Company Law Notes
Week 1: Introduction & General Concepts
NOT DIRECTLY EXAMINABLE
14 March 2017
Perspective Lecture
Companies are juristic persons. In terms of a company, you have: the company itself,
directors, shareholders, stakeholders; as well as 3rd persons whom are not connected to the
company in any way.
Issues mainly arise between these parties/entities mentioned above. In addition, one
natural person can be anyone (or many) of these entities. You have to be very careful who
you are dealing with in the scenarios, and in what capacity. These concepts come mainly
from the Companies Act and Law of Contract (covered in Business Law I)
The Companies Act regulates the relationships between each of these entities.
What is a Company? Why have a Company? For two reasons. Firstly, because companies
offer limited liability, which means that the company is sued, rather than the directors and
shareholders. Secondly, there is perpetual succession (i.e. the company is not brought to an
end by the death of somebody).
The purpose of a Company is to hold property and carry out business, and to do so in a
manner that is completely separate and distinct from the members of that company.
• Why incorporate a business? To form a separate entity.
• What to consider when incorporating?
Ø Separate entity
Ø Number of persons involved
Ø Management & Ownership
Ø Process of incorporation
Ø Size
Ø Tax implications
e.g. A partnership does not have separate legal personality; it is an agreement between 2 or
more people at a limit of 20, to effectively share assets and liabilities equally.
In a Company, because of its separate juristic personality, one person can incorporate the
company, and have one shareholder and one director. And they can all be the same person.
• Juristic capacity? The capacity to create binding legal obligations, borne from the
Companies Act and incorporation, which essentially means you can limit the company’s
capacity.
• A Company may exist in terms of the law but how does it operate? What is a director of a
company? They direct the company; they make decisions on behalf of the company. It is
,directors who contract on behalf of the company. They are agents of the company.
Because a juristic person has no physical body/presence it necessarily relies on human
agents to do its bidding. Because of this the law of agency is very important when
considering many aspects of the legal position of a juristic person.
Fiduciary Law
– When an agent acts on behalf of another person (principle), the latter is often left
vulnerable to abuse.
– This is also true for juristic persons.
– For this reason, the law considers certain types of agents as fiduciaries and holds their
conduct to a higher standard.
– This forms the basis for the rules relating to, for example, the duties of directors.
A fiduciary, e.g. a director, is in a position of trust.
15 March 2017
Cont. from yesterday:
Company Law regulates the relationships discussed yesterday in very specific ways. The
Companies Act defines the rights and obligations given to those people, and is thus arguably
the most important part of all legislation.
M.C. Esher Picture: A Comparison to Company Law
• Perspective (in the same way that your perspective of the picture changes the way
you look at it, the perspective from different people of a company is highly
important, e.g. the company from shareholders’ perspectives to employees’
perspectives).
• One House/Entity (the picture shows one house or entity, in the same way that we
often view one company albeit from many different viewpoints).
• Fiction (the picture is purely fictitious, as companies being effectively legal fiction).
Development & History
• Corporation = derived from latin ‘corpus’, meaning body
• Roman Law & Middle Ages
• Later developments in England (dealt with below:1-4)
• The US: generally enabling legislation embraced
Arguably, African Customary Law could very much be implemented in the modern
commercial world to help currently with greed in the workplace through Ubuntu.
In the 1700s, England was undergoing its Industrial Revolution. The time saw individuals
becoming increasingly wealthy, well beyond the scope of what was formerly possible. The
Monarch became increasingly worried about these new wealthy individuals, and the
immense power that they may one-day hold, as a new social class.
,As such, (1) The British Bubble Act of 1720 was introduced by the Monarch as a measure of
ensuring control over the wealth. It meant that only the Monarch itself or representatives
thereof could create companies.
(2) The Joint Stock Companies Act of 1844 was later introduced, and essentially brought a lot
of the legislation together. It allowed for the incorporation of companies, without the need
to be affiliated to the Monarch itself. However, there were still two requirements stipulated
by the Act:
• One had to pay 5 pounds (a lot at the time).
• One had to follow a registration process.
This allowed for multiple people to operate under one banner. As such, one was able to sue
the company itself as opposed to each of its members individually.
(3) The Limited Liability Act of 1855 took things even further. It meant that the liability of the
shareholder of a company was limited to the investment of that shareholder. Even though
the shareholder was not insulated completely from losses (their investment value could still
decrease), it was at the very least limited.
These Acts, along with the following case, form the basis of almost all Company Law.
(4) Saloman vs Saloman & Co. is the most famous case in terms of Company Law. Mr
Soloman ran a business, and had 3 sons. He split the shareholding of the business equally
between himself, his wife, and his 3 sons. One of the sons, who was very wealthy, and the
father had a large fallout. The son left, and bought all the shares of the business, before
firing his father. However, before doing so, the father had taken assets out of the business
beforehand. The son claimed that the assets should be claimed against the business,
however the courts stated that he could not claim against the business. The court found
that “the company itself has an entirely different legal personality to its members and
shareholders”. This one line has become fundamental in Company Law.
In the US, companies were taxed much more than other business forms and were subject to
a greater degree of governance in the early days. It became what was known as hyper-
regulation. As such, people shifted their wealth into other business forms. However, as the
economy grew, the requirement for a shift towards the company structure grew and the
state was pressured into deregulation. The new regulations that followed enabled business
(while US regulations at the time were known as enabling business, the UK’s were known as
constraining regulations).
Definition of a Company
• A collection of many individuals
• United into one body
• Having perpetual succession under artificial form
• Vested by policy of law
• Capacity of Acting as an individual
o Taking/Granting property
o Contracting obligations
, o Suing and being sued
o Exercising a variety of political rights
Common Law Juristic Persons
The Companies Act is essentially what allows companies to become companies.
A Partnership is simply a contract, offering no separate legal personality.
It is possible for an entity to be considered a juristic person simply due to the way they
acted, despite not being registered, in terms of generally enabling statute or creation in
terms of specific statute. I.e. An entity can become a juristic person due to the way they act.
So… why bother incorporating/registering?
Most importantly, an entity cannot earn profit without incorporating under Common Law.
There are other benefits too, but this is the most prominent.
Therefore, there are two options:
• Specific legislation creates the juristic person.
e.g. Eskom (Electricity Act 42 of 1922), Transnet, Telkom
• Registration in terms of a so-called generally enabling statute
e.g. Close Corporations Act of 1984 (no new registrations allowed)/
Companies Act 71 of 2008
In terms of Closed Corporations, when the number of members exceeds a certain threshold,
the CC is forced to become a company. When the Companies Act was first introduced, it was
free for CCs to transfer to Companies. The CC can still be sued itself.
The Company as a Juristic Person
Section 19 of the Companies Act confirms that a company is indeed a separate legal person:
“from date & time that incorporation of a company is registered … the company –
Ø - is a juristic person, which exists continuously until its name is removed from the
company’s register in accordance with the Act;
Ø has all of the legal powers & capacity of an individual, except to the extent that:
ü a juristic person is incapable of exercising any such power, or having any such
capacity (e.g. marriage), or
ü the company’s Memorandum of Incorporation (MOI) provides otherwise (for
instance, if a company does not have the capacity to fulfil a contract, the
contract is void)”
Companies can create contracts & obligations, but limited to do so as it is a company, not a
human (e.g. company cannot get married).
What are the key features of a juristic personality?
Fundamentals of Company Law as a whole
• Limited Liability
Week 1: Introduction & General Concepts
NOT DIRECTLY EXAMINABLE
14 March 2017
Perspective Lecture
Companies are juristic persons. In terms of a company, you have: the company itself,
directors, shareholders, stakeholders; as well as 3rd persons whom are not connected to the
company in any way.
Issues mainly arise between these parties/entities mentioned above. In addition, one
natural person can be anyone (or many) of these entities. You have to be very careful who
you are dealing with in the scenarios, and in what capacity. These concepts come mainly
from the Companies Act and Law of Contract (covered in Business Law I)
The Companies Act regulates the relationships between each of these entities.
What is a Company? Why have a Company? For two reasons. Firstly, because companies
offer limited liability, which means that the company is sued, rather than the directors and
shareholders. Secondly, there is perpetual succession (i.e. the company is not brought to an
end by the death of somebody).
The purpose of a Company is to hold property and carry out business, and to do so in a
manner that is completely separate and distinct from the members of that company.
• Why incorporate a business? To form a separate entity.
• What to consider when incorporating?
Ø Separate entity
Ø Number of persons involved
Ø Management & Ownership
Ø Process of incorporation
Ø Size
Ø Tax implications
e.g. A partnership does not have separate legal personality; it is an agreement between 2 or
more people at a limit of 20, to effectively share assets and liabilities equally.
In a Company, because of its separate juristic personality, one person can incorporate the
company, and have one shareholder and one director. And they can all be the same person.
• Juristic capacity? The capacity to create binding legal obligations, borne from the
Companies Act and incorporation, which essentially means you can limit the company’s
capacity.
• A Company may exist in terms of the law but how does it operate? What is a director of a
company? They direct the company; they make decisions on behalf of the company. It is
,directors who contract on behalf of the company. They are agents of the company.
Because a juristic person has no physical body/presence it necessarily relies on human
agents to do its bidding. Because of this the law of agency is very important when
considering many aspects of the legal position of a juristic person.
Fiduciary Law
– When an agent acts on behalf of another person (principle), the latter is often left
vulnerable to abuse.
– This is also true for juristic persons.
– For this reason, the law considers certain types of agents as fiduciaries and holds their
conduct to a higher standard.
– This forms the basis for the rules relating to, for example, the duties of directors.
A fiduciary, e.g. a director, is in a position of trust.
15 March 2017
Cont. from yesterday:
Company Law regulates the relationships discussed yesterday in very specific ways. The
Companies Act defines the rights and obligations given to those people, and is thus arguably
the most important part of all legislation.
M.C. Esher Picture: A Comparison to Company Law
• Perspective (in the same way that your perspective of the picture changes the way
you look at it, the perspective from different people of a company is highly
important, e.g. the company from shareholders’ perspectives to employees’
perspectives).
• One House/Entity (the picture shows one house or entity, in the same way that we
often view one company albeit from many different viewpoints).
• Fiction (the picture is purely fictitious, as companies being effectively legal fiction).
Development & History
• Corporation = derived from latin ‘corpus’, meaning body
• Roman Law & Middle Ages
• Later developments in England (dealt with below:1-4)
• The US: generally enabling legislation embraced
Arguably, African Customary Law could very much be implemented in the modern
commercial world to help currently with greed in the workplace through Ubuntu.
In the 1700s, England was undergoing its Industrial Revolution. The time saw individuals
becoming increasingly wealthy, well beyond the scope of what was formerly possible. The
Monarch became increasingly worried about these new wealthy individuals, and the
immense power that they may one-day hold, as a new social class.
,As such, (1) The British Bubble Act of 1720 was introduced by the Monarch as a measure of
ensuring control over the wealth. It meant that only the Monarch itself or representatives
thereof could create companies.
(2) The Joint Stock Companies Act of 1844 was later introduced, and essentially brought a lot
of the legislation together. It allowed for the incorporation of companies, without the need
to be affiliated to the Monarch itself. However, there were still two requirements stipulated
by the Act:
• One had to pay 5 pounds (a lot at the time).
• One had to follow a registration process.
This allowed for multiple people to operate under one banner. As such, one was able to sue
the company itself as opposed to each of its members individually.
(3) The Limited Liability Act of 1855 took things even further. It meant that the liability of the
shareholder of a company was limited to the investment of that shareholder. Even though
the shareholder was not insulated completely from losses (their investment value could still
decrease), it was at the very least limited.
These Acts, along with the following case, form the basis of almost all Company Law.
(4) Saloman vs Saloman & Co. is the most famous case in terms of Company Law. Mr
Soloman ran a business, and had 3 sons. He split the shareholding of the business equally
between himself, his wife, and his 3 sons. One of the sons, who was very wealthy, and the
father had a large fallout. The son left, and bought all the shares of the business, before
firing his father. However, before doing so, the father had taken assets out of the business
beforehand. The son claimed that the assets should be claimed against the business,
however the courts stated that he could not claim against the business. The court found
that “the company itself has an entirely different legal personality to its members and
shareholders”. This one line has become fundamental in Company Law.
In the US, companies were taxed much more than other business forms and were subject to
a greater degree of governance in the early days. It became what was known as hyper-
regulation. As such, people shifted their wealth into other business forms. However, as the
economy grew, the requirement for a shift towards the company structure grew and the
state was pressured into deregulation. The new regulations that followed enabled business
(while US regulations at the time were known as enabling business, the UK’s were known as
constraining regulations).
Definition of a Company
• A collection of many individuals
• United into one body
• Having perpetual succession under artificial form
• Vested by policy of law
• Capacity of Acting as an individual
o Taking/Granting property
o Contracting obligations
, o Suing and being sued
o Exercising a variety of political rights
Common Law Juristic Persons
The Companies Act is essentially what allows companies to become companies.
A Partnership is simply a contract, offering no separate legal personality.
It is possible for an entity to be considered a juristic person simply due to the way they
acted, despite not being registered, in terms of generally enabling statute or creation in
terms of specific statute. I.e. An entity can become a juristic person due to the way they act.
So… why bother incorporating/registering?
Most importantly, an entity cannot earn profit without incorporating under Common Law.
There are other benefits too, but this is the most prominent.
Therefore, there are two options:
• Specific legislation creates the juristic person.
e.g. Eskom (Electricity Act 42 of 1922), Transnet, Telkom
• Registration in terms of a so-called generally enabling statute
e.g. Close Corporations Act of 1984 (no new registrations allowed)/
Companies Act 71 of 2008
In terms of Closed Corporations, when the number of members exceeds a certain threshold,
the CC is forced to become a company. When the Companies Act was first introduced, it was
free for CCs to transfer to Companies. The CC can still be sued itself.
The Company as a Juristic Person
Section 19 of the Companies Act confirms that a company is indeed a separate legal person:
“from date & time that incorporation of a company is registered … the company –
Ø - is a juristic person, which exists continuously until its name is removed from the
company’s register in accordance with the Act;
Ø has all of the legal powers & capacity of an individual, except to the extent that:
ü a juristic person is incapable of exercising any such power, or having any such
capacity (e.g. marriage), or
ü the company’s Memorandum of Incorporation (MOI) provides otherwise (for
instance, if a company does not have the capacity to fulfil a contract, the
contract is void)”
Companies can create contracts & obligations, but limited to do so as it is a company, not a
human (e.g. company cannot get married).
What are the key features of a juristic personality?
Fundamentals of Company Law as a whole
• Limited Liability
