unit 1

Question 1

THE PURPOSES OF THE COMPANIES ACT OF 2008​

Answer 1

promote development​

encourage entrepreneurship and enterprise efficiency​

create flexibility and simplicity​

encourage transparency and high standards of corporate governance​

promote innovation and investment​

achieve economic and social benefits.​

enhance economic welfare​

encourage productivity​

balance the rights and obligations of shareholders and directors​

encourage efficient and responsible management​

provide for efficient rescue and recovery of companies ​

balance the rights and interests of all relevant stakeholders in rescue proceedings.​

Question 2

Legal Personality

Answer 2

Refers to the capability of having legal rights and duties that are recognized within a legal system.​

Question 3

Natural Person

Answer 3

a human being who attains certain legal rights and duties at birth and can obtain other rights and duties through choice

Question 4

Juristic Person

Answer 4

an entity that can acquire rights and duties separate from its members (such as a company).

Question 5

ACQUISITION OF LEGAL PERSONALITY​

Answer 5

Legal person = entity separate from its members​

3 ways:​

Conduct​

Separate act eg SABC, Eskom, Telkom etc ​

General enabling act eg CC Act, Co Act​

​Incorporation due to English origin​

Thus SA co’s gets legal personality through incorporation in terms of the Co Act (s1)​

Question 6

Effects of Legal Personality:

Answer 6

Members have limited liability;​

Assets are the exclusive property of the juristic person;​

Where the juristic person is wronged, it must seek redress in its own capacity;​

Functions through director appointed to exercise managerial and executive powers;​

Shares in a company entitle the holder to certain interests in the company.​

​NB! - A company attains legal personality upon its incorporation and the issuing of a certificate of incorporation.​

Question 7

A share is defined in Section 1 of the Companies Act as

Answer 7

one of the units into which the proprietary interest in a profit company is divided.​

Question 8

A shareholder is

Answer 8

one of the contributors of the fund that sets up the company or a holder of shares that have been subsequently transferred to such person.​

Question 9

The purpose of the shareholders meetings

Answer 9

The purpose of the shareholders meetings is to provide the shareholders of a company with an opportunity to debate and vote on matters affecting the company.

Question 10

HOW Shareholders meetings HAPPEN

Answer 10

The meeting has to be properly convened by a person with authority to convene the meeting.​

​A notice convening a meeting must be given to all persons who are entitled to receive notice of the meeting.​

​The meeting must be convened for a time, date and place that is accessible to shareholders.​

​A meeting may commence only if a quorum is present

Question 11

NOTICE OF SHAREHOLDERS MEETING

Answer 11

Form: ​

Must be in writing;​

Must be given at least 10 days before meeting (15 days for Ltds & NPOs)​

​

Content: ​

Date, time and place;​

Record date;​

General purpose; ​

Specific purpose when requested by shareholders; ​

Include a copy of proposed resolution(s); ​

Shareholders who can’t attend & vote – appoint proxy;​

Satisfactory identification will be required.​

Question 12

WHEN DOES BOARD CALL MEETING

Answer 12

When the board is required by the Act or the company’s MOI to refer a matter to the shareholders;​

When there is a vacancy on the Board;​

​When a meeting is demanded by shareholders.​

Question 13

THe following matters must be addressed at an AGM;​

​

Answer 13

■ Presentation of the following: ​

Directors’ report; ​

Audited financial statements; ​

Audit committee report; ​

​

■ Election of directors;​

■ Appointment of auditors and audit committees;​

■ Matters raised by shareholders.

Question 14

Quorum

Answer 14

Quorum refers to the minimum number of persons whose presence at a meeting is required before any business may validly be transacted. ​

​

Question 15

Proxy

Answer 15

A proxy is a person who is appointed to represent a shareholder at a meeting which the shareholder cannot attend.​

Question 16

Ordinary resolution

Answer 16

Ordinary resolution is a resolution that requires a simple majority of votes of the members entitled to vote and voting in person or where allowed, by proxy, at a meeting of which notice has been duly given.

Question 17

A Special resolution

Answer 17

A Special resolution is a resolution that requires a special majority of votes of the members entitled to vote and voting in person or where allowed, by proxy, at a meeting of which notice has been duly given.

Question 18

Pre-incorporation contracts:

Answer 18

​

​

Section 1 of the Companies Act defines a pre-incorporation contract as a written agreement entered into before the incorporation of a company by a person who purports to act in the name of, or on behalf of, the purposed company with the intention or understanding that the purposed company will be incorporated, and will thereafter be bound by the agreement.​

​

Question 19

Formalities: OF PRE INCORPORATION CONTRCT

​

Answer 19

Contract must be in writing;​

​Must be ratified or rejected within three months of incorporation (either wholly or partially).​

​If the board fails to take any action within the stipulated three-month period, the company is deemed to have ratified the pre-incorporation contract entered into prior to the company’s incorporation.​

A person, who enters into a pre-incorporation contract as contemplated in section 21(1) of the Act, is personally liable on a joint and several basis for any liabilities created while acting as an agent of the company to be formed, if:​

(i) the contemplated entity to be formed is not subsequently incorporated; or​
(ii) after being incorporated, the company rejects any part of such an agreement entered into by the agent.​

Question 20

Public company

Answer 20

If not one of the other ‘profit companies’ then it’s a public company; ​

​Shares freely transferrable;​

​May be offered to public and be listed on JSE;​

It must have a suffix “ Limited” or LTD to its name;​

​The recognition of the public company status is sourced in the MOI.

Question 21

Personal Liability Company:​

Answer 21

Must meet the criteria of a private company, however, it is used by professional associations (Attorneys, Auditors, Engineers) ;​

​Directors are jointly and severally liable with the company for debts and liabilities contracted during their term of office;​

​May be formed by 1 person and may have at least 1 Director;​

​Shares may not be offered to the public;​

​It must have a suffix “ Incorporated” or Inc to its name.​

Question 22

State-Owned Company

Answer 22

Is a juristic person under the ownership and control of the national executive;​

​Must have suffix “SOC Ltd” to its name; ​

​Falls within meaning of public entity i.t.o. Public Finance Management Act;​

​Owned by the South African Government or a local municipality

Question 23

Private Company:​

Answer 23

Is prohibited by its MOI from offering its shares to the public and the transferability of its shares will be restricted; ​

​Can be formed by 1 person and must have at least 1 Director;​

​Must have suffix “Proprietary Limited” Pty (Ltd) to its name. ​

​Securities may not be offered to public.​

​

Question 24

Non-profit companies:

Answer 24

Company that is not formed with the aim of making profit for its members (not shareholders)​

​Its activities must relate to social activities, public benefits, cultural activities or group interests;​

​Must be formed by at least 3 people, who will be the company’s first Directors (to have at least 3 Directors at all times);​

​It must have suffix “NPC” to its name;​

​A person appointed a director of a non profit cannot directly or indirectly receive any financial benefit except for remuneration for work done;​

​When the company is dissolved no director or member of that company is entitled to any part of the net value of the company (proceeds/assets to be transferred to another NPC).​