Introduction
The Companies Act of 1973 has undergone numerous amendments over the past decades since its adoption. A need for a new Companies Act finally came about due to the constantly changing business trends and significant political and economical changes in South Africa. The New Companies Act 71 of 2008 was assented by the President of the Republic of South Africa on 9 April 2009. The New Companies Act finally came into force on 1 May 2011. Pre-existing companies in terms of Schedule 5 of the Act have been given 2 years, until 1 May 2013, to become compliant with the New Companies Act.
Types of Companies:
The New Companies Act makes provision for two types of companies namely “profit companies” and “non-profit companies”.
Profit Companies are incorporated for the purpose of financial gain for its shareholders and may be incorporated by one or more individuals (there is no maximum). Profit Companies are further divided into the following four separate types of entities: A public company ends with the suffix “Ltd” – provisions of the Memorandum of Incorporation of a company will determine whether the company is a public company.
Following the enactment of the New Companies Act, it is no longer possible to register close corporations (CCs) in South Africa. Existing CCs may continue to trade as such. A CC which intends to convert to a company, when the New Companies Act is implemented, will have to file a Notice of Conversion, with a certified copy of a Special Resolution approving the conversion, and either the new Memorandum of Incorporation or a prescribed fee. Every member of a converted CC is entitled to become a shareholder of the new company. All assets, liabilities, and obligations that existed in the CC before the conversion will exist in the new company.
The New Companies Act further provides for a profit company type which mimics the characteristics of CC. In this regard, a company with the same directors, and the same shareholders, is generally referred to as a “closed company” or “owner-managed company” in trade. Such companies are described in Section 57(4) of the New Companies Act. As minimum formalities and accounting standards apply to such closed companies, this company type is often a preferred option for start-up businesses.
Profit Companies are incorporated for the purpose of financial gain for its shareholders and may be incorporated by one or more individuals (there is no maximum). Profit Companies are further divided into the following four separate types of entities: A public company ends with the suffix “Ltd” – provisions of the Memorandum of Incorporation of a company will determine whether the company is a public company.
| • | A state owned enterprise ends with the suffix “SOC” – for example, the Waterboard which is owned by a municipality. |
| • | A personal liability company ends with the suffix “Inc” – used mainly by professionals such as attorneys and accountants. The directors of these companies are jointly and severally liable for all debts incurred during their terms of office. |
| • | A private company ends with the suffix “(Pty) Ltd” – whose Memorandum of Incorporation prohibits the offering of its shares to the public and restricts its transferability. |
| • | Non-profit companies end with the suffix “NPC” and will replace those companies incorporated under Section 21 of the Old Companies Act. They have a public benefit objective relating to one or more cultural or social activities. All assets and income must be used to further the companies stated objectives. |
Following the enactment of the New Companies Act, it is no longer possible to register close corporations (CCs) in South Africa. Existing CCs may continue to trade as such. A CC which intends to convert to a company, when the New Companies Act is implemented, will have to file a Notice of Conversion, with a certified copy of a Special Resolution approving the conversion, and either the new Memorandum of Incorporation or a prescribed fee. Every member of a converted CC is entitled to become a shareholder of the new company. All assets, liabilities, and obligations that existed in the CC before the conversion will exist in the new company.
The New Companies Act further provides for a profit company type which mimics the characteristics of CC. In this regard, a company with the same directors, and the same shareholders, is generally referred to as a “closed company” or “owner-managed company” in trade. Such companies are described in Section 57(4) of the New Companies Act. As minimum formalities and accounting standards apply to such closed companies, this company type is often a preferred option for start-up businesses.
What company documentation is necessary?
In terms of the New Companies Act, the following documents are public documents which must be lodged at the Companies Office (CIPC) in relation to a private company:
A company may further prepare and lodge Rules and/or a Constitution with the Companies Office. Such Rules or Constitution may not be inconsistent with the Act or the MOI of the company.
Shareholders Agreements are generally not public documents. In the case of a closed company, it may not be essential to have a Shareholders Agreement and a MOI. In this regard, in case of a closed company, the MOI may be sufficient, as the same person/s is/are the director/s and the shareholder/s. Whenever shares are issued or transferred in a private company, such transactions must be recorded in the company’s Certified Shares or Security Register. The private company’s Shares Register must be kept safe by the person duly appointed by the company to do so. A private company’s Shares Register is not filed or kept up to date at the Companies Office and is generally not a public document.
The Companies Office (CIPC) offers a standard template MOI for the registrations of new companies. However, the adoption of this standard MOI is not recommended, as it inter alia gives directors wider powers, fails to stipulate accounting obligations, and can expose private companies to the same risks and liabilities of public companies.
The New Companies Act provides for unalterable provisions and alterable provision which should be reflected in a MOI. The MOI should thus reflect the unalterable (compulsory) provisions and special consideration should be given to the insertion of the alterable provisions to suit each company’s special needs and rules. It is thus highly recommended that an expert attorney assists with the drafting of an appropriate and customised MOI.
| • | Name reservation (to secure registration under a specific name) |
| • | Notice of Incorporation |
| • | Memorandum of Incorporation (the “MOI”) |
| • | Directors must deliver a written consent to his/her appointment before it is effective |
| • | Notice of Amendments, if the MOI is changed by a Special Resolution |
A company may further prepare and lodge Rules and/or a Constitution with the Companies Office. Such Rules or Constitution may not be inconsistent with the Act or the MOI of the company.
Shareholders Agreements are generally not public documents. In the case of a closed company, it may not be essential to have a Shareholders Agreement and a MOI. In this regard, in case of a closed company, the MOI may be sufficient, as the same person/s is/are the director/s and the shareholder/s. Whenever shares are issued or transferred in a private company, such transactions must be recorded in the company’s Certified Shares or Security Register. The private company’s Shares Register must be kept safe by the person duly appointed by the company to do so. A private company’s Shares Register is not filed or kept up to date at the Companies Office and is generally not a public document.
The Companies Office (CIPC) offers a standard template MOI for the registrations of new companies. However, the adoption of this standard MOI is not recommended, as it inter alia gives directors wider powers, fails to stipulate accounting obligations, and can expose private companies to the same risks and liabilities of public companies.
The New Companies Act provides for unalterable provisions and alterable provision which should be reflected in a MOI. The MOI should thus reflect the unalterable (compulsory) provisions and special consideration should be given to the insertion of the alterable provisions to suit each company’s special needs and rules. It is thus highly recommended that an expert attorney assists with the drafting of an appropriate and customised MOI.
What is the basic content of a MOI?
The MOI is the single constitutional document of the company which has the object to govern the:
A company may further prepare and lodge Rules and/or a Constitution with the Companies Office. Such Rules or Constitution may not be inconsistent with the Act or the MOI of the company.
Shareholders Agreements are generally not public documents. In the case of a closed company, it may not be essential to have a Shareholders Agreement and a MOI. In this regard, in case of a closed company, the MOI may be sufficient, as the same person/s is/are the director/s and the shareholder/s. Whenever shares are issued or transferred in a private company, such transactions must be recorded in the company’s Certified Shares or Security Register. The private company’s Shares Register must be kept safe by the person duly appointed by the company to do so. A private company’s Shares Register is not filed or kept up to date at the Companies Office and is generally not a public document.
The Companies Office (CIPC) offers a standard template MOI for the registrations of new companies. However, the adoption of this standard MOI is not recommended, as it inter alia gives directors wider powers, fails to stipulate accounting obligations, and can expose private companies to the same risks and liabilities of public companies.
The New Companies Act provides for unalterable provisions and alterable provision which should be reflected in a MOI. The MOI should thus reflect the unalterable (compulsory) provisions and special consideration should be given to the insertion of the alterable provisions to suit each company’s special needs and rules. It is thus highly recommended that an expert attorney assists with the drafting of an appropriate and customised MOI.
| • | Rights of the shareholders, directors, employers and stakeholders |
| • | Responsibilities of the shareholders and directors |
| • | Relationship between the directors and shareholders, the company and the board and the company and third parties |
| • | Risk and liability of shareholders and directors |
| • | Rewards the shareholders and directors and are entitled to |
A company may further prepare and lodge Rules and/or a Constitution with the Companies Office. Such Rules or Constitution may not be inconsistent with the Act or the MOI of the company.
Shareholders Agreements are generally not public documents. In the case of a closed company, it may not be essential to have a Shareholders Agreement and a MOI. In this regard, in case of a closed company, the MOI may be sufficient, as the same person/s is/are the director/s and the shareholder/s. Whenever shares are issued or transferred in a private company, such transactions must be recorded in the company’s Certified Shares or Security Register. The private company’s Shares Register must be kept safe by the person duly appointed by the company to do so. A private company’s Shares Register is not filed or kept up to date at the Companies Office and is generally not a public document.
The Companies Office (CIPC) offers a standard template MOI for the registrations of new companies. However, the adoption of this standard MOI is not recommended, as it inter alia gives directors wider powers, fails to stipulate accounting obligations, and can expose private companies to the same risks and liabilities of public companies.
The New Companies Act provides for unalterable provisions and alterable provision which should be reflected in a MOI. The MOI should thus reflect the unalterable (compulsory) provisions and special consideration should be given to the insertion of the alterable provisions to suit each company’s special needs and rules. It is thus highly recommended that an expert attorney assists with the drafting of an appropriate and customised MOI.
What is the basic content of a MOI?
The MOI is the single constitutional document of the company which has the object to govern the:
The primary content of the MOI should cover at least the following aspect:
| • | Rights of the shareholders, directors, employers and stakeholders |
| • | Responsibilities of the shareholders and directors |
| • | Relationship between the directors and shareholders, the company and the board and the company and third parties |
| • | Risk and liability of shareholders and directors |
| • | Rewards the shareholders and directors and are entitled to |
The primary content of the MOI should cover at least the following aspect:
| • | Authority of directors |
| • | Appointment and removal of directors |
| • | Authority of shareholders |
| • | Remuneration of directors |
| • | Regulation of meetings for directors and shareholders |
| • | Approval of issuing shares |
| • | Audit committee and company secretary |
| • | Mergers and acquisitions |
| • | Protection of minority shareholders |
| • | Access to information |
| • | Authority of business rescue practitioners |
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