Mercantile Law 292
Topic 16 – Types of Companies
Basic Characteristic of Company Group and Legal Relationship between
holding and subsidiary:
According to Cassim et al quoting DH Botha “Recognition of the group
concept in company law” (1982)
“The basic characteristics of such a group is that the management of the
different and independent holding and subsidiary companies comprising the
group is coordinated in such a way that they are managed on a central and
unified basis in the interests of the group as a whole. This management on a
unified basis is possible because of the control, implicit in the holding
/subsidiary company relationship, which the holding company exercises over
the subsidiary or subsidiaries. This control makes it possible that the group is
managed as an economic unit, in the sense that the different holding and
subsidiary companies no longer carry out their commercial activities on a
footing of complete economic independence.”
DH Botha “Recognition of the group concept in company law” (1982)
o “Although South African courts have often referred to a group, they
have never regarded a holding company and its subsidiary or
subsidiaries as constituting a separate independent persona apart from
the personae of the independent constituent companies comprising the
group.”
o “… the exercise of control by a holding company over its subsidiary
does not result per se in the negation of the subsidiary’s legal
personality.”
o “Group concept is a descriptive term which [sic] has not been elevated
by the courts to the status of or possessing the necessary
characteristics of a legal persona”
Definitions: Subsidiary
A company can only ever be a subsidiary, however a trust, close corporation and
companies can be a holding company.
Holding/subsidiary relationship = based on control of subsidiary by Holdco at
General meeting level
o Section 3(1)(a)(i) determination of control at general meeting level is
the ability to directly or indirectly exercise or control the exercise of a
majority of the general voting rights associated with the issued
securities of that company (whether because of shareholder agreement
or otherwise)
, o NB! Section 15(7) of CA allows shareholders to enter into an
agreement with one another (shareholders agreement) ito any matter
relating to the CO BUT the agreement must be consistent with Act &
MOI
o Possible for SHs to provide for how they will vote their shares when
exercising VR (Cassim et al)
Cassim et al state
Blackman states that
o “Voting rights held through a shareholder agreement are expressly
included in the determination of the holding / subsidiary relationship”
o If there is a shareholder's agreement and it contains voting rights, they
need to be considered for the purpose of s 3(1)(a)(i)
Board meeting
o Section 3(1)(a)(ii) determination of control at board meeting level is the
ability to appoint or elect or control the appointment or election of
directors of that company who control a majority of votes at meeting of
the board
Appointment / Election of directors
o Section 66(4)(a)(i) of CA MOI can provide for direct appointment of 1 or
more directors by person named in / determined ito MOI
o Section 68(1) each director of profit company to be elected by persons
entitled to exercise voting rights in such election to serve for indefinite
period / term set out in MOI
Section 73(5)(c) of the CA
o Each director has 1 vote on a matter before the board unless MOI
states otherwise
Control at general meeting level
o Not the number of shares, but the voting rights are important
Control at board level
o Consider the right to appoint / elect directors who hold majority voting
rights at meeting of the board as opposed to right to appoint majority
directors in terms of headcount.
,Related & Interrelated Persons, and Control:
Section 2 of the Companies Act 71 of 2008 provides for related and
interrelated person and control
o From individual to individual (section 2(1)(a)(i) & (ii))
o From individual to juristic person (section 2(1)(b))
o From juristic person to juristic person (section 2(1)(c))
Related & Control:
Control is established by considering section 2(2)
Exemptions are possible in terms of section 2(3)
Related:
Section 2(1)(a)(i)
o If A & B are married / concluded a civil union in terms of the Civil Union
Act 17 of 2006 = related
o If A & B are not married but are living together in a relationship similar
to a marriage (i.e. they are cohabiting) = related
Section 2(1)(a)(ii)
o Two degrees of natural or adopted consanguinity or affinity
o Consanguinity = relation by blood , not marriage
A adopts B = related due to adopted consanguinity
C (not adopted) is the sibling to A - consanguinity
o Affinity = relationship through marriage as opposed to blood ties
A & B are married / concluded a Civil Union = B `s parents are
related to A through marriage , not blood ties
Cassim et al
o Consanguinity determination between two relatives (NB! Relationship
by blood , not marriage)
o Count up from the one relative to nearest common ancestor and then
count down to the other relative
Section 2(1)(b)
o Individual related to JP if individual directly OR indirectly controls JP
(NB! Definition of juristic person in section 1 )
Cassim et al
‘Control here is the same as where a one JP controls another
JP’
Section 2(2) control of a company defined as utilised in section 2(1)
o Section 2(2)(a)
o Person controls a company if
That company is a subsidiary of that person as set out by
section 3(1)(a)
, o That person together with a related or interrelated person is
Exercise or control the exercise of majority voting rights
associated with the securities of that company whether due to
shareholder agreement or otherwise or
right to appoint / elect or control appointment / election of
directors of that company who control a majority of the votes at
board meeting
Consider section 3(1)(a)(i) and section 2(2)(a)(ii)(aa) – is there a
difference in the wording of these sections and would it impact
the outcome of the determination as envisaged in this part?
Cassim et al = ‘nothing turns on the difference in wording’
Section 2(2)(b) Control of a close corporation
o Person controls a CC if that person owns majority of members interests
/ controls directly / has right to control majority of members votes in a
CC
o If this person has the ability to materially influence the policy of a CC =
Control as envisaged in section 2(2)(d) would exist
Section 2(2)(c) Control of a trust
o Person controls a trust where that person has ability to
Control majority of trustees votes
Appoint majority of the trustees
Appoint / change majority of the beneficiaries of a trust
If this person has the ability to materially influence the policy of
the trust = Control as envisaged in section 2(2)(d) would exist
Section 2(2)(d) De facto control of any juristic person
o A person is able to control any juristic person if the person has the
ability to to materially influence the policy of the company in a way
comparable to a person who in ordinary commercial practice could
exercise an element of control per (a), (b) or (c)
Cassim et al quoting Henochsberg
o Application of section 2(2)(d) is dependent on circumstances…”
De Klerk v Ferreira Case No 35391/14 (2/2/2017)
o Paragraph 78 – 86 of importance
Topic 16 – Types of Companies
Basic Characteristic of Company Group and Legal Relationship between
holding and subsidiary:
According to Cassim et al quoting DH Botha “Recognition of the group
concept in company law” (1982)
“The basic characteristics of such a group is that the management of the
different and independent holding and subsidiary companies comprising the
group is coordinated in such a way that they are managed on a central and
unified basis in the interests of the group as a whole. This management on a
unified basis is possible because of the control, implicit in the holding
/subsidiary company relationship, which the holding company exercises over
the subsidiary or subsidiaries. This control makes it possible that the group is
managed as an economic unit, in the sense that the different holding and
subsidiary companies no longer carry out their commercial activities on a
footing of complete economic independence.”
DH Botha “Recognition of the group concept in company law” (1982)
o “Although South African courts have often referred to a group, they
have never regarded a holding company and its subsidiary or
subsidiaries as constituting a separate independent persona apart from
the personae of the independent constituent companies comprising the
group.”
o “… the exercise of control by a holding company over its subsidiary
does not result per se in the negation of the subsidiary’s legal
personality.”
o “Group concept is a descriptive term which [sic] has not been elevated
by the courts to the status of or possessing the necessary
characteristics of a legal persona”
Definitions: Subsidiary
A company can only ever be a subsidiary, however a trust, close corporation and
companies can be a holding company.
Holding/subsidiary relationship = based on control of subsidiary by Holdco at
General meeting level
o Section 3(1)(a)(i) determination of control at general meeting level is
the ability to directly or indirectly exercise or control the exercise of a
majority of the general voting rights associated with the issued
securities of that company (whether because of shareholder agreement
or otherwise)
, o NB! Section 15(7) of CA allows shareholders to enter into an
agreement with one another (shareholders agreement) ito any matter
relating to the CO BUT the agreement must be consistent with Act &
MOI
o Possible for SHs to provide for how they will vote their shares when
exercising VR (Cassim et al)
Cassim et al state
Blackman states that
o “Voting rights held through a shareholder agreement are expressly
included in the determination of the holding / subsidiary relationship”
o If there is a shareholder's agreement and it contains voting rights, they
need to be considered for the purpose of s 3(1)(a)(i)
Board meeting
o Section 3(1)(a)(ii) determination of control at board meeting level is the
ability to appoint or elect or control the appointment or election of
directors of that company who control a majority of votes at meeting of
the board
Appointment / Election of directors
o Section 66(4)(a)(i) of CA MOI can provide for direct appointment of 1 or
more directors by person named in / determined ito MOI
o Section 68(1) each director of profit company to be elected by persons
entitled to exercise voting rights in such election to serve for indefinite
period / term set out in MOI
Section 73(5)(c) of the CA
o Each director has 1 vote on a matter before the board unless MOI
states otherwise
Control at general meeting level
o Not the number of shares, but the voting rights are important
Control at board level
o Consider the right to appoint / elect directors who hold majority voting
rights at meeting of the board as opposed to right to appoint majority
directors in terms of headcount.
,Related & Interrelated Persons, and Control:
Section 2 of the Companies Act 71 of 2008 provides for related and
interrelated person and control
o From individual to individual (section 2(1)(a)(i) & (ii))
o From individual to juristic person (section 2(1)(b))
o From juristic person to juristic person (section 2(1)(c))
Related & Control:
Control is established by considering section 2(2)
Exemptions are possible in terms of section 2(3)
Related:
Section 2(1)(a)(i)
o If A & B are married / concluded a civil union in terms of the Civil Union
Act 17 of 2006 = related
o If A & B are not married but are living together in a relationship similar
to a marriage (i.e. they are cohabiting) = related
Section 2(1)(a)(ii)
o Two degrees of natural or adopted consanguinity or affinity
o Consanguinity = relation by blood , not marriage
A adopts B = related due to adopted consanguinity
C (not adopted) is the sibling to A - consanguinity
o Affinity = relationship through marriage as opposed to blood ties
A & B are married / concluded a Civil Union = B `s parents are
related to A through marriage , not blood ties
Cassim et al
o Consanguinity determination between two relatives (NB! Relationship
by blood , not marriage)
o Count up from the one relative to nearest common ancestor and then
count down to the other relative
Section 2(1)(b)
o Individual related to JP if individual directly OR indirectly controls JP
(NB! Definition of juristic person in section 1 )
Cassim et al
‘Control here is the same as where a one JP controls another
JP’
Section 2(2) control of a company defined as utilised in section 2(1)
o Section 2(2)(a)
o Person controls a company if
That company is a subsidiary of that person as set out by
section 3(1)(a)
, o That person together with a related or interrelated person is
Exercise or control the exercise of majority voting rights
associated with the securities of that company whether due to
shareholder agreement or otherwise or
right to appoint / elect or control appointment / election of
directors of that company who control a majority of the votes at
board meeting
Consider section 3(1)(a)(i) and section 2(2)(a)(ii)(aa) – is there a
difference in the wording of these sections and would it impact
the outcome of the determination as envisaged in this part?
Cassim et al = ‘nothing turns on the difference in wording’
Section 2(2)(b) Control of a close corporation
o Person controls a CC if that person owns majority of members interests
/ controls directly / has right to control majority of members votes in a
CC
o If this person has the ability to materially influence the policy of a CC =
Control as envisaged in section 2(2)(d) would exist
Section 2(2)(c) Control of a trust
o Person controls a trust where that person has ability to
Control majority of trustees votes
Appoint majority of the trustees
Appoint / change majority of the beneficiaries of a trust
If this person has the ability to materially influence the policy of
the trust = Control as envisaged in section 2(2)(d) would exist
Section 2(2)(d) De facto control of any juristic person
o A person is able to control any juristic person if the person has the
ability to to materially influence the policy of the company in a way
comparable to a person who in ordinary commercial practice could
exercise an element of control per (a), (b) or (c)
Cassim et al quoting Henochsberg
o Application of section 2(2)(d) is dependent on circumstances…”
De Klerk v Ferreira Case No 35391/14 (2/2/2017)
o Paragraph 78 – 86 of importance
