INTRODUCTION & STUDY UNIT 1
Types and Forms of Companies
- two main types of companies i.t.o. 2008 Act profit companies & non-profit companies
- object of profit company financial gain for shareholders (SH)
- may be incorporated by one or more persons & no limit to number of SH
- four types of profit companies
a state-owned company
listed in schedules 2 or 3 of the Public Finance Management Act or owned by a municipality
is a national government business enterprise e.g. ESKOM Holdings Ltd
b public company
shares may be offered to the public & are freely transferable
could be listed on the JSE
c personal liability company
mainly used by professional associations (e.g. attorneys)
directors are jointly and severally liable with the company for debts and liabilities contracted
during their term of office limited to contractual debts as per Fundtrust (Pty) Ltd (In
liquidation) v Van Deventer 1997
d private company
prohibited by it’s MOI from offering shares to public
can’t freely transfer shares
- a non-profit company is a company previously registered as a section 21 company
- it’s objects must relate to social activities, public benefits, cultural activities or group interests
- must have directors but not allowed to gain any financial except for remuneration for work
- non-profit company not obliged to have members, if it does some will have voting rights, some won’t
Pre-Incorporation Contracts
- section 21 allows pre-incorporation contracts to be entered into on behalf of company not yet incorporated
- section 1 describes pre-incorporation contract a written agreement entered into before the incorporation
of a company by a person who purports to act in the name of, or on behalf of, the company, with the
intention and understanding that the company will be incorporated, and will thereafter be bound by the
agreement
- person who enters into such a contract is held jointly and severally liable with any other such person for
liabilities emanating from pre-incorporation contract if incorporation doesn’t take place or company doesn’t
ratify any part of agreement after incorporation
The Constitution of the company
- Memorandum of Incorporation (MOI) is the founding document of the company
- provisions may be changed from time to time
UNIT 1: SHAREHOLDERS AND COMPANY MEETINGS
Prescribed cases:
Case 130 - Davey and Others v Inyanga Petroleum (1934) Ltd and Another (1954) (3) SA
,Case 292 - Ebrahim v Westbourne Galleries Ltd and Others [1973] AC
Case 132 - Getz v Spaarwater and Another 1971 (2) SA
Case 36 - Gohlke and Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA
Case 286 – Sammel & Others v President Brand Gold Mining Co Ltd 1969 (3) SA
Hahlo text at 207 and 235
Introduction and Definitions
Section 66: Board, directors and prescribed officers
- S 66(1): business of a company must be managed by or under direction of its board
- directors have a duty to manage the company but shareholders retain control over the directors by their
power to appoint and remove directors
- before certain transactions can take place, such transactions must be approved by shareholders, either by
way of special or ordinary resolution
- a company’s own MOI can restrict the powers of directors or others to act i.r.o a particular matter
- MOI can provide that certain transactions have to be pre-approved by shareholders
- shareholder: holder of share issued by a company and who is entered as such in the certificated or
uncertificated securities register of the company
- for purposes of part F of Ch 2 person who is entitled to exercise any voting rights in relation to a company,
irrespective of the form, title or nature of the securities to which those voting rights are attached
- share: one of the units into which the proprietary interest in a profit company is divided
- shareholders meeting: meeting of those holders of a company’s issued securities who are entitled to exercise
voting rights in relation to that matter
General comments regarding meetings
Important principles
- meeting must be properly called and convened
- properly convened if the prescribed notice for convening the meeting was given by authorised
- notice must be given to all persons who are entitled
- meeting must be convened for a time, date and place that is accessible to shareholders
- meeting may only commence if a quorum is present
- quorum is minimum number of members who have to be present at meeting before it can begin
Record date
59. Record date for determining shareholder rights
- record date: NB because it’s the date that determines shareholder rights, e.g. right to vote at meeting
- board of directors may set a record date for determining which shareholders are entitled to:
a receive notice of shareholders’ meeting
b participate in and vote at a shareholders’ meeting
c decide any matter by written consent or electronic communication
- record date may not be earlier than date on which it is determined or more than 10 business days before
date on which event or action is scheduled to occur
- must be published to shareholders in manner that satisfies requirements
- where board doesn’t determine record date, unless the MOI or rules of company provide otherwise, record
date is:
, a in case of a meeting, latest date by which company is required to give shareholders notice of that
meeting; or
b date of action or event
Calling of a shareholders meeting
61. Shareholders Meeting
- board of directors, or any other person specified in the company’s MOI or rules, may call a shareholders’
meeting at any time
- A shareholders’ meeting must be called in the following circumstances:
a at any time that the board is required to convene a meeting and to refer a matter to decision by
shareholders as provided for in the Companies Act or by the MOIT
b when a meeting is demanded by shareholders, provided that the demand is signed by the holders of
at least 10 % of the voting rights (company’s MOI may specify a lower percentage
Notice of meetings
Section 62 and 63(3)
- must be in writing & include date, time and place & include record date if set
- explain the general purpose of the meeting and any other specific purposes
- public company or non-profit company that has voting members notice should be given 15 business days
before date of meeting
- for any other company, notice must be sent 10 business days before date of meeting
- provisions of MOI may prescribe longer minimum notice
- a copy of any proposed resolution which is to be considered at the meeting, must accompany the notice
- should indicate the % voting rights required for the resolution to be adopted
- notice convening annual general meeting of a company must contain a summary of the financial statements
that will be tabled at the meeting
- should also explain the procedure that a shareholder can follow to obtain a complete copy of the annual
financial statements for the preceding financial year
- notice convening a meeting must contain a prominent statement that a shareholder is entitled to appoint a
proxy to attend, participate in, and vote at the meeting
- notice should indicate that meeting participants will be required to provide satisfactory proof of identity at
the meeting
- where company has failed to give notice or if there has been a defect in giving of the notice may proceed if
persons entitled to vote are present at the meeting, acknowledge actual receipt of notice and agree to waive
notice or ratify defective notice
- if material defect relates only to one or more particular matters, any such matter may be taken off the agenda
and notice will remain valid for remaining matters
- shareholder who is present at a meeting is deemed to have received or waived notice of the meeting
Postponement and adjournment of meetings
Section 64(4)-(13)
- meeting may be postponed or adjourned for a week under following conditions:
1 within 1 hr after appointed time, quorum is not present
2 when quorum not present at postponed or adjourned meeting, members present in person or by
proxy will be deemed to constitute quorum and
3 if there is other business on the agenda of the meeting, consideration of that matter may be
postponed to a later time in the meeting without motion or vote
- chairperson of a meeting where quorum is not present within 1 hr of scheduled starting tie may extend limit
for a reasonable length of time on grounds of exceptional circumstances or that one or more shareholders
, having been delayed, have communicated intention to attend the meeting and those shareholders, together
with others in attendance would constitute a quorum
- one hour rule and postponement of one week is an alterable provision
- members of a company can agree to different periods in the MOI
- notice of postponement only if location different
- shareholders’ meeting may be adjourned without further notice on a motion supported by persons with
majority of voting rights
- may either be at a fixed time and place or until further notice as agreed to at the meeting
- ordinarily may not be adjourned beyond 120 business days after record date or 60 business days after date of
adjournment
- can be altered by provisions of company’s MOI
Representation by proxy
Section 58
- proxy: person who is appointed to represent a shareholder at a meeting
- Companies Act changes common law by allowing shareholder to appoint any individual as proxy (doesn’t
have to be member)
- provisions of MOI may allow a shareholder to appoint two or more proxies
- appointment must be in writing and signed by shareholder
- remains valid for one year after it was signed
- may also appoint proxy for specific time specified in appointment form
- proxy may delegate authority to act to another person
- proxy appointment form must be delivered to company prior to proxy exercising any rights at a shareholders’
meeting
- company can’t compel shareholder to make irrevocable proxy appointment
- appointment of proxy automatically suspended where the shareholder acts directly on a particular matter
- shareholder can revoke appointment by cancelling it in writing, or making a later inconsistent appointment of
a proxy and delivery a copy of the revocation instrument to the proxy and the company
- at the meeting proxy is entitled to vote as he or she thinks fit, unless shareholder has indicated on proxy
appointment form whether the proxy should vote in favour of or against a particular resolution
- company could invite shareholders on proxy appointment form to appoint proxy from list of names provided
by company but can’t compel shareholders to choose one or more persons from the list
Quorum
Section 64
- unless otherwise stated in MOI, shareholders’ meeting may not begin until persons with at least 25% of
voting rights are present
- if company has more than two shareholders, a meeting may not begin or a matter debated, unless at least
three shareholders are present and all can exercise required percentage of voting rights
Conduct of meetings
Section 63
- voting on any matter may be conducted by a show of hands or through a poll
- where by a show of hands, any person present and entitled to vote must only have one vote
- where by poll, entitled to exercise all voting rights attached to shares held or represented by that person
- company may provide for meeting to be conducted by electronic communication
- where a person abstains or fails to exercise his or her vote on a resolution, person is deemed to have voted
against resolution
Types and Forms of Companies
- two main types of companies i.t.o. 2008 Act profit companies & non-profit companies
- object of profit company financial gain for shareholders (SH)
- may be incorporated by one or more persons & no limit to number of SH
- four types of profit companies
a state-owned company
listed in schedules 2 or 3 of the Public Finance Management Act or owned by a municipality
is a national government business enterprise e.g. ESKOM Holdings Ltd
b public company
shares may be offered to the public & are freely transferable
could be listed on the JSE
c personal liability company
mainly used by professional associations (e.g. attorneys)
directors are jointly and severally liable with the company for debts and liabilities contracted
during their term of office limited to contractual debts as per Fundtrust (Pty) Ltd (In
liquidation) v Van Deventer 1997
d private company
prohibited by it’s MOI from offering shares to public
can’t freely transfer shares
- a non-profit company is a company previously registered as a section 21 company
- it’s objects must relate to social activities, public benefits, cultural activities or group interests
- must have directors but not allowed to gain any financial except for remuneration for work
- non-profit company not obliged to have members, if it does some will have voting rights, some won’t
Pre-Incorporation Contracts
- section 21 allows pre-incorporation contracts to be entered into on behalf of company not yet incorporated
- section 1 describes pre-incorporation contract a written agreement entered into before the incorporation
of a company by a person who purports to act in the name of, or on behalf of, the company, with the
intention and understanding that the company will be incorporated, and will thereafter be bound by the
agreement
- person who enters into such a contract is held jointly and severally liable with any other such person for
liabilities emanating from pre-incorporation contract if incorporation doesn’t take place or company doesn’t
ratify any part of agreement after incorporation
The Constitution of the company
- Memorandum of Incorporation (MOI) is the founding document of the company
- provisions may be changed from time to time
UNIT 1: SHAREHOLDERS AND COMPANY MEETINGS
Prescribed cases:
Case 130 - Davey and Others v Inyanga Petroleum (1934) Ltd and Another (1954) (3) SA
,Case 292 - Ebrahim v Westbourne Galleries Ltd and Others [1973] AC
Case 132 - Getz v Spaarwater and Another 1971 (2) SA
Case 36 - Gohlke and Schneider v Westies Minerale (Edms) Bpk 1970 (2) SA
Case 286 – Sammel & Others v President Brand Gold Mining Co Ltd 1969 (3) SA
Hahlo text at 207 and 235
Introduction and Definitions
Section 66: Board, directors and prescribed officers
- S 66(1): business of a company must be managed by or under direction of its board
- directors have a duty to manage the company but shareholders retain control over the directors by their
power to appoint and remove directors
- before certain transactions can take place, such transactions must be approved by shareholders, either by
way of special or ordinary resolution
- a company’s own MOI can restrict the powers of directors or others to act i.r.o a particular matter
- MOI can provide that certain transactions have to be pre-approved by shareholders
- shareholder: holder of share issued by a company and who is entered as such in the certificated or
uncertificated securities register of the company
- for purposes of part F of Ch 2 person who is entitled to exercise any voting rights in relation to a company,
irrespective of the form, title or nature of the securities to which those voting rights are attached
- share: one of the units into which the proprietary interest in a profit company is divided
- shareholders meeting: meeting of those holders of a company’s issued securities who are entitled to exercise
voting rights in relation to that matter
General comments regarding meetings
Important principles
- meeting must be properly called and convened
- properly convened if the prescribed notice for convening the meeting was given by authorised
- notice must be given to all persons who are entitled
- meeting must be convened for a time, date and place that is accessible to shareholders
- meeting may only commence if a quorum is present
- quorum is minimum number of members who have to be present at meeting before it can begin
Record date
59. Record date for determining shareholder rights
- record date: NB because it’s the date that determines shareholder rights, e.g. right to vote at meeting
- board of directors may set a record date for determining which shareholders are entitled to:
a receive notice of shareholders’ meeting
b participate in and vote at a shareholders’ meeting
c decide any matter by written consent or electronic communication
- record date may not be earlier than date on which it is determined or more than 10 business days before
date on which event or action is scheduled to occur
- must be published to shareholders in manner that satisfies requirements
- where board doesn’t determine record date, unless the MOI or rules of company provide otherwise, record
date is:
, a in case of a meeting, latest date by which company is required to give shareholders notice of that
meeting; or
b date of action or event
Calling of a shareholders meeting
61. Shareholders Meeting
- board of directors, or any other person specified in the company’s MOI or rules, may call a shareholders’
meeting at any time
- A shareholders’ meeting must be called in the following circumstances:
a at any time that the board is required to convene a meeting and to refer a matter to decision by
shareholders as provided for in the Companies Act or by the MOIT
b when a meeting is demanded by shareholders, provided that the demand is signed by the holders of
at least 10 % of the voting rights (company’s MOI may specify a lower percentage
Notice of meetings
Section 62 and 63(3)
- must be in writing & include date, time and place & include record date if set
- explain the general purpose of the meeting and any other specific purposes
- public company or non-profit company that has voting members notice should be given 15 business days
before date of meeting
- for any other company, notice must be sent 10 business days before date of meeting
- provisions of MOI may prescribe longer minimum notice
- a copy of any proposed resolution which is to be considered at the meeting, must accompany the notice
- should indicate the % voting rights required for the resolution to be adopted
- notice convening annual general meeting of a company must contain a summary of the financial statements
that will be tabled at the meeting
- should also explain the procedure that a shareholder can follow to obtain a complete copy of the annual
financial statements for the preceding financial year
- notice convening a meeting must contain a prominent statement that a shareholder is entitled to appoint a
proxy to attend, participate in, and vote at the meeting
- notice should indicate that meeting participants will be required to provide satisfactory proof of identity at
the meeting
- where company has failed to give notice or if there has been a defect in giving of the notice may proceed if
persons entitled to vote are present at the meeting, acknowledge actual receipt of notice and agree to waive
notice or ratify defective notice
- if material defect relates only to one or more particular matters, any such matter may be taken off the agenda
and notice will remain valid for remaining matters
- shareholder who is present at a meeting is deemed to have received or waived notice of the meeting
Postponement and adjournment of meetings
Section 64(4)-(13)
- meeting may be postponed or adjourned for a week under following conditions:
1 within 1 hr after appointed time, quorum is not present
2 when quorum not present at postponed or adjourned meeting, members present in person or by
proxy will be deemed to constitute quorum and
3 if there is other business on the agenda of the meeting, consideration of that matter may be
postponed to a later time in the meeting without motion or vote
- chairperson of a meeting where quorum is not present within 1 hr of scheduled starting tie may extend limit
for a reasonable length of time on grounds of exceptional circumstances or that one or more shareholders
, having been delayed, have communicated intention to attend the meeting and those shareholders, together
with others in attendance would constitute a quorum
- one hour rule and postponement of one week is an alterable provision
- members of a company can agree to different periods in the MOI
- notice of postponement only if location different
- shareholders’ meeting may be adjourned without further notice on a motion supported by persons with
majority of voting rights
- may either be at a fixed time and place or until further notice as agreed to at the meeting
- ordinarily may not be adjourned beyond 120 business days after record date or 60 business days after date of
adjournment
- can be altered by provisions of company’s MOI
Representation by proxy
Section 58
- proxy: person who is appointed to represent a shareholder at a meeting
- Companies Act changes common law by allowing shareholder to appoint any individual as proxy (doesn’t
have to be member)
- provisions of MOI may allow a shareholder to appoint two or more proxies
- appointment must be in writing and signed by shareholder
- remains valid for one year after it was signed
- may also appoint proxy for specific time specified in appointment form
- proxy may delegate authority to act to another person
- proxy appointment form must be delivered to company prior to proxy exercising any rights at a shareholders’
meeting
- company can’t compel shareholder to make irrevocable proxy appointment
- appointment of proxy automatically suspended where the shareholder acts directly on a particular matter
- shareholder can revoke appointment by cancelling it in writing, or making a later inconsistent appointment of
a proxy and delivery a copy of the revocation instrument to the proxy and the company
- at the meeting proxy is entitled to vote as he or she thinks fit, unless shareholder has indicated on proxy
appointment form whether the proxy should vote in favour of or against a particular resolution
- company could invite shareholders on proxy appointment form to appoint proxy from list of names provided
by company but can’t compel shareholders to choose one or more persons from the list
Quorum
Section 64
- unless otherwise stated in MOI, shareholders’ meeting may not begin until persons with at least 25% of
voting rights are present
- if company has more than two shareholders, a meeting may not begin or a matter debated, unless at least
three shareholders are present and all can exercise required percentage of voting rights
Conduct of meetings
Section 63
- voting on any matter may be conducted by a show of hands or through a poll
- where by a show of hands, any person present and entitled to vote must only have one vote
- where by poll, entitled to exercise all voting rights attached to shares held or represented by that person
- company may provide for meeting to be conducted by electronic communication
- where a person abstains or fails to exercise his or her vote on a resolution, person is deemed to have voted
against resolution
