6.3 MOI SHORT FORM

CoR15.1 A SHORT STANDARD FORM FOR PRIVATE COMPANIES

Article 1 - Incorporation and Nature of the Company

1.1 Incorporation

(1) The Company is incorporated as a private company, as defined in the Companies Act, 2008.

Article 1.1(1). This article specifies that the company is incorporated as a private company. We need to look at s 8(2)(b) which defines a private company as a profit company if it is not state owned or its MOI prohibits its securities or shares from being offered to the public and there is also a restriction on the transferability of its securities or shares.

There is a section on securities in the MOI see article 2.1(2) and 2.1(4) which restricts the offering of shares to the public and a restriction on the transferability of securities. It is this article that in fact makes the profit company a private company.

(2) The Company is incorporated in accordance with, and governed by; –

(a) the provisions of the Companies Act, 2008, without any limitation, extension, variation or substitution; and

(b) the provisions of this Memorandum of Incorporation.

Article 1.1(2) - 2(a) says that the company is governed by the provisions of the Companies Act without any limitations extensions variations or substitutions and; 2 (b) says the company is governed by the provisions of the MOI. This in fact is the constitution of the company and wherever there is a corporate governance issue we need to actually look at the various sections of the act as well as the provisions in the MOI.

1.2 Powers of the Company

(1) The Company is not subject to any provision contemplated in section 15 (2)(b) or (c).

(2) The purposes and powers of the Company are not subject to any restriction, limitation or qualification, as contemplated in section 19 (1)(b)(ii).

Article 1.2 (1) indicates that the powers of the company are not subject to the provisions of s 15(2)(b) or (c). This means that the company does not have any ring fencing provisions i.e. RF between the name and the (Pty) Ltd. A ring-fencing provision is simply something that the company wishes to bring to the attention of an outsider that it deals with as it may affect the transaction with the outsider. A ring-fencing provision or RF may also place a restriction on the change of any article in the MOI. The Short Form MOI simply states that there is no restriction in the MOI that an outsider should be concerned with.

Article 1.2 (2) refers to s 19(1)(b)(ii) which allows the powers of the company to have some kind of restriction, limitation or qualification. This may in itself be a ring fence RF if it needs to be brought to the attention of outsiders. An example of this will be that the company can only operate as a furniture retailer and nothing else and this would need to be brought to the attention of anyone that the company deals with. In this article in the short form MOI it is simply saying that there is no restriction on the powers of the company.

Essentially the company is a juristic person and has the capacity of an individual except to the extent that the MOI provides otherwise. This means that if there is no restriction in the MOI the company can do anything that an individual can.

1.3 Memorandum of Incorporation and Company Rules

(1) This Memorandum of Incorporation of the Company may be altered or amended only in the manner set out in section 16, 17 or 152 (6) (b).

(2) The authority of the Company’s Board of Directors to make rules for the Company, as contemplated in section 15 (3) to (5), is not limited or restricted in any manner by this Memorandum of Incorporation.

(3) The Board must publish any rules made in terms of section 15 (3) to (5) by delivering a copy of those rules to each shareholder by ordinary mail.

(4) The Company must publish a notice of any alteration of the Memorandum of Incorporation or the Rules, made in terms of section 17 (1), by delivering a copy of the notice to each shareholder by ordinary mail.

Article 1.3 (1) means that the MOI can be altered or amended only in the manner set out in s 16, 17 or 152(6) (b). s 16 deals with changes to the MOI which should be made by special resolution of the shareholders of the company and s 17 allows for the MOI to be modified where there are patent errors or alterations and it deals with the situation where a translation is required. This section also deals where there have been many changes to the MOI and it is necessary for the company to consolidate the MOI. S 152(6)(b) relates to a business rescue plan.

Article 1.3 (2) and (3) deals with Rules. The Rules are a concept similar to the bylaws of a city council. The rules can be any corporate governance issue not covered by the Companies Act or MOI. The directors publish the rules that they require and all the parties that are bound to the MOI will also be bound to the rules. Article 1.3 (4) deals with the method for publishing an alteration and ratifying rules by delivering a notice to each shareholder. The rules need to be ratified by ordinary resolution at the next shareholders meeting.

1.4 Optional provisions of Companies Act, 2008 do not apply

(1) The Company does not elect, in terms of section 34 (2), to comply voluntarily with the provisions of Chapter 3 of the Companies Act, 2008.

(2) The Companies does not elect, in terms of section 118 (1)(c)(ii), to submit voluntarily to the provisions of Parts B and C of Chapter 5 of the Companies Act, 2008, and to the Takeover Regulations provided for in that Act.

Article 1.4 (1) A private company is not obliged to carry out the extended accountability requirements as set out in chapter 3 of the act except as indicated in the MOI. By having article 1.4 (1) the company does not voluntarily need to comply even though the company is not expected to comply with these requirements, it may however volunteer if it so wishes. The short form MOI just says in this situation that the company will not elect to comply.

Article 1.4(2) deals with s 118(1)(c)(2) which is in relation to the take-over regulations panel and what we call a regulated company. This clause basically says that the company does not elect to comply with the take-over regulations provided in the act. It is extremely unlikely that any small company will voluntarily submit to these sections.

Article 2 - Securities of the Company

2.1 Securities

(1) The Company is authorised to issue no more than the number of shares of a single class of shares with no nominal or par value as shown on the cover sheet, and each such issued share entitles the holder to-

Alternative to the above

The authorised share capital of the Company consists of ORDINARY SHARES and the company is authorised to issue no more than 4000 ordinary shares of R1 each, and each such issued share entitles the holder to:-

(a) vote on any matter to be decided by a vote of shareholders of the company;

(b) participate in any distribution of profit to the shareholders: and

Article 2.1 (1) (a) (b) (c) deals with the fundamental ownership of the company and actually refers to the number of shares of a single class of ordinary shares which appears on the first page of the COR 15.1. The alternative in the body is to indicate the type of shares and the authorised number as the MOI document, where there is a change of the MOI from a pre-existing company and not a formation of a new company.

There are basically three fundamental things that the ordinary shares of the company represent and these are reflected in;

(a) the voting percentage on any matter that needs to be decided by the shareholders of the company; this represents percentage ownership the number of shares held as a percentage of the total;

(b) participation by the ordinary shareholders in any distribution of the profit of the company; this represents how the dividend declared will be shared by the shareholders in accordance with their percentage of the shares they hold.

(c) participation in the distribution of the residual value of the company upon its dissolution; after the company is liquidated or wound up and all the debts are paid the shareholders will receive the balance in accordance with their shareholding.

(2) The Company must not make an offer to the public of any of its securities and an issued share must not be transferred to any other person other than-

(a) the company, or a related person;

(b) a shareholder of the company, or a person related to a shareholder of the company;

(d) a beneficiary of the shareholder’s estate; or

(e) another person approved by the company before the transfer is effected.

Article 2.1 (2) prevents the company from making an offer of securities to the public. This is one of the things that make the company a private company. The underlined italics is what has been amended. In the event of a shareholder dispute there is definitely some contention in the way this has been worded.

(3) The pre-emptive right of the Company’s shareholders to be offered and to subscribe for additional shares, as set

(a) out in section 39, is not limited, negated or restricted in any manner contemplated in section 39 (3), or subject to any conditions contemplated in that section.

Article 2.1 (3) deals with the pre-emptive rights contained in s 39 which prevents dilution of shares after a share issue or rights issue to existing shareholders, in other words after the share issue the percentage holdings of shareholders should be exactly the same if all shareholders take up their rights, however there may be situations where some of the shareholders can’t take up their rights and in this situation the shareholding percentages would change.

(4) There is a restriction on the transferability of shares and the directors may in their absolute discretion and without assigning any reason, decline to register any transfer of any shares to a person of whom they do not approve.

Article 2.1 (4) deals with the restriction on the transferability of shares. The act calls for a restriction on transferability of shares but does not specify what the restriction should be. We have inserted our own restriction which hands over the total control of the transfer to the directors. The directors have the power to block any transfer. Read this together with 2.1 (2).

(5) This Memorandum of Incorporation does not limit or restrict the authority of the Company’s Board of Directors to; –

(a) authorise the company to issue secured or unsecured debt instruments, as set out in section 43 (2); or

(b) grant special privileges associated with any debt instruments to be issued by the company, as set out in section 43 (3);

Article 2.1 (5) (a) & (b) deals with the right of the Directors to issue unsecured debt instruments as set out in s 43(2) or to grant any special privileges that are associated with these debt instruments as set out in s 43(3). An example of a debt instrument may be a Debenture.

(c) authorise the Company to provide financial assistance to any person in relation to the subscription of any option or securities of the Company or a related or inter-related company, as set out in section 44;

Article 2.1 (5)(c) deals with the director’s authority to grant financial assistance to any person in relation to a subscription of securities of a company or to a related or interrelated company as set out in s 44. It should be noted that there are a number of conditions required. I.e. a special resolution has to cover the situation within the last two years which must be for a specific recipient or generally for a category of potential recipients, for example like workers. It is also imperative that immediately after providing the financial assistance the company must satisfy the solvency and liquidity test and the board must satisfy itself that the company does in fact satisfy this test and the terms of the financial assistance must be fair and reasonable to the company.

(d) approve the issuing of any authorised shares of the Company as capitalisation shares, as set out in section 47 (1); or

(e) resolve to permit shareholders to elect to receive a cash payment in lieu of a capitalisation share, as set out in section 47 (1).

Article 2.1.(5) (d) & (e) deals with the Board’s authority to issue capitalisation shares as set out in s 47 or to allow the shareholders to receive a cash payment in lieu of capitalising shares. Capitalisation shares are shares that have been created by a book entry from accumulated profits to share capital. In effect a transfer from accumulated profit to share capital. Bear in mind the definition of Contributed Tax Capital in terms of the income tax act.

2.2 Registration of beneficial interests

The authority of the Company’s Board of Directors to allow the Company’s issued securities to be held by and registered in the name of one person for the beneficial interest of another person, as set out in section 56 (1), is not limited or restricted by this Memorandum of Incorporation.

Article 2.2 S 56(1) allows the company to register securities in the name of one person for the beneficial interest of another person. There are a whole lot of other conditions which relate to public companies and regulated companies that we are not going to deal with in this explanation.

Article 3 - Shareholders and Meetings

3.1 Shareholders’ right to information

Every person who has a beneficial interest in any of the Company’s securities has the rights to access information set out in section 26 (1).

Article 3.1 says that any person who owns shares in a company or has a beneficial interest in a company (this will include the so- called nominee) has the right to access information as set out in s 26(1). This will include the companies MOI and rules, records of directors, reports to AGM’s and annual financial statements, notices and minutes of AGM’s and the security register. They will not be entitled to see the minutes of Directors or to see the books of account.

3.2 Shareholders’ authority to act

(1) If, at any time, there is only one shareholder of the company, the authority of that shareholder to act without notice or compliance with any other internal formalities, as set out in section 57 (2), is not limited or restricted by this Memorandum of Incorporation.

(2) If, at any time, every shareholder of the Company is also a director of the Company, as contemplated in section 57 (4), the authority of the shareholders to act without notice or compliance with any other internal formalities, as set out in that section is not limited or restricted by this Memorandum of Incorporation.

Article 3.2 (1) & (2). If there is only one shareholder in a company then in terms of s 57(2) that shareholder may exercise any voting rights on any matter at any time without notice or compliance with any other formalities. This section also says that s 59 - 65 do not apply. These sections deal with the record date and shareholder meetings. Subsection (2) deals with the section where every shareholder is also a director of a company that any matter referred to the board may be decided by the shareholders. There are certain formalities that will have to be complied with.

3.3 Shareholder representation by proxies

(1) This Memorandum of Incorporation does not limit, restrict or vary the right of a shareholder of the Company; –

(a) to appoint 2 or more persons concurrently as proxies, as set out in section 58 (3)(a); or

(b) to delegate the proxy’s powers to another person, as set out in section 58 (3)(b).

(2) The requirement that a shareholder must deliver to the Company a copy of the instrument appointing a proxy before that proxy may exercise the shareholder’s rights at a shareholders meeting, as set out in section 58 (3)(c) is not varied by this Memorandum of Incorporation.

(3) The authority of a shareholder’s proxy to decide without direction from the shareholder whether to exercise, or abstain from exercising, any voting right of the shareholder, as set out in section 58 (7) is not limited or restricted by this Memorandum of Incorporation.

3.4 Record date for exercise of shareholder rights

If, at any time, the Company’s Board of Directors fails to determine a record date, as contemplated in section 59, the record date for the relevant matter is as determined in accordance with section 59 (3).

Article 3.4. The record date is the date that the board decides to determine which shareholders are entitled to receive notices or get paid out a dividend etc. This is very unlikely to happen in a smaller company, however if no record date is determined by the directors it is the latest date by which the shareholders are required to give notice or the date of the action or event in any other case.

3.5 Shareholders meetings

(1) The Company is not required to hold any shareholders meetings other than those specifically required by the Companies Act, 2008.

(2) The right of shareholders to requisition a meeting, as set out in section 61 (3), may be exercised by the holders of at least 10% of the voting rights entitled to be exercised in relation to the matter to be considered at the meeting.

(3) The authority of the Company’s Board of Directors to determine the location of any shareholders meeting, and the authority of the Company to hold any such meeting in the Republic or in any foreign country, as set out in section 61 (9) is not limited or restricted by this Memorandum of Incorporation.

(4) The minimum number of days for the Company to deliver a notice of a shareholders meeting to the shareholders, is as provided for in section 62 (1).

(5) The authority of the Company to conduct a meeting entirely by electronic communication, or to provide for participation in a meeting by electronic communication, as set out in section 63 is not limited or restricted by this Memorandum of Incorporation.

(6) The quorum requirement for a shareholders meeting to begin, or for a matter to be considered is as set out in section 64 (1) without variation.

(7) The time periods allowed in section 64 (4) and (5) apply to the Company without variation.

(8) The authority of a meeting to continue to consider a matter, as set out in section 64 (9) is not limited or restricted by this Memorandum of Incorporation.

(9) The maximum period allowable for an adjournment of a shareholders meeting is as set out in section 64 (13), without variation.

3.6 Shareholders resolutions

(1) For an ordinary resolution to be adopted at a shareholders meeting, it must be supported by the holders of greater than 50% of the voting rights exercised on the resolution, as provided in section 65 (7).

(2) For a special resolution to be adopted at a shareholders meeting, it must be supported by the holders of at least 75% of the voting rights exercised on the resolution, as provided in section 65 (9).

(3) A special resolution adopted at a shareholders meeting is not required for a matter to be determined by the Company, except those matters set out in section 65 (11), or elsewhere in the Act.

Article 4 - Directors and Officers

4.1 Composition of the Board of Directors

(1) The Board of Directors of the Company comprises the number of directors and alternate directors as reflected in the Companies Register of Directors and reflected on file at the CIPC. All directors are to be elected by the holders of the company’s securities as contemplated in section 68.

(2) The manner of electing directors of the Company is as set out in section 68 (2), and each elected director of the Company serves for an indefinite term, as contemplated in section 68 (1).

4.2 Authority of the Board of Directors

(1) The authority of the Company’s Board of Directors to manage and direct the business and affairs of the Company, as set out in section 66 (1) is not limited or restricted by this Memorandum of Incorporation.

(2) If, at any time, the Company has only one director, as contemplated in section 57 (3), the authority of that director to act without notice or compliance with any other internal formalities, as set out in that section is not limited or restricted by this Memorandum of Incorporation.

4.3 Directors’ Meetings

(1) The right of the Company’s directors to requisition a meeting of the Board, as set out in section 73 (1), may be exercised by at least 25% of the directors.

(2) This memorandum of Incorporation does not limit or restrict the authority of the Company’s Board of Directors to; –

(a) conduct a meeting entirely by electronic communication, or to provide for participation in a meeting by electronic communication, as set out in section 73 (3); or

(b) determine the manner and form of providing notice of its meetings, as set out in section 73 (4); or

(d) consider a matter other than at a meeting as set out in section 74.

4.4 Directors’ compensation and financial assistance

This Memorandum of Incorporation does not limit the authority of the Company to; –

(a) pay remuneration to the Company’s directors, in accordance with a special resolution approved by the Company’s shareholders within the previous two years, as set out in section 66 (9) and (10);

(b) advance expenses to a director, or indemnify a director, in respect of the defense of legal proceedings, as set out in section 78 (3);

(d) purchase insurance to protect the company, or a director, as set out in section 78 (6).

6.3 MOI SHORT FORM

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