Unit 8 - The formation of a company, compliance with the law and pre-incorporation contracts

Question 1

When is registration effected ?

Answer 1

• Upon signing of the MOI.
• By the requisite number of persons or organ of state.
• Filing the prescribed Notice of Incorporation.

Question 2

How can a Memorandum of Incorporation be amended ?

Answer 2

• Application brought by board or shareholders with 10% or more voting rights.
• Application passed by special resolution (75%) by members.

Question 3

What is constructive notice ?

Answer 3

• Common law doctrine of Constructive Notice meant that when documents are publicly available, 3rd parties are assumed to have knowledge of them.
• This does not apply to the MOI of a company.

Question 4

Discuss the legal status and rules of the MOI.

Answer 4

The rules of the MOI are binding:

• Between the company and each shareholder.
• Between or among the shareholders.
• Between the company.

Question 5

What is a shareholders agreement ?

Answer 5

Shareholders can enter into any agreement between themselves in terms of the company as long as it is consistent with both the Act and the MOI.

Question 6

Discuss anti-avoidance.

Answer 6

A court on application by the CIPC or Takeover Regulation Panel, can void
any agreement, transaction, scheme, resolution or provision of a company’s
MOI or rules when it attempts reduce the object of the Act.

Question 7

Discuss substantial compliance.

Answer 7

If the Act prescribes a manner of doing something, deviation is only invalid if:

• Negatively and materially affects the substance.
• Would reasonably mislead a person reading the document or to whom the document is delivered.

Question 8

Discuss pre-incorporation contracts.

Answer 8

A person can sign an agreement on behalf of a company that hasn’t been created yet, as long as both parties understand that the company will be formed later and will then be responsible for the contract.

Question 9

What are the rules for pre-incorporation ?

Answer 9

• If company takes a decision on the contract, they must notify the CIPC and those materially affected.
• Within 3 months of the incorporation of the company, they can completely, partially or conditionally ratify or reject an pre-incorporation contract .
• If no action within 3 months, they will be deemed to have ratified it.
• A promoter is jointly and severally liable.