TOPIC 4: INCORPORATION
Introduction
- Two ways in which a company is started:
a) Buy it “off the shelf” from another company that has already incorporated the
company.
b) Do it from scratch through incorporation
o See slide 1-2 for process but do not have to know
Company names
- Overwhelming disputes brough before Companies Tribunal is about company names
o See slide 4 but do not have to know
Notice of incorporation
- See slide 5 but do not need to know
The Memorandum of Incorporation
Background
- If you are an incorporated entity, you need a constitution.
- The MOI is the constitution of the company and as such, it is the most important
document
- Under the old companies act, companies had both a MOI that was short (set out
name, business, share capital, etc.) and the articles (more comprehensive in that it
set out the manner in which the company would be run – shareholders meetings,
transfer of shares and restrictions if private company, quorum, percentages needed
for resolutions, directors’ powers and quorum, restrictions of their powers, etc.).
- Under the new act it has been consolidated, you simply have the MOI.
- Old MOI and articles are still valid. Only if there is a conflict between that MOI and
the new act requirements will you read in the new act. Not so big a problem in
practice, disputes mostly about:
o Appointment of alternate directors
o Dividends
- Another important difference, however, is that the old act referred to the
restrictions placed on “shares” in the MOI of private companies, whereas the new
act refers to the restrictions placed on “securities” in the MOI of a private company.
o A share is merely one form of securities
o So, if you have a pre-existing company (incorporated under the old act) only
“shares” will be restricted = not a private company in terms of the new act
because “securities” includes more than just shares.
§ Would have to amend MOI to ensure the private companies in terms
of the old act are private companies in terms of the new act.
Otherwise, they will be a public company.
, Definition
- Section 1: “the document that sets out rights, duties and responsibilities of
shareholders, directors and others within and in relation to a company, and other
matters as contemplated in section 15; and by which –
a) The company was incorporated as contemplated in section 13; or
b) A pre-existing company was structured and governed”
Access to the MOI
- Under the old Act you could get the MOI from the company directly who was obliged
to give it to you within 14 days.
- Under the new Act you will have to apply to get access to the company’s MOI from
CIPC = cumbersome.
o Section 187(5)(a): Pay a prescribed fee to get access to the filed MOI
o Why is it harder for an outsider to get access to the MOI?
§ Under the old Act, the doctrine of constructive knowledge applied
which held that an outsider was deemed to have knowledge of the
company’s documentation and its content. The MOI and articles were
public documents so if the company had a provision which held that X
may not enter into contracts and you are a supplier of milk to that
company (but do not bother to look at the MOI and articles) that
enters into a contract with X, the company will argue that you were
deemed to have constructive knowledge = very onerous. New act
therefore abolished this doctrine of constructive knowledge.
§ The doctrine of constructive knowledge only applies to PLC in respect
of the liability clause of the company: The directors and former
directors are jointly and severally liable for the debts contracted for
by the company.
§ But for this liability clause, the situation referred to above will not be
a problem as it was under the old Act.
§ So, reasons for stricter process:
• Doctrine of constructive knowledge no longer applies
• Ignorance is bliss because the company cannot raise
constructive knowledge against you
• Unless you want to buy shares in the company, why would you
want access to the MOI? Different story with securities
register in a private company which you would want to see to
know who your potential fellow shareholders will be.
Legal nature of the MOI
- Old act held that it is a contract between the shareholders and the company, and the
shareholders inter se.
- Section 15(6) of the new Act extended the position under the old Act:
o MOI is binding (argue that it is a contract) between the company and each
shareholder, the shareholders inter se, and between the company and each
Introduction
- Two ways in which a company is started:
a) Buy it “off the shelf” from another company that has already incorporated the
company.
b) Do it from scratch through incorporation
o See slide 1-2 for process but do not have to know
Company names
- Overwhelming disputes brough before Companies Tribunal is about company names
o See slide 4 but do not have to know
Notice of incorporation
- See slide 5 but do not need to know
The Memorandum of Incorporation
Background
- If you are an incorporated entity, you need a constitution.
- The MOI is the constitution of the company and as such, it is the most important
document
- Under the old companies act, companies had both a MOI that was short (set out
name, business, share capital, etc.) and the articles (more comprehensive in that it
set out the manner in which the company would be run – shareholders meetings,
transfer of shares and restrictions if private company, quorum, percentages needed
for resolutions, directors’ powers and quorum, restrictions of their powers, etc.).
- Under the new act it has been consolidated, you simply have the MOI.
- Old MOI and articles are still valid. Only if there is a conflict between that MOI and
the new act requirements will you read in the new act. Not so big a problem in
practice, disputes mostly about:
o Appointment of alternate directors
o Dividends
- Another important difference, however, is that the old act referred to the
restrictions placed on “shares” in the MOI of private companies, whereas the new
act refers to the restrictions placed on “securities” in the MOI of a private company.
o A share is merely one form of securities
o So, if you have a pre-existing company (incorporated under the old act) only
“shares” will be restricted = not a private company in terms of the new act
because “securities” includes more than just shares.
§ Would have to amend MOI to ensure the private companies in terms
of the old act are private companies in terms of the new act.
Otherwise, they will be a public company.
, Definition
- Section 1: “the document that sets out rights, duties and responsibilities of
shareholders, directors and others within and in relation to a company, and other
matters as contemplated in section 15; and by which –
a) The company was incorporated as contemplated in section 13; or
b) A pre-existing company was structured and governed”
Access to the MOI
- Under the old Act you could get the MOI from the company directly who was obliged
to give it to you within 14 days.
- Under the new Act you will have to apply to get access to the company’s MOI from
CIPC = cumbersome.
o Section 187(5)(a): Pay a prescribed fee to get access to the filed MOI
o Why is it harder for an outsider to get access to the MOI?
§ Under the old Act, the doctrine of constructive knowledge applied
which held that an outsider was deemed to have knowledge of the
company’s documentation and its content. The MOI and articles were
public documents so if the company had a provision which held that X
may not enter into contracts and you are a supplier of milk to that
company (but do not bother to look at the MOI and articles) that
enters into a contract with X, the company will argue that you were
deemed to have constructive knowledge = very onerous. New act
therefore abolished this doctrine of constructive knowledge.
§ The doctrine of constructive knowledge only applies to PLC in respect
of the liability clause of the company: The directors and former
directors are jointly and severally liable for the debts contracted for
by the company.
§ But for this liability clause, the situation referred to above will not be
a problem as it was under the old Act.
§ So, reasons for stricter process:
• Doctrine of constructive knowledge no longer applies
• Ignorance is bliss because the company cannot raise
constructive knowledge against you
• Unless you want to buy shares in the company, why would you
want access to the MOI? Different story with securities
register in a private company which you would want to see to
know who your potential fellow shareholders will be.
Legal nature of the MOI
- Old act held that it is a contract between the shareholders and the company, and the
shareholders inter se.
- Section 15(6) of the new Act extended the position under the old Act:
o MOI is binding (argue that it is a contract) between the company and each
shareholder, the shareholders inter se, and between the company and each
