Topic 1: Intro to Companies Act

Question 1

What were the various dates on which the three Companies Acts were passed?

Answer 1

1926
1973
2008 commenced 1 May 2011.

Question 2

Why was the company’s act changes?

Answer 2

It could be argued that a new companies act was unnecessary because the Companies Act, 1973, through amendments, kept pace with changing needs and circumstances. However, one must not lose sight of the significant political changes in South Africa since 1973, and that SA now has the benefit of the new Constitution.

Question 3

Corporate Law reform objectives agreed upon at NEDLAC.

Answer 3

1. Simplification
   - Simplifying the procedures for forming companies and reduction in the costs of company formation and maintenance.
2. Flexibility
   - Providing for flexibility in the design and organization of companies.
3. Corporate efficiency
   - Promoting the efficiency of companies and their management.
4. Transparency
   - Encouraging transparency and high standards of corporate governance.
5. Predictable Regulations
   - Company law should be compatible and harmonious with best-practice jurisdictions internationally.

Question 4

Explanation of simplification for corporate law:

Answer 4

• the law should provide for a company structure reflecting the characteristics of a close corporation as one of the available options.
• the law should establish a simple and easily maintained regime for non-profit companies.
• Cooperatives and partnerships should not be addressed in the reformed company law.

Question 5

Explanation of flexibility for corporate law:

Answer 5

• Company law should provide for ‘an appropriate diversity of corporate structures’.
• The distinction between listed and unlisted companies should be retained.

Question 6

Explanation of corporate efficiency for corporate law:

Answer 6

• Company law should shift from a capital maintenance regime based on par value to one based on solvency and liquidity.
• there should be clarification of board structures and director responsibilities, duties, and liabilities.
• there should be a remedy to avoid locking minority shareholders into inefficient companies.
• the mergers-and-takeovers regime should be reformed so that the law facilitates the creation of business corporations.
• the judicial management system for dealing with failing companies should be replaced by a more effective business rescue system.

Question 7

Explanation of transparency for corporate law:

Answer 7

• company law should ensure the proper recognition of director’s accountability and the appropriate participation of other stakeholders.
• public announcements, information, and prospectuses should be subject to similar standards for truth and accuracy.
• the law should protect shareholders rights, advance shareholder activism, and provide enhanced protection for minority shareholders.
• minimum accounting standards should be required for annual reports.

Question 8

Explanation of predictable regulations for corporate law:

Answer 8

• company law sanctions should be decriminalized where possible.
• company law should remove or reduce opportunities for regulatory arbitrage.
• company law should be enforced through appropriate bodies and mechanisms, either existing or newly introduced.
• company law should strike a careful balance between adequate disclosure (in the interest of transparency) and over-regulation.

Question 9

the capital maintenance rule prohibits the following:

Answer 9

• a company could not buy back its own shares from existing shareholders.
• companies could not declare dividends out of capital
  a company could not provide financial assistance for the purchase of its own shares.

Question 10

Traditional shareholder-oriented model (classic model)

Answer 10

Only the interests of the shareholders are considered as the focus of corporate activity.

Question 11

enlightened shareholder value approach

Answer 11

directors can take into account the interests of other stakeholders, such as the interests and rights of employees, but only if it ultimately promotes the success of the company for the benefit of the shareholders.

Question 12

Pluralist approach:

Answer 12

takes into account the interests of stakeholders, and a company has to balance the interests of all the stakeholders and to prefer the interests of one stakeholder above those only when it is in the best interests of the general body of stakeholders to do so.

Question 13

Which approach has the Companies Act chosen?

Answer 13

The enlightened shareholders approach

Question 14

The purpose of the Companies Act, 2008 (s7)

Answer 14

The purposes of the Act are to:
(a) promote compliance with the Bill of Rights as provided for in the constitution, in the application of company law;
(b) promote the development of the South African economy by
(i) encouraging entrepreneurship efficiency
(ii) creating flexibility and simplicity in the formation and maintenance of companies and
(iii) encouraging transparency and high standards of corporate governance as appropriate, given the significant role of enterprises within the social and economic life of the nation

(c) promote innovation and investment in South African markets.
(d) re-affirm the concept of the company as a means of achieving economic and social benefits

(e) continue to provide for the creation and use of companies
(f) promote the development of companies within all sectors of the economy.

page 14 of the textbook

Question 15

Types of companies:

Answer 15

• public company
• state-owned company
• personal liability company
• private company