Week 7: Types of Companies & Corporate Formation
TYPES OF COMPANIES
Profit Companies
Purpose is financial gain for shareholders. May have one or more
incorporators and any number of shareholders. The Act attempts flexible
regime that keenly regulates companies that may impact the broad public
while offering exemptions and measures to also accommodate small, owner-
managed entities.
1. Public – Ltd.
Any ‘profit’ company that is not:
A state-owned company
A personal liability company
A private company
Shares may be offered to the public (and is freely transferable).
Compliance with the Companies Act and the JSE listing requirements.
Mandatory committees: Audit, Social and Ethics, and appoint a
company secretary
2. Private – (Pty) Ltd.
MOI contains two important restrictions
Primary Market: MOI must have a clause that prohibits the
company from offering shares to the public
Secondary Market: MOI must have a clause that contain a
restriction on the transferability of the shares (i.e. ensure that it is
not freely transferable). The Act does not specify what the
restriction should look like but an example is a “pre-emption” or
“pre-purchase” right which states that you must first offer your
shares to existing shareholders before you can offer it to
outsiders.
If you choose to introduce a pre-emption right in the:
Primary market (Section 39 – default position)
If a private company wants to offer shares to a specific,
non-existing shareholder (outsider), the shares must first be
offered to the existing shareholders pro-rata their current
shareholdings
Alterable provision (can opt out or tweak it)
Secondary market
“all or nothing” approach – if you offer 150 shares, the full
150 shares must be taken up
Unalterable provision. If you are a private company, you
must have this restriction but it may take on a form other
than that of a pre-emption right
TYPES OF COMPANIES
Profit Companies
Purpose is financial gain for shareholders. May have one or more
incorporators and any number of shareholders. The Act attempts flexible
regime that keenly regulates companies that may impact the broad public
while offering exemptions and measures to also accommodate small, owner-
managed entities.
1. Public – Ltd.
Any ‘profit’ company that is not:
A state-owned company
A personal liability company
A private company
Shares may be offered to the public (and is freely transferable).
Compliance with the Companies Act and the JSE listing requirements.
Mandatory committees: Audit, Social and Ethics, and appoint a
company secretary
2. Private – (Pty) Ltd.
MOI contains two important restrictions
Primary Market: MOI must have a clause that prohibits the
company from offering shares to the public
Secondary Market: MOI must have a clause that contain a
restriction on the transferability of the shares (i.e. ensure that it is
not freely transferable). The Act does not specify what the
restriction should look like but an example is a “pre-emption” or
“pre-purchase” right which states that you must first offer your
shares to existing shareholders before you can offer it to
outsiders.
If you choose to introduce a pre-emption right in the:
Primary market (Section 39 – default position)
If a private company wants to offer shares to a specific,
non-existing shareholder (outsider), the shares must first be
offered to the existing shareholders pro-rata their current
shareholdings
Alterable provision (can opt out or tweak it)
Secondary market
“all or nothing” approach – if you offer 150 shares, the full
150 shares must be taken up
Unalterable provision. If you are a private company, you
must have this restriction but it may take on a form other
than that of a pre-emption right
