders are present at the meeting
69
If, within one hour after the appointed time for a meeting to begin, the requirements of the Companies Act or MOI, if applicable:
• For that meeting to begin have not been satisfied, the meeting is postponed for ONE week without motion, vote or further notice
• For that particular matter to begin have not been satisfied
-if there is other business on the agenda of the meeting, consideration of that matter may be postponed to a later time in the meeting without motion or vote; or
-if there is no other business on the agenda of the meeting, the meeting is adjourned for ONE week, without motion or vote
70
The person intended to preside at the meeting that cannot begin due to the meeting and voting quorum not being met, may extend the one-hour limit for a reasonable period on the grounds that:
* Exceptional circumstances affecting weather, transportation or electronic communication are delaying or preventing the ability of shareholders to be present at the meeting
* One or more shareholders, having been delayed, have communicated an intention to attend the meeting, and those shareholders, together with others in attendance, would satisfy the meeting and voting quorum
71
The MOI may specify a different time in substitution for:
• The one hour waiting period
• The one week postpone period
A company is not required to give further notice of a meeting that is postponed or adjourned, unless the location of the meeting is different from the location of the original meeting or a location announced at the time of adjournment (in the case of an adjourned meeting)
If, at the time of a postponed meeting to begin, or adjourned meeting to resume, the meeting/voting quorum have not been satisfied, the shareholders (or in the case of a non- profit company – members) of the company present in person/proxy will be deemed to constitute a quorum
Unless the company’s MOI or rules provide otherwise, after a quorum has been established for a meeting, or a matter to be considered at a meeting, the meeting may continue, or the matter may be considered, so long as at least one shareholder with voting rights entitled to be exercised at the meeting, or on that matter, is present
72
A shareholders meeting, or the consideration of any matter being debated at the meeting, may be adjourned without further notice on a motion supported by persons entitled to exercise, in aggregate, a majority of the voting rights:
• Held by all of the persons who are present at the meeting at the time; and
• That are entitled to be exercised on at least one matter remaining on the agenda of the
meeting, or on the matter under debate, as the case may be
73
An adjournment of a meeting, or of a consideration of a matter being debated at the meeting, as above may be either (as agreed at the meeting):
* To a fixed time and place; or
| * Until further notice ( this requires a further notice to be given to shareholders)
74
Ordinary resolutions
For an ordinary resolution to be approved by shareholders, it must be supported by more than 50% of the voting rights exercised on the resolution
75
Special resolutions
For a special resolution to be approved by shareholders, it must be supported by more than 75% of the voting rights exercised on the resolution
76
A company’s Memorandum of Incorporation may permit
o adifferentpercentageofvotingrightstoapproveanyspecialresolution;or
o oneormoredifferentpercentagesofvotingrightstoapprovespecialresolutionsconcerning
one or more particular matters, respectively,
o providedthatamarginofatleast10%mustbemaintainedatalltimesbetweenthe highest established requirement for approval of an ordinary resolution on any matter, and the lowest established requirement for approval of a special resolution, on any matter.
77
A special resolution is required to
• Amend the company’s Memorandum of Incorporation
• Ratify a consolidated revision of a company’s Memorandum of Incorporation
• Ratify actions by the company or directors when they are limited by the MOI ( as long as it
doesn’t contradict the Act)
• Approve an issue of shares or securities to a director/future director or a prescribed
officer/future prescriber officer, or any person related to them
• Approve a decision of the board for re-acquisition of shares from a director/future director
or a prescribed officer/future prescriber officer, or any person related to them
• Authorise the basis for compensation to directors of a profit company
• Approve the voluntary winding-up (liquidation) of the company
• Approve an application to transfer the registration of the company to a foreign jurisdiction
• Approve any proposed fundamental transaction (like disposing of greater part of assets,
proposal for amalgamation/merger or proposals for scheme of arrangement)
• Any other matter that requires a special resolution according to the company’s MOI
78
Board, directors and prescribed officers:
Board – means the board of directors
Ex officio members of a board are serving on the board “by reason of their office,” rather
than by being elected or appointed to the position. For example, the CEO often serves on the board “ex officio.” If a CEO serves as a director “ex officio,” the CEO’s director’s position is tied to the office of the CEO rather than the individual. For example, if the individual serving as the CEO resigns, his or her replacement automatically assumes the CEO’s position on the board.
An alternate director is a person who is appointed to attend a board meeting on behalf of the director of a company where the principal director would be otherwise unable to attend.
79
Number of directors:
```
Private company [(Pty) Limited] 1
Personal liability company (Inc.) 1
Public company (Limited) 3
State-owned company (SOC Limited) 3
Non-profit company (NPC) 3
```
*A company’s MOI may provide for a higher number
80
A company’s MOI may provide for:
• The direct appointment/removal of one or more directors by any person who is named in the MOI
• A person to be an ex officio director of a company as a consequence of that person holding some other office, title or designation
• The appointment or election of one or more persons as alternate directors of the company
In the case of a profit company (other than a state-owned company), the MOI must provide
that the shareholders elect at least 50% of the directors, and 50% of any alternate directors
81
A person that is an “ex officio” director of the company:
* May not serve or continue to serve as an ex officio director, despite holding the relevant office, if that person is or becomes ineligible or disqualified
* Has all the powers and functions of any other director of the company, except to the extent that the MOI restricts the powers, functions or duties of the ex officio director
* Is subject to all the same liabilities as the other directors
82
A person becomes entitled to serve as a director of a company when that person:
* Has been appointed or elected in accordance with this part, or holds an office, title or designation entitling that person to be an ex officio director of the company
* Has delivered to the company a written consent to serve as its director
83
Except to the extent that the MOI provides otherwise:
• The company may pay remuneration to its directors for their service as directors, BUT
• May only do so in accordance with a special resolution approved by shareholders within the
previous two years
• In other words – the special resolution must have been in working for two years before the
director can be paid for his services
84
First director/directors:
Incorporators = First directors
| Will serve until sufficient other directors have been appointed
85
Election of directors of profit companies:
Unless the MOI provides otherwise, in any election of directors:
• The election is to be done by shareholders
• The election must be voted on a single individual to fill a single vacancy
• Each voting right entitled to be exercised may be exercised once
• The vacancy is only filled if the majority of the votes support the candidate
• The MOI may have additional requirements
86
A person is ineligible to be a director of a company if that person:
* Is a juristic person
* Is an unemployed minor
* Does not satisfy the extra requirements set out in the MOI
87
A person is disqualified to be a director of a company if that person:
• Is prohibited by court to be a director
• Is a delinquent (perpetrator/felon)
• Is an unrehabilitated insolvent
• Is prohibited in terms of public regulation
• Has been removed from office due to misconduct that involved dishonesty
• Has been convicted and imprisoned without option of a fine for theft, fraud, forgery, perjury
or other offences
• Does not satisfy the extra requirements set out in the MOI
88
A disqualification because of the removal from office due to misconduct that involved dishonesty or conviction and imprisonment without option of a fine for theft, fraud, forgery, perjury or other offences, ends at the LATER of:
• Five years after the date of removal from office, or the completion of the sentence imposed for the relevant offence; OR
• At the end of one or more extensions, as determined by a court
-At any time before the expiry of the disqualification (5 years), the Commission may apply to a court for an extension of no more than 5 years at a time, if the court is satisfied that an extension is necessary to protect the public
• The commission must maintain a public register of persons who are disqualified from serving as a director, or who are subject to an order of probation as a director
89
Vacancies on the board:
| A person ceases to be a director, and a vacancy arises on the board of a company:
• When the person’s term of office as director expires, in the case of a company whose MOI provides for fixed terms
• If the person -resigns or dies
-in the case of an ex offıcio director, ceases to hold the office, title or designation that entitled the person to be an ex officio director
-becomes incapacitated to the extent that the person is unable to perform the functions of a director, and is unlikely to regain that capacity within a reasonable time
-becomes ineligible or disqualified
-is removed by resolution of the shareholders or board, or by order of the court
90
If the board of a company has removed a director, a vacancy on the board does not arise until the LATER of:
* The time for filing an application for review at the court has expired; OR
* The court has granted order on such an application
* THE DIRECTOR IS SUSPENDED FROM OFFICE DURING THAT TIME
91
If a vacancy arises on the board, other than as a result of an ex officio director ceasing to hold that office, it must be filled by:
• A new appointment, if the director was appointed in the MOI
• By a new election conducted at the next AGM of the company, if the company is required to
hold such a meeting, or within six months after the vacancy arose
-at a shareholders meeting called for the purpose of electing the director
-by a poll of the persons entitled to exercise voting rights in an election of the director
• Every company must file a notice within 10 business days after a person becomes or ceases to be a director of the company.
92
Removal of directors:
• A director may be removed by an ordinary resolution of the shareholders, unless the MOI states otherwise
93
Before the shareholders of a company may consider an ordinary resolution contemplated above:
* The director concerned must be given notice of the meeting and the resolution, at least equivalent to that which a shareholder is entitled to receive (in other words 10/15 days, depending on the type of company)
* The director must be granted an opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote.
94
If a company has more than TWO directors, and a shareholder or director alleges that a director of the company:
• Has become ineligible or disqualified
• Is incapacitated to perform the functions of a director, and is unlikely to regain that capacity
within a reasonable time
• Has neglected, or been derelict in the performance of the duty as director
THEN
• The board must consider this allegation
• The board (excluding the director concerned) may vote on the removal of the director
• The director must still must be given notice of the meeting setting out reasons for board
resolution, with sufficient information for director to prepare and present a response
• The director must still be granted an opportunity to make a presentation, in person or
through a representative, to the meeting, before the board resolution is put to a vote
A director removed by the board after the said allegation may apply to court for a review within 20 days
If a director was NOT removed by the board after the said allegation, the person who made the allegation, or voted for his removal, may apply to court for a review within 20 days
The applicant must compensate the company, and any other party, for costs incurred in relation to the application, unless the court reverses the decision of the board.
95
Except to the extent that the MOI provides otherwise, the board of a company may:
* appoint any number of committees of directors
| * delegate to any committee any of the authority of the board
96
Except to the extent that the MOI of a company, or a resolution establishing a committee, provides otherwise, the committee
• may include persons who are not directors of the company, BUT
-any such person must not be ineligible or disqualified to be a director in terms of section 69 -no such person has a vote on a matter to be decided by the committee
• may consult with or receive advice from any person
• has the full authority of the board in respect of a matter referred to it
97
Board meetings:
A director authorised by the board of a company:
• May call a meeting of the board at any time
• must call such a meeting if required to do so by at least
-25% of the directors, in the case of a board that has 12 or more members -two directors, if there is less than 12 directors
-A company’s MOI may specify a higher or lower percentage or number
98
Except to the extent that this Act or a company’s Memorandum of Incorporation provides otherwise:
• A meeting of the board may be conducted by electronic communication
• One or more directors may participate in a meeting by electronic communication
• AS LONG AS THE ELECTRONIC CUMMUNICATION EMPLOYED ENABLES ALL PERSONS
PARTICIPATING IN THE MEETING TO COMMUNICATE CONCURRENTLY WITH EACH OTHER WITHOUT AN INTERMEDIARY, AND TO PARTICIPATE REASONABLY EFFECTIVELY IN THE MEETING
• Al directors must receive notice of the meeting
99
Except to the extent that the company’s MOI provides otherwise:
• If all of the directors of the company
- acknowledge actual receipt of the notice
- are present at a meeting;
- waive notice of the meeting
THEN - the meeting may proceed even if the company failed to give the required notice of that meeting, or there was a defect in the giving of the notice
• A majority (51% or more) of the directors must be present at a meeting before a vote may be called at a meeting of the directors (quorum)
• Each director has one vote on a matter before the board
• A majority (51% or more) of the votes cast on a board resolution is sufficient to approve that
resolution
• In the case of a tied vote (50%)
-the chairman may cast a deciding vote, if the chairman did not initially have or cast a vote -the matter being voted on fails, in any other case
A company must keep minutes of the meetings of the board, and any of its committees
Any minutes of a meeting, or a resolution, signed by the chair of the meeting, or by the chair
of the next meeting of the board, is evidence of the proceedings of that meeting, or adoption of that resolution, as the case may be
100
Resolutions adopted by the board:
* must be dated and sequentially numbered
| * are effective as of the date of the resolution, unless the resolution states otherwise
101
Directors acting other than at board meetings:
Except to the extent that the MOI provides otherwise, a decision that could be voted on at a meeting of the board of that company may instead be adopted by written consent of a majority (51% or more) of the directors, given in person, or by electronic communication, provided that each director has received notice of the matter to be decided
A decision made in this manner is of the same effect as if it had been approved by voting at a meeting
102
If a person is the only director of a company, but not the only shareholder of that company, that person may not:
* approve or enter into any agreement in which the person or a related person has a personal financial interest
* as a director, determine any other matter in which the person or a related person has a personal financial interest
* UNLESS the agreement or determination is approved by an ordinary resolution of the shareholders after the director has disclosed the nature and extent of that interest to the shareholders
103
If a company has more than one director, and one of the directors has a personal financial interest in respect of a matter to be considered at a meeting of the board, or knows that a
related person has a personal financial interest in the matter, that director:
• must disclose the interest and its general nature before the matter is considered at the meeting
• must disclose to the meeting any material information relating to the matter, and known to the director
• if requested, must disclose any observations or insights relating to the matter
• if present at the meeting, must leave the meeting immediately after making any disclosure
contemplated above
• must not take part in the consideration of the matter
• while absent from the meeting in terms of this subsection
- forms part of meeting quorum
- does not form part of voting quorum
• must not execute any document on behalf of the company in relation to the matter unless specifically directed to do so by the board
At any time, a director may disclose any personal financial interest in advance, by delivering to the board, or shareholders (in the case of the person being the only director), a notice in writing setting out the nature and extent of that interest, to be used generally for the purposes of this section until changed or withdrawn by further written notice from that director
If a director of a company acquires a personal financial interest in a matter in which the company has a material interest, or knows that a related person has acquired a personal financial interest in the matter, after the agreement or other matter has been approved by the company, the director must promptly disclose to the board, or to the shareholders (in the case of the person being the only director), the nature and extent of that interest, and the material circumstances relating to the director or related person’s acquisition of that interest
A court may declare a transaction or agreement that had been approved by the board, or shareholders, as the case may be, valid despite the failure of the director to satisfy the disclosure requirements of this section
104
A decision by the board, or a transaction or agreement approved by the board, or by the shareholders (in the case of a company having only one director), is valid despite any personal financial interest of a director or person related to the director, only if:
• it was approved following disclosure of that interest in the manner contemplated in this section; OR
• despite having been approved without disclosure of that interest
-has subsequently been ratified by an ordinary resolution of the shareholders following disclosure of that interest
-has been declared to be valid by a court
105
The most important statutory duties that directors owe to their company, are to:
• Act in good faith and for a proper purpose
• Act in the best interests of the company
• Avoid using their position as director or using corporate information to their own advantage
or knowingly cause harm to the company or its subsidiary
• Convey the company information that may be of importance to the company
• Exercise reasonable care, skill and diligence in the performance of their duties
• Declare any personal financial interest in a matter in which the company is interested
106
A company may not indemnify (protect against loss or damage) a director against a liability arising from:
• wilful misconduct or breach of trust by the director
• the director acting without the necessary authority
• reckless trading
• trading under insolvent circumstances
• fraudulent acts of the director
• a fine relating to an offence committed by the director (except in the case where a single
individual is the sole shareholder and sole director of that company, or two or more related individuals are the only shareholders of that company, and there are no directors of the company other than one or more of those individuals)
107
Mandatory appointment of company secretary:
A public company or state-owned company must appoint a company secretary
Every company secretary, irrespective of whether the appointment is made as required by
the Act or in terms of a requirement in a company's MOI
-must have the requisite knowledge of, or experience in, relevant laws; and
-be a permanent resident of the Republic, and remain so while serving in that capacity
108
The first company secretary of a public company or state-owned company may be appointed by:
• The incorporators of the company; or
• Within 40 business days after the incorporation of the company, by either
-the directors of the company; or
-an ordinary resolution of the shareholders
109
The first company secretary of a company that is required only in terms of its MOI to appoint a company secretary, must be appointed:
• The same as above, if the requirement to appoint a company secretary applies to that company when it is incorporated; or
• Within 40 business days after the date on which the requirement first applies to the company, by either-
-the directors of the company; or
-an ordinary resolution of the shareholders
Within 60 business days after a vacancy arises in the office of company secretary, the board must fill the vacancy by appointing a person whom the directors consider to have the requisite knowledge and experience
Notice of appointment must be filed within 10 business days
110
A juristic person or partnership may be appointed to hold the office of company secretary, provided that:
* every employee of that juristic person who provides company secretary services, or partner and employee of that partnership, as the case may be, satisfies the same requirements as to become a director (In other words – isn’t ineligible or disqualified)
* at least one employee of that juristic person, or one partner or employee of that partnership, as the case may be, must have the requisite knowledge of, or experience in, relevant laws; and be a permanent resident of the Republic, and remain so while serving in that capacity
A change in the membership of a juristic person/partnership that holds office as company secretary does not constitute a casual vacancy in the office of company secretary, if the juristic person or partnership continues to satisfy the requirements above
If at any time a juristic person/partnership that holds office as company secretary of a particular company no longer satisfies the requirements above - the juristic person/partnership must immediately notify the directors of the company and is regarded to have resigned as company secretary upon giving that notice to the company
The company is entitled to assume that the juristic person/partnership satisfies the requirements above, until the company has received a notice from the juristic person/partnership
Any action taken by the juristic person/partnership in performance of its functions as company secretary is not invalidated merely because the juristic person or partnership had ceased to satisfy the requirements at the time of that action.
111
Duties of the company secretary include the following (but are not restricted to):
* Provide directors with guidance with regard to their duties, responsibilities and powers.
* Make directors aware of any relevant law.
* Report any failure on the part of the company/director to the board in order to comply with the Act or the company’s Memorandum of Incorporation.
* Ensure that minutes of all meetings (shareholders, directors, board committees and audit committee) are properly recorded.
* Certify in annual financial statements that necessary returns and notices in terms of the Act have been filed and that they appear to be true, correct and up to date.
* Ensure that a copy of the annual financial statements is sent to all persons entitled to receive them.
112
A company secretary may resign from office by giving the company:
A company secretary may resign from office by giving the company:
• one month written notice; or
• less than one month written notice, with the approval of the board
If the company secretary is removed from office by the board, the company secretary may require the company to include a statement of reasonable length in its annual financial statements setting out the company secretary’s “opinion” as to the circumstances that resulted in the removal
If the company secretary wishes to exercise the power referred to above, the company secretary must give written notice to that effect to the company by not later than the end of the financial year in which the removal took place
The statement of the company secretary referred to above must be included in the directors’ report in the company’s annual financial statements
Notice of removal must be filed within 10 days
113
Appointment of auditor:
Upon its incorporation, and each year at its annual general meeting, a public company or state-owned company must appoint an auditor
Companies that are required in terms of its MOI to have its annual financial statements audited, or companies who volunteer for audit, must appoint an auditor at the annual general meeting at which the requirement first applies to the company, and each annual general meeting thereafter
114
To be appointed as an auditor of a company, a person or firm:
• must be a registered auditor
• must satisfy the same requirements as to become a director (In other words – isn’t ineligible
or disqualified)
• must not be
->a director or prescribed officer of the company
->an employee or consultant of the company who was or has been engaged for more than one year in the maintenance of any of the company’s financial records or the preparation of any of its financial statements
->a director, officer or employee of a person appointed as company secretary
->a person who, alone or with a partner or employees, habitually or regularly performs the duties of accountant or bookkeeper, or performs related secretarial work, for the company ->a person who, at any time during the five financial years immediately preceding the date of appointment, was a person contemplated in any of the above
->a person related to a person contemplated in any of the above
• must be acceptable to the company’s audit committee as being independent of the company
If a company appoints a firm as an auditor, the individual determined by that firm to be responsible for performing the functions of auditor must satisfy the requirements above
If a company that is required to appoint an auditor does not do so when it registers the incorporation of the company, the directors of the company must appoint the first auditor of the company within 40 business days after the date of incorporation of the company
The first auditor of a company holds office until the conclusion of the first annual general meeting (in other words, the company cannot change auditors during the year)
If a company does not appoint/reappoint an auditor at the annual general meeting the directors must fill the vacancy in the office within 40 business days after the date of the
meeting
115
A retiring auditor may be automatically reappointed at an annual general meeting without any resolution being passed, unless:
• The retiring auditor is
-- no longer qualified for appointment
-- no longer willing to accept the appointment, and has so notified the company -- required to be “rotated” in terms of the act
• An audit committee appointed by the company in terms of this Act objects to the reappointment; or
• The company has notice of an intended resolution to appoint some other person or persons in place of the retiring auditor.
116
Resignation of auditors and vacancies:
The resignation of an auditor is effective when the notice is filed
If a vacancy arises in the office of auditor of a company, the board of that company:
• must appoint a new auditor within 40 business days, if there was only one incumbent auditor of the company; and
• may appoint a new auditor at any time, if there was more than one incumbent, but while any such vacancy continues, the surviving or continuing auditor may act as auditor of the company
117
Before making an appointment as discussed above: of auditor
• the board must propose to the company’s audit committee, within 15 business days after the vacancy occurs, the name of at least one registered auditor to be considered for appointment as the new auditor; and
• may proceed to make an appointment of the person proposed if, within five business days after delivering the proposal, the audit committee does not give notice in writing to the board rejecting the proposed auditor
If a company appoints a firm as its auditor, any change in the composition of the members of that firm does not by itself create a vacancy in the office of auditor for that year, subject to below:
If, by comparison with the membership of a firm at the time of its latest appointment, less than one half of the members remain after a change in members, that change constitutes the resignation of the firm as auditor of the company, giving rise to a vacancy
118
Rotation of auditors:
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 the auditor or designated auditor of a company for two or more consecutive financial years and then ceases to be the auditor or designated auditor, 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 relinquish office in the same year
When it comes to rotation requirements, bear in mind that counting the five years should only start from the effective date of the Act, in other words, from 1 May 2011. In effect, an individual who had served as an auditor for longer than five years on 1 May 2011 may still serve another five years from that date before the rotation requirement becomes effective. An audit firm may thereafter appoint another designated auditor in the firm.
ALSO! The act says individual, not firm. In other words, the same firm may audit but must be another person.
119
Rights and restricted functions of auditors:
| The auditor of a company:
• Has the right of access at all times to the accounting records and all books and documents of the company
• In the case of the auditor of a holding company, has the right of access to all current and former financial statements of any subsidiary of that holding company and is entitled to require any information and explanations in connection with any such statements and in connection with the accounting records, books and documents of the subsidiary as necessary for the performance of the auditor’s duties; and
• is entitled to
-- attend any general shareholders meeting
-- receive all notices of and other communications relating to any general shareholders meeting
-- be heard at any general shareholders meeting on any part of the business of the meeting that concerns the auditor’s duties or functions
120
An auditor may apply to a court for an appropriate order to enforce the rights set out above, and a court may:
* make any order that is just and reasonable to prevent frustration of the auditor’s duties by the company or any of its directors, prescribed officers or employees; and
* make an order of costs personally against any director or prescribed officer whom the court has found to have wilfully and knowingly frustrated, or attempted to frustrate, the performance of the auditor’s functions
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At each AGM, a public company or state-owned company, or other company that is required only by its MOI to have an audit committee, must elect an audit committee comprising at least THREE members, unless:
• the company is a subsidiary of another company that has an audit committee; and
• the audit committee of that other company will perform the functions required under this
section on behalf of that subsidiary company
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The first members of the audit committee may be appointed by:
* the incorporators of a company; or
| * by the board, within 40 business days after the incorporation of the company
123
Each member of an audit committee of a company MUST:
* be a director of the company
* adhere to minimum qualifications prescribed by the Minister
* have adequate financial knowledge and experience
124
Each member of an audit committee of a company must NOT be:
* involved in the day-to-day management of the company’s business (or have been during the past financial year)
* a prescribed officer, or full-time employee, of the company or another related or inter- related company (or have been during the past 3 financial years)
* a material supplier or customer of the company
* not be related to any of the above
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Duties of an audit committee:
• Nominates an independent registered auditor for appointment
• Determines the auditor’s fees and terms of engagement
• Ensures that the appointment of the auditor complies with provisions of the Act and other
legislation
• Determines the nature and extent of any non-audit services
• Pre-approves any proposed agreement with the auditor for provision of non-audit services
• Prepares a report to be included in the annual financial statements for that financial year
--describing how its functions were carried out by the audit committee
--stating whether the audit committee is satisfied that the auditors were independent --commenting on the appropriateness of the financial statements, accounting practices and internal financial control
• Receives and deals appropriately with any concerns/complaints, relating to --accounting practices and the internal audit
--the content or auditing of the financial statements
--internal financial controls
--other related matter
• Makes submissions to the board on any matter concerning accounting policies, financial
control, records, and reporting of the company
• Performs other functions determined by the board
126
In considering whether a registered auditor is independent of a company, the audit committee of that company must:
• ascertain that the auditor does not receive any direct or indirect remuneration or other benefit from the company, except
--as auditor; or
--for rendering other services to the company, to the extent permitted by the audit committee
• consider whether the auditor’s independence may have been prejudiced
--as a result of any previous appointment as auditor; or
--having regard to the extent of any consultancy, advisory or other work undertaken by the auditor for the company; and
• consider compliance with other criteria relating to independence or conflict of interest as prescribed by the Independent Regulatory Board for Auditors (IRBA)
The board of a company must appoint a person to fill any vacancy on the audit committee within 40 business days after the vacancy arises
Nothing in this section precludes the appointment by a company at its annual general meeting of an auditor other than one nominated by the audit committee, but if such an auditor is appointed, the appointment is valid only if the audit committee is satisfied that the proposed auditor is independent of the company
Neither the appointment nor the duties of an audit committee reduce the functions and duties of the board or the directors of the company, except with respect to the appointment, fees and terms of engagement of the auditor
A company must pay all expenses incurred by its audit committee, including, if the audit committee considers it appropriate, the fees of any consultant or specialist engaged by the audit committee to assist it in the performance of its functions
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Financial assistance for subscription of securities:
| In order for financial assistance for subscription of securities to be provided legally:
• it should be approved by the board (directors’ resolution)
• must meet quorum and notice requirements
• a special resolution should have been passed within the previous two years (if not pursuant
to an employee share scheme), which approved such assistance either for the specific recipient or generally for a category of potential recipients, and the particular recipient(s) should fall within this category
• the board should be determine beforehand that the solvency and liquidity tests will be met immediately after providing the financial assistance
• the board should be satisfied that the terms under which the financial assistance is to be given are fair and reasonable to the company
• the board must ensure that if the company’s MOI includes any conditions or restrictions regarding the giving of financial assistance, they must have been complied with (Note: It is not a prerequisite that the company’s MOI must authorise such a transaction. In other words, if no reference is made in the MOI to financial assistance, the transaction can still go ahead, provided the company has complied with the other requirements set out above.)
The inclusion of the special resolution requirement is an essential safeguard against potential abuse of power by the directors.
Securities referred to above include:
• bonds, debentures and any other form of security
• the purchase of any securities of the company or a related or interrelated company (in other
words, the securities of upward, downward and sideways-related companies)
If these requirements above are not adhered to:
• the transaction will be void
• the directors can be held liable for losses the company has incurred in this regard
In this section, ‘‘financial assistance’’ does not include lending money in the ordinary course of business by a company whose primary business is the lending of money
Remember: Financial assistance can take the form of a loan, a guarantee, a provision of security, etc. Apart from loans, other forms of financial assistance are often hidden in the scenario. An example of this would be a company that passes a bond over its assets to raise money for the purchaser to pay for its shares.
128
Loans or other financial assistance to directors:
• Except to the extent that the MOI of a company provides otherwise, the board may authorise the company to provide direct or indirect financial assistance to a director/prescribed officer of the company or of a related/inter-related company, or to a related or inter-related company or corporation, or to a member of a related or inter-related corporation, or to a person related to any such company, corporation, director, prescribed officer or member
129
Requirements - The following conditions should be met before providing the assistance:
• Any conditions set out in the MOI in this regard should be met
• Must be approved by directors (Board resolution)
• Must meet notice and quorum requirements
• The board should be determine beforehand that the solvency and liquidity tests will be met
immediately after providing the financial assistance
• The terms should be fair and just
• A special resolution should have been passed within the previous two years (if not pursuant
to an employee share scheme)
• Written notice of the meeting and the intended assistance should be given to all
shareholders (unless all shareholders are directors),and to any trade union that is representing the employees of the company, within
--10 business days after the board adopts the resolution, if the total value of all loans, debts, obligations or assistance contemplated in that resolution, together with any previous such resolution during the financial year, exceeds one-tenth of 1% of the company’s net worth at the time of the resolution; OR
--30 business days after the end of the financial year, in any other case
Does not apply when:
• The primary business of the company is the lending of money (and the loan in question is in the ordinary course of business)
• The financial assistance is to cover legal expenses relating to the company
• The financial assistance is to cover expenses paid on behalf of the company
• The financial assistance is to cover costs relating to the removal of the director
If the requirements above are not adhered to
• the transaction will be void
• the directors can be held liable for losses incurred by the company
• Remember: Financial assistance can take the form of a loan, a guarantee, a provision of security, etc. Apart from loans, other forms of financial assistance are often hidden in the scenario.
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A company may not dispose of all or the greater part of its assets or undertaking unless the disposal has been approved:
• by a special resolution of the shareholders, at a meeting called for that purpose and at which the meeting and voting quorums were met
• by a special resolution of the shareholders of the holding company (if applicable), at a meeting called for that purpose and at which the meeting and voting quorums were met, if --the holding company is a company or an external company (foreign company)
--the proposed transaction concerns a disposal of all or the greater part of the assets or undertaking of the subsidiary; and
--having regard to the consolidated financial statements of the holding company, the disposal by the subsidiary constitutes a disposal of all or the greater part of the assets or undertaking of the holding company; and
• by the court, if required (explained below)
131
Despite a shareholders resolution having been adopted as contemplated above, a company may
not proceed to implement that resolution without the approval of a court if:
A. the resolution was opposed by at least 15% of the voting rights that were exercised on that resolution and, within five business days after the vote, any person who voted against the resolution requires the company to seek court approval; or
B. the court, on an application within 10 business days after the vote by any person who voted against the resolution, grants that person leave, to apply to a court for a review of the transaction
If a resolution requires approval by a court as contemplated in A, the company must either:
• within 10 business days after the vote, apply to the court for approval, and bear the costs of that application; or
• treat the resolution as a nullity
On an application contemplated in B, the court may grant leave only if it is satisfied that the applicant:
• is acting in good faith
• appears prepared and able to sustain the proceedings; and
• has alleged facts which, if proved, would support an order to set aside the resolution
The court may set aside the resolution only if:
• the resolution is manifestly unfair to any class of holders of the company’s securities; or
• the vote was materially tainted by conflict of interest, inadequate disclosure, failure to
comply with the Act, the MOI or any applicable rules of the company, or other significant procedural irregularity
Any voting rights controlled by an acquiring party, a person related to an acquiring party, or a person working together with either of them, must not be included in calculating the percentage of voting rights:
• required for a meeting/voting quorum to be satisfied; or
• who voted in support of the resolution
Any part of the undertaking or assets of a company to be disposed of, as contemplated in this section, must be fairly valued, as calculated in the prescribed manner, as at the date of the proposal
132
Voluntary winding-up of a solvent company:
A solvent company may be wound up voluntarily if the company has adopted a special resolution to do so, which may provide for the winding-up to be by the company, or by its creditors
A special resolution providing for the voluntary winding-up of a company must be filed, together with the prescribed notice and filing fee
133
If a special resolution provides for winding-up by the company, before the resolution and notice are filed the company must:
• arrange for security, satisfactory to the Master, for the payment of the company’s debts within no more than 12 months after the start of the winding-up of the company; or
• obtain the consent of the Master to dispense with security, which the Master may do only if the company has submitted to the Master
--a sworn statement by a director authorised by the board of the company, stating that the company has no debts; and
--a certificate by the company’s auditor, or if it does not have an auditor, a person who meets the requirements for appointment as an auditor, stating that to the best of the auditor’s knowledge and belief and according to the financial records of the company, the company appears to have no debts
Any costs incurred in furnishing the security referred to above may be paid by the company
A voluntary winding-up of a company begins when the special resolution of the company has
been filed
When a special resolution has been filed, the Commission must promptly deliver a copy of it
to the Master
Despite any provision to the contrary in a company’s MOI:
• the company remains a juristic person and retains all of its powers as such while it is being wound up voluntarily; but
• from the beginning of the company’s winding-up
--it must stop carrying on its business except to the extent required for the beneficial winding-up of the company; and
-- all of the powers of the company’s directors cease, except to the extent specifically authorised, in the case of a winding-up by the company, by the liquidator or the shareholders in a general meeting; or in the case of a winding-up by creditors, the liquidator or the creditors
134
Winding-up of solvent companies by court order:
A court may order a solvent company to be wound up if:
• the company has
-- resolved, by special resolution, that it be wound up by the court; or
-- applied to the court to have its voluntary winding-up continued by the court
• the practitioner of a company appointed during business rescue proceedings has applied for liquidation, on the grounds that there is no reasonable prospect of the company being rescued; or
• one or more of the company’s creditors have applied to the court for an order to wind up the company on the grounds that it is otherwise just and equitable for the company to be wound up
• the company, one or more directors or one or more shareholders have applied to the court for an order to wind up the company on the grounds that
-- the directors are deadlocked (cause a situation or opposing parties to come to a point where no progress can be made because of fundamental disagreement) in the management of the company, and the shareholders are unable to break the deadlock, and irreparable injury to the company is resulting, or may result, from the deadlock; or the company’s business cannot be conducted to the advantage of shareholders generally, as a result of the deadlock
--the shareholders are deadlocked in voting power, and have failed for a period that includes at least two consecutive annual general meeting dates, to elect successors to directors whose terms have expired; or
--it is otherwise just and equitable for the company to be wound up
• a shareholder has applied, with leave of the court, for an order to wind up the company on the grounds that
--the directors, prescribed officers or other persons in control of the company are acting in a manner that is fraudulent or otherwise illegal; or
--the company’s assets are being misapplied or wasted; or
• the Commission or Panel has applied to the court for an order to wind up the company on
the grounds that
--the company, its directors or prescribed officers or other persons in control of the company are acting or have acted in a manner that is fraudulent or otherwise illegal, the Commission or Panel, as the case may be, has issued a compliance notice in respect of that conduct, and the company has failed to comply with that compliance notice; and
--within the previous five years, enforcement procedures in terms of this Act or the Close Corporations Act, 1984 (Act No. 69 or 1984), were taken against the company, its directors or prescribed officers, or other persons in control of the company for substantially the same conduct, resulting in an administrative fine, or conviction for an offence
135
The board of a company may resolve that the company voluntarily begin business rescue proceedings and place the company under supervision, if the board has reasonable grounds to believe that:
* the company is financially distressed; and
* there appears to be a reasonable prospect of rescuing the company
A resolution contemplated above:
• may not be adopted if liquidation proceedings have been initiated by or against the company; and
• has no force or effect until it has been filed
136
Within five business days after a company has adopted and filed a resolution, as contemplated above, or such longer time as the Commission, on application by the company, may allow, the company must:
* publish a notice of the resolution, and its effective date, in the prescribed manner to every affected person, including with the notice a sworn statement of the facts relevant to the grounds on which the board resolution was founded; and
* appoint a business rescue practitioner who satisfies the requirements, and who has consented in writing to accept the appointment
After appointing a practitioner as required, a company must:
• file a notice of the appointment of a practitioner within two business days after making the appointment; and
• publish a copy of the notice of appointment to each affected person within five business days after the notice was filed
If a company fails to comply with any provision above:
• its resolution to begin business rescue proceedings and place the company under supervision lapses and is a nullity; and
• the company may not file a further resolution for business rescue for a period of three months after the date on which the lapsed resolution was adopted, unless a court, on good cause, approves the company filing a further resolution
A company that has adopted a resolution contemplated in this section may not adopt a resolution to begin liquidation proceedings, unless the resolution has lapsed in terms of subsection (5), or until the business rescue proceedings have ended as determined in accordance with section 132(2)
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to the following whistle-blowers with regard to the company:
* Shareholders
* Directors
* Company secretary
* Prescribed officers
* Employees
* Trade unions
* Other representatives of employees
* Suppliers of goods or services
* Employees of such suppliers
