Company Law COMPANY LAW AND SECRETARIAL PRACTICE IN A PRIVATE COMPANY ENVIRONMENT Prepared by: Mark Silberman B.Acc CA(SA) January 2024 COMPANY LAW NOTES Table of Contents COMPANY LAW AND SECRETARIAL PRACTICE IN A PRIVATE COMPANY ENVIRONMENT Prepared by: Mark Silberman B.Acc CA(SA) January 2024 COMPANY LAW NOTES 1 COMPANY LAW COURSE 1.1 INTRODUCTION 1.2 THE NEW ACT 2 ENTITY TYPES 2.1 SOLE TRADER 2.2 PARTNERSHIP 2.3 CLOSE CORPORATIONS 2.4 FUNDAMENTAL DIFFERENCES BETWEEN A CLOSE CORPORATION AND A COMPANY 2.5 WHO RULES OR WHO HAS THE POWER 2.6 ONE SIZE FITS ALL APPROACH 3 OFFICERS OF A COMPANY 3.1 DIRECTORS 3.2 DUTIES AND LIABILITIES OF DIRECTORS 3.2.1 The common-law duties of Directors 3.2.2 Duty to exercise care and skill and diligence. 3.2.3 Duty to Act in the best interest of a company. 3.2.4 Duty to act within their powers and for a proper purpose. 3.2.5 Duty to exercise independent judgement 3.2.6 Duty to avoid conflict of interest 3.2.7 Corporate opportunity and no-profit rules 3.3 GROUP OF COMPANIES 3.4 THE CODIFIED DUTIES OF DIRECTORS 3.4.1 The expanded meaning of Director 3.4.2 Standards of a director’s conduct 3.5 LIABILITY OF A DIRECTORS 3.5.1 Common-law liabilities of directors 3.5.2 Statutory Liabilities of Directors 3.6 COMPANY SECRETARY 3.7 PRESCRIBED OFFICERS! 4 DIFFERENT TYPES OF COMPANIES 4.1 PROFIT COMPANY 4.2 NON-PROFIT COMPANY 5 CONSTITUTIONAL DOCUMENTS OF A COMPANY 5.1 MEMORANDUM OF INCORPORATION 5.2 DEFINITION OF THE MOI 5.3 THE TURQUAND RULE 5.4 DOCTRINE OF CONSTRUCTIVE NOTICE 5.5 CONFUSION IN THE RING FENCING PROVISIONS 5.6 EVENTS LIKELY TO ARISE IN PRACTICE 5.7 SHORT FORM MOI 5.8 DID THE ORIGINAL SHORT FORM MOI MAKE THE COMPANY A PUBLIC CO 5.9 SHORT FORM MOI DOES NOT DEAL WITH PAR VALUE SHARES 5.10 WHO HAS THE POWER TO ISSUE SHARES? 5.11 TRANSFERABILITY AND PRE-EMPTION RIGHTS 5.12 PRE-EMPTIVE RIGHTS AND TRANSFERABILITY OF SHARES 5.13 RULES OF THE COMPANY 6 EXPLANATION OF THE SHORTFORM MOI 6.1 INTRODUCTION 6.2 TRANSITIONAL ARRANGEMENTS 6.3 MOI SHORT FORM 7 THE AUDITOR SITUATION AND THE NEW COMPANY’S ACT 7.1 INTRODUCTION 7.2 SAICA NOTIFICATION 7.3 SPECIAL RESOLUTION REQUIRED 7.4 REGISTERING NON AUDITOR 8 SHAREHOLDERS AGREEMENT 8.1 GENERAL POINTS 8.2 TRANSITIONAL ARRANGEMENTS 8.3 POINTS TO BE TAKEN INTO ACCOUNT WHEN DRAFTING SHAREHOLDERS AGREEMENTS 9 SPECIAL RESOLUTIONS 9.1 INTRODUCTION 9.2 DEFINITION OF SPECIAL RESOLUTION 9.3 RESOLUTIONS OTHER THAN AT A MEETING 9.4 SPECIAL RESOLUTION REQUIRED FOR SPECIFIED PURPOSES 9.5 SPECIAL RESOLUTION IN SECTION 65(11) – FUNDAMENTAL TRANSACTION 9.6 SOME REQUIREMENTS OF A SPECIAL RESOLUTION 9.7 NOTICE OF SHAREHOLDERS MEETINGS 10 DRAFTING RESOLUTIONS OR MINUTES 10.1 REQUIREMENTS OF A WELL DRAFTED RESOLUTION ARE AS FOLLOWS: 10.2 MINUTES 11 SHARE CAPITAL 11.1 INTRODUCTION TO SHARE CAPITAL 11.2 NOTIBLE DIFFERENCES BETWEEN THE ACTS 11.3 THE LEGAL NATURE OF SHARES 11.4 TERMS USED IN REGARD TO SHARE CAPITAL 1. Par Value Shares 2. No Par Value Shares 3. Authorised Capital 4. Issued Capital 5. Unissued Shares 6. Classes of Shares 11.5 TYPES OF SHARES 1. Unclassified shares 2. Ordinary shares. 3. Preference Shares 4. Redeemable Preference shares 11.6 THE ISSUING OF SHARES 11.7 DIRECTORS EXCEEDING THEIR AUTHORITY IN A SHARE ISSUE 11.8 CAPITALIZATION ISSUE 12 SHARE CERTIFICATES 12.1 CERTIFICATED OR UNCERTIFICATED 12.2 SECURITIES REGISTER 12.3 SHARE CERTIFICATES 12.4 APPROVAL OF THE ISSUE 12.5 ISSUE OR ALLOTMENT OF SHARES 12.6 TRANSFER OF SHARES 12.7 PRE-EMPTIVE RIGHTS 12.8 CONSIDERATION FOR SHARES 12.9 SECURITIES TRANSFER TAX 13 REGULATION 31 CONVERSION OF PAR VALUE SHARES 13.1 INTRODUCTION 13.2 THE LAW 13.3 SARS 13.4 BOARD REPORT 13.5 SPECIAL RESOLUTION 13.6 SUBDIVISION OF SHARES 13.7 CONCLUSION 13.8 QUESTION ON SHARE PREMIUM 14 SHARE CAPITAL QUESTIONS 15 BENEFICIAL INTEREST IN SECURITIES 15.1 Disclosure Requirements 16 DIFFERENT TYPES OF COMPANIES 16.1 PROFIT COMPANIES 16.2 NON PROFIT COMPANIES 16.2.1 INTRODUCTION 16.2.2 DEFINITION OF NONPROFIT COMPANY 16.2.3 THE MOI AND NAME OF AN NPC 16.2.4 MEMBERSHIP OF A NONPROFIT COMPANY 16.2.5 DIRECTORS OF A NON-PROFIT COMPANY. 16.2.6 PROVISIONS OF THE ACT NOT APPLICABLE TO NPC 16.2.7 ASSETS AND BUSINESS OPERATIONS OF AN NPC 16.2.8 INCOME TAX 16.2.9 FUNDAMENTAL TRANSACTIONS INVOLVING AN NPC 16.2.10 EXTERNAL NONPROFIT COMPANIES 16.2.11 INCORPORATION AND DISSOLUTION OF A NON PROFIT COMPANY. 16.3 DOMESTICATED COMPANIES 16.4 EXTERNAL COMPANIES 16.4.1 INTRODUCTION 16.4.2 FOREIGN COMPANY DEFINITION 16.4.3 EXTERNAL COMPANY DEFINITION 16.4.4 THE MEANING OF CARRYING ON BUSINESS OR NONPROFIT ACTIVITIES 16.4.5 REGISTRATION AND OTHER FILING AND DISCLOSURE OBLIGATIONS 16.4.6 TRANSITIONAL ARRANGEMENTS 17 REMOVAL OF DIRECTORS 17.1 SECTION 71 IN THE ACT IS EQUIVALENT TO SECTION 220 IN THE 1973 ACT 17.2 INELIGIBILITY AND DISQUALIFICATION OF A DIRECTOR 18 DISTRIBUTIONS 18.1 INTRODUCTION 18.2 DEFINITION OF A DISTRIBUTION 18.3 AUTHORISATION OF A DISTRIBUTION 19 SOLVENCY AND LIQUIDITY 19.1 INTRODUCTION 19.2 THE SOLVENCY AND LIQUIDITY TEST 19.3 120 DAY RULE 19.4 THE INCURRENCE OF A DEBT 20 BUYBACK OF SHARES 20.1 INTRODUCTION 20.2 DECISION CHART ON BUYBACK OF SHARES 20.3 SECTION 48 20.4 SOLVENCY AND LIQUIDITY –SECTION 46 20.5 WHERE THE BUY BACK IS MORE THAN 5% OF THE SHARE CAPITAL 20.6 INDEPENDENT EXPERT 20.7 RESOLUTIONS THAT ARE REQUIRED 20.7.1 RESOLUTION WHERE THE BUYBACK IS FROM DIRECTORS AND OR IS ABOVE 5% 20.8 CONCLUSION 20.9 CONTROVERSIAL ASPECTS OF BUYBACKS AND CONVERSION OF SHARE CAPITAL 21 CONTRIBUTED TAX CAPITAL – CTC 21.1 INTRODUCTION 21.2 PART 1 – NON RESIDENT COMPANY 21.3 PART 2 – OTHER COMPANIES 21.4 PART 3 – REDUCTION OF CONTRIBUTED TAX CAPITAL 21.5 POINT 4 – PROVISO 22 S44 FINANCIAL ASSISTANCE TO ACQUIRE SHARES AND THE LENDING OF MONEY 22.1 SECTION 46 (1) (b) (c) 22.2 FINANCIAL ASSISTANCE TO ACQUIRE OWN SECURITIES OR THOSE OF A RELATED OR INTER-RELATED COMPANY 23 S45 - LOANS OR OTHER FINANCIAL ASSISTANCE TO DIRECTORS 23.1 INTRODUCTION 23.2 S 45 23.3 S45 – ADDITIONAL DISCLOSURES 23.4 EXAMPLE OF THE SPECIAL RESOLUTION REQUIRED 24 RELATED AND INTER RELATED PERSONS 24.1 INTRODUCTION 24.2 THE LAW 24.3 THE MEANING OF CONTROL OF A JURISTIC PERSON 24.4 APPLICATION FOR EXEMPTION 25 WHEN IS A PRIVATE COMPANY REGULATED? 25.1 INTRODUCTION 25.2 FUNDAMENTAL TRANSACTIONS 25.3 APPROVAL OF A FUNDAMENTAL TRANSACTION 25.4 THE TAKEOVER REGULATION PANEL 25.5 AFFECTED TRANSACTION 25.6 BUYBACK OF SHARES 25.7 REGULATED COMPANY 25.8 DECISION CHART 25.9 REPORTING OR APPROVAL REQUIREMENTS 25.10 EXEMPTION 25.11 CONCLUSION 26 TRP GUIDELINES 26.1 PRIVATE COMPANY STARTUPS 26.2 EXEMPTION FOR DEALERS IN SECURITIES 26.3 EXAMPLE OF A TRANSACTION 26.4 WAIVER LETTER 27 APPRAISAL RIGHTS AND MINORITY SHAREHOLDERS 27.1 INTRODUCTION 27.2 TRANSFERABILITY AND PRE-EMPTION RIGHTS 27.3 FUNDAMENTAL TRANSACTIONS 27.4 APPROVAL OF A FUNDAMENTAL TRANSACTION 27.5 APPRAISAL REMEDY 27.6 HOW IT WORKS 27.7 WRITTEN NOTICE 27.8 THE DEMAND 27.9 THE OFFER 27.10 COURT APPLICATION TO DETERMINE FAIR VALUE 27.11 EXCLUSIONS 27.12 CONCLUSION 28 ELECTRONIC SIGNATURES 28.1 INTRODUCTION 28.2 THE LEGAL POSITION 28.3 DIGITAL SIGNATURES 1. Description 2. Benefits 28.4 Common law 28.5 ELECTRONIC RESOLUTIONS
