Business law Test 1 Summary

UNIT 1:
Historical development:
- 1926: companies Act
- 1973: Companies Act
- 2004: DTI Policy Papers
- 2007: NEDLAC
- 2008: Companies Act Promulgated
- 1 May 2011: 2008 Companies Act came into force

Key objectives agreed at NEDLAC:
Objective Explanation
Simplification: 1. Co-structure = CC characteristics
- Formation 2. NPO’s: simple and easy to maintain
- Costs for formation & maintenance regime
3. Company Act shouldn’t deal with co-op’s
and partnerships
Flexibility: 1. Diversity of corporate structures
- Design 2. Retain distinction between listed and
- Organisation unlisted co’s

Key objectives agreed at NEDLAC:
Objective Explanation
Corporate efficiency: 1. Solvency & liquidity rather than capital
- Of co’s maintenance rule
- Of management 2. Clarification of broad structures & director
duties, responsibilities & liabilities
3. Minority shareholder protection
4. M&A regime streamlined to promote
business combinations
5. Business rescue to replace judicial mgm
Transparency: 1. Company law must provide for director
- Transparency accountability and stakeholder
- Corporate governance participation
2. All public announcements, information &
prospectuses must be true & correct
3. Protection of SH rights and protect
minority SH
4. Establish minimum accounting standards
AR
Predictable regulation: 1. Decriminalise sanctions
- Follow best practice internationally 2. Avoid regulatory arbitrage
3. Enforcement through appropriate bodies
& mechanisms
4. Balance adequate disclosure and over-
regulation

Purpose of the Companies Act:
- Promote development
- promote innovation
- promote investment
- Encourage entrepreneurship
- Encourage enterprise efficiency
- Create flexibility and simplicity
- Encourage productivity
- Encourage efficient and responsible management
- Balance the rights & obligations of shareholders and directors
- Enhance economic welfare
- Achieve economic and social benefits
- Balance rights and interests of stakeholders in BR

, Key concepts in the Companies Act:
1. Right of any person to form a company
2. Minimal requirements for the Act of incorporation
3. The only document that governs the company’s internal affairs is the MOI
4. The MOI must meet certain requirements and cannot change the unalterable provisions of the
Companies Act
5. Regulatory system for companies is as simple as possible. Companies with a wider social
impact are subject to greater regulation
6. Move away from capital maintenance to solvency and liquidity
7. Enlightened shareholder approach is adopted – maximum protection of shareholders,
consideration of stakeholders. Extended locus standi – not only SH may approach courts
8. Business rescue provisions to replace judicial management and move away from liquidation
9. There should not be an over-regulation of company business. Directors run the companies,
not judges and regulators
10. Partial codification of directors’ duties
11. Decriminalisation of sanctions – liable for losses incurred by company instead of prosecution
12. Prevention of reckless, grossly negligent & fraudulent trading
13. Piercing the corporate veil in an unconscionable abuse of the juristic personality of a company
14. All companies are deemed to have been incorporated under the 2008 Act.

Interpretation of the Companies Act:
- S5: general interpretation clause: Act must be interpreted and applied in a manner that gives
effect to the purposes of the Act set out in S7
- Courts must interpret the language of the Act to promote purpose
- Reinforced by S6:
 Prohibits terms in MOI intended to circumvent an unalterable provision
 Allows court to declare provision void

Types of companies:
- Profit companies:
 Public company – limited
 State-owned Company – SOC Ltd
 Personal liability company – Incorporated
 Private Company – Proprietary Limited
- Non-Profit – NPC

Influence of the common law on the Companies Act:
- SA Company law based on English Law
- Companies Act is not a codification of the Common law
- Where Act is silent, common law will apply

Influence of Constitution on Companies Act
See UFS slides

UNIT 2:
Why incorporate a company?
- Not necessary to conduct business
- Benefit: limited liability, legal personality and perpetual succession
- Considerations:
 Who will be involved in the business
 Extent of involvement
 Capital required
 Source of capital
 Requirements of customers and clients
 Strategic objectives of all involved
 Tax issues