Basic Business Law. Lesson 8. Companies

More documents

Recommendations

Info

The MoI of a public company permits the company to offer shares to the public but restricts the director’s right of pre-emption. This means that the directors of a public company don’t have control over the shares that was issued. 4.2.3. Private companies Private companies are not state-owned companies and the name of a private company must end with the words “Proprietary Limited” or its abbreviation [Ply] Ltd. Private companies are subject to fewer disclosure and transparency requirements than public companies. The MOI of a private company will prohibit it from offering any of its securities to the public and will restrict the transferability of its securities. There is no longer a limit on the number of shareholders and the shares of a private company will only be indicated as a percentage value of the total. A private company must have at least one director and each incorporator is regarded as a first director of the company. 4.2.4. Personal Liability <strong>Companies</strong> A personal liability company is a company that meets the criteria for a private company and its MOI states that it is a personal liability company and that the directors & past directors are jointly and severally liable together with the company, for the debts & liabilities of the company that were contracted during their respective terms of office. Its name must end with the word “Incorporated” or its abbreviation “Inc.”. 5. Forming a company The formation of a company is an action by persons in the exercise of their constitutional right to freedom of association combined with their common law right to contract. Therefore, the incorporation of a company is a right, not a privilege granted by the State and so the Act places minimal requirements on the incorporation of a company. A company is incorporated by the adoption of a memorandum of Incorporation (MoI). The MoI is the sole governing document of the company. The Act imposes certain specific requirements on the content of a MoI which are necessary to protect the interests of shareholders in the company. It further provides a number of default rules which companies may accept or alter as they wish to meet their needs and serve their interests. Anyone who wants to incorporate a company can go to a legal practitioner for assistance, but otherwise this application can be made to CIPC directly on a standard form of MoI which permits the incorporators to accept the required provisions, as well as the default provisions with or without alteration. 6. The advantages and disadvantages of trading as a private company The main advantages of a private company over a partnership or sole trader are that the life span of the private company will be continuous, and the shareholders will have limited liability. Directors could be held liable though if they knowingly do business in a reckless or fraudulent manner. Other advantages are that it is easy to transfer ownership and, it is easier to raise capital for a private company than for a partnership or a sole trader. The business structure also doesn’t have to be adapted if the business grows really big.
The major disadvantages of a private company are that it is subject to many legal requirements and it is difficult and expensive to establish compared to a partnership or sole proprietorship. A private company will also face stiffer financial rules, especially as it gets bigger. The MoI of a private company restricts the right to transfer its shares and prohibit any offer to the public for the subscription of any shares or debentures of the company. A private company cannot, therefore, be listed on the stock exchange. 7. Shareholder meetings Shareholders get an opportunity to exercise their oversight role at the Annual General Meeting (AGM). A public company must convene an AGM once every calendar year, within 15 months of the previous AGM. While private companies are not required to convene an AGM, it remains a good practice to do so in any case. Public companies must give notice of a shareholder’s meeting at least 15 business days before the meeting, while in the case of private companies it is 10 business days. Physical attendance is not mandatory, and meetings may be conducted entirely by electronic communication. Alternatively, only some members may participate electronically. The only requirement is that they must be able to communicate simultaneously. Shareholders who cannot attend a meeting in person or electronically, can give someone else a written proxy. The person with the proxy can then attend on their behalf and the proxy will be valid for one year. During the AGM, the directors’ report, the audit committee’s report and the audited financial statements for the preceding financial year must be presented. The meeting must also deal with the election of directors, the appointment of the auditor and audit committee for the following year, and any other matter raised by a shareholder, with or without advance notice to the company. Resolutions can be passed at the AGM or another shareholders meeting or it may also be submitted to the shareholders for consideration and the shareholders may then vote on that matter in writing within 20 business days alter the resolution was submitted to them. Example “Big Plans Travel Agency” has ten shareholders with equal shares in the company. At the AGM of the company the following resolution is proposed: “We the shareholders of “Big Plans Travel Agency (Pty) LTD” resolve to appoint “Eagle Eye Auditors” as the auditors of the company for the next three years.” Rule 1: In order to hold a legal AGM (i.e. have a quorum) 25% of the voting shares must be represented at the AGM. In this case that means that least 3 of the shareholders must be present. As there are 4 shareholders present (i.e. 40% of the voting shares), the meeting can go ahead. Rule 2: To pass an ordinary resolution requires 51% of the voting rights being exercised, while a special resolution will require 75%.
Page 1 and 2: Basic Business Law Lesson 8: Compan
Page 3: 4. Types of companies 4.1. Non-Prof
Page 7 and 8: A director is not expected to exerc
Page 9 and 10: • They are consulted in the devel

Basic Business Law. Lesson 8. Companies

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?