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Company Registrations

The New Companies Act 71 of 2008
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.

  • 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:

  • 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:

  • 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

What happens after 1 May 2013?

It is recommended and compulsory that pre-existing companies review and amend their company documentation (namely its Articles and Memorandum of Associations and Shareholders Agreement) to constitute MOIs which comply with the New Companies Act and address specific required rules and needs.

After 1 May 2013, the following principles will apply:

  • Pre-existing Articles and Memorandums of Association will be deemed to be the company’s MOI.  This places the directors and shareholders at risk for non-compliance with the New Companies Act.  The provisions of the New Companies Act will prevail and any conflicting terms in the company’s MOI or Shareholders Agreement must be amended to harmonise with the Act or these provisions in contradiction with the Act will be null and void.
  • A pre-existing non-profit Section 21 company will be deemed to have amended its MOI as of the effective date (1 May 2013) to state that it is a Non-Profit Company as well as changed its name to include the letters “NPC”.
  • A company incorporated in terms of Section 54(c) of the old Companies Act 61 of 1973, will have deemed to have amended its MOI to state that it is a personal liability company and that the name has been amended to include the letters “INC”.
  • MOIs can be amended by lodging the necessary Notice of Amendment, the amended MOI and a Special Resolution by the shareholders.

Why should you convert your CC to a Private Company?

  • CC’s are regulated by the Close Corporation Act 69 of 1984, and certain sections in the New Companies Act must also be met. The additional compliance with the New Companies Act is often not met.
  • CC’s don’t separate the rights and responsibilities of the owners and the managers, where they are both members in the CC. The Act clearly distinguishes shareholders from directors and their respective responsibilities and rights.
  • In case of a CC, non-executive members are equally at risk with a managing member.  In case of a company under the New Companies Act, shareholders’ liability is separate from that of the directors.
  • Senior managers of a CC are often offered a small interest in the CC as reward for performance and results.  This can be better achieved in a private company by way of profit sharing, appointment as director, and without giving up equity and ownership while sharing control.
  • The New Companies Act protects directors against personal liability claims where they have acted in good faith and in the best interest of the company. This business judgment rule does not apply to members in a CC.
  • All CC’s that are owner-managed with a public interest score of less than 100 points, when converting to company, is likely to have less financial and accounting prescriptions and save on annual professional accounting fees.
  • By converting to a company there is a possibility of having a more forceful business model and improved risk management which results in a higher level of motivation and management in relation to performance.
  • As CC’s are unique to South Africa and Namibia, many international traders find CC’s foreign and uneasy to do business with.

Our Services and Charges:

We would be happy to assist with any instructions regarding your company documentation or required changes.  As our main focus is to serve local start-up and SME companies, we set out below a brief description of our main company / CC services and fixed cost for Section 57(4) companies (private closed companies).

In the case of registration of new private closed companies (up to 3 members), we offer the following:

1. Name Reservation R300 (excl VAT)
2. Taking instructions   to draft  a customised MOI,   considering, preparing and finalising a customised MOI, including arranging   signatures R3000 (excl VAT)
3. Lodging the MOI and   necessary forms to apply for the registration of a new company, payment of   the official fees, monitoring the registration process, obtaining and   forwarding the company number and Certificate of Registration R2000 (excl VAT)

In the case of pre-existing private closed companies (up to 3 members), we offer the following:

4. Considering existing company documentation, taking instructions to draft a customised   MOI, considering, preparing and finalising a customised MOI, including   arranging signatures R3000 (excl VAT)
5. Obtaining a Special Resolution to update and replace existing company documentation with a MOI R1000 (excl VAT)
6. Lodging the MOI, Special Resolution and necessary forms to apply for the amendments of company documents, payment of the official fees, monitoring and finalising the   amendment process R2500 (excl VAT)

In case of a CC converting to a private closed company (up to 3 members), we offer the following:

7. Considering existing CC documentation, taking instructions to draft a customised MOI,   considering, preparing and finalising a customised MOI, including arranging   signatures R3000 (excl VAT)
8. Obtaining a Special Resolution to convert to a company R1000 (excl VAT)
9. Name reservation on Companies Register R300 (excl VAT)
10. Lodging the MOI and necessary forms to apply for the conversion of the CC to a company, payment of the official fees, monitoring and finalising the conversion process R2500 (excl VAT)

The above list is not exhaustive of our services for companies.  Please contact us, if you have any other requirements or queries.

Please note that the above cost indications apply only to South African clients who make payments from local banks and that it will be valid until 28 February 2014.  Note that we are registered for VAT.

The above information is general information and should not be adopted as formal legal advice without our firm having an opportunity to take full instructions and fully assess the merits and documentation of your specific company and circumstances.

Need further information?
The above information is general information. You are welcome to contact us if we can assist with any company registrations, CC conversions, or drafting of a customised MOI.  We look forward to hearing from you.

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