A FEW
GUIDELINES REGARDING YOUR COMPANY
You have made the decision
to use a company as the entity in which to run
your business enterprise and have probably considered
many of the aspects relating thereto. Here are
some of the principles as regulated by the Companies
Act which you should have an understanding of:
The Memorandum and Articles
of Association
The memorandum of association
is the founding document of a company and provides
the basis for the corporate structure. The articles
of association determine the manner in which the
company is to function. It deals with the rights,
duties and powers of members, directors and general
meeting of members. The memorandum and articles
constitute a contract between the company and
its members. Where there is conflict between the
memorandum and the articles of the company, the
memorandum shall prevail. The Companies Act prescribes
specific formalities regarding the memorandum
of the company which must be complied with but
only requires that the articles must be registered.
The Articles can be tailored to meet the needs
of the company. The Companies Act contains standard
articles which can be registered and which regulates
certain aspects of the company which has not been
dealt with in the Companies registered articles.
The Shareholders Agreement
It is advisable for the shareholders
in a company to sign a shareholders agreement
arranging matters regarding the functioning of
the company. The shareholders agreement should
state clearly that the terms of this agreement
between them shall take preference over the articles
of association, should there be a conflict between
them.
The Appointment of Directors
The articles prescribed in
the Companies Act make provision that a minimum
of two directors must be appointed for public
companies and one director for private companies.
It also regulates certain procedures regarding
directors meetings including the requirements
for a quorum. It is important that members in
a company consider this aspect carefully in order
to make sure that their representation on the
board is in line with their percentage shareholding.
A majority shareholder should for instance be
entitled to appoint more directors on the board
than a minority shareholder, to ensure that his
interests are sufficiently protected.
Rights and Duties of Directors
The directors are mainly responsible
for the management of the company. Apart from
specific duties imposed on a director in the Companies
Act, a director has certain fiduciary duties towards
the company. It requires him to exercise his powers
bona fide, and for the benefit of the company
and the duty to display reasonable care and skill
in carrying out his office. He is required to
avoid conflict between his own interests and those
of a company. Some typical breaches of directors'
fiduciary duties are as follows:
• Developing a conflict
of interest;
• Exceeding limitations of powers;
• Failure to maintain and exercise an unfettered
discretion;
• Failure to exercise his powers for the
purposes for which they were conferred.
Transfer of Shares and Share
Certificates
Share certificates must be
issued within two months after allotment of shares
and two weeks after the transfer of shares and
be signed by two directors or if the company only
has one director, by that director. A share certificate
constitutes prima facie evidence of the shareholder's
title to the shares.
The Companies Act provides
that the company shall keep a register wherein
details of members of the company are recorded.
Shares are transferred by
using the prescribed form in the articles of the
company. It must be signed by the transferor and
transferee and must be duly stamped as required
in the Stamp Duties Act. The transfer is then
registered by the company.
There is normally a restriction
on the transferability of shares in the company
in that the shareholder must first offer the shares
to other shareholders in the company before they
can be sold to a third party.
General Meetings
The Companies Act specifies
that the shareholders of the company must meet
regularly, which is referred to as general meetings.
The first general meeting of the company must
be held within a period of 18 (eighteen months)
after the date of incorporation of the company
and subsequent annual general meetings are to
be held not later than nine months after the end
of each ensuing accounting date but still within
fifteen months of the date of the preceding annual
general meeting.
The Companies Act and Articles
regulates the notice periods and the proceedings
at the meetings which includes arrangements regarding
voting and quorums.
General meetings may be called
by the directors or by shareholders and must be
done in accordance with the provisions of the
Companies Act and Articles of the company.
The difference between a Public
and a Private Company
Both these companies are companies
having a share capital. Capital is obtained by
the issuing of shares, which means that funds
to operate will be contributed by the members
of the company.
The name of a public company
ends with the word "Limited" and the
name of a private company ends with the words
"(Proprietary) Limited".
A public company can only
be formed by seven or more persons. Funds can
be raised from the general public. Members can
freely dispose of their shares and interests in
the company. Shares and debentures of a public
company may be listed and dealt with on a stock
exchange.
A private company can be formed
by one or more persons. Its right to transfer
shares is restricted.
Records to be kept
The following records must
be kept at the registered office of the company:
(a) a minute book of the general
meetings of the company;
(b) a register of allotment of shares;
(c) a register of members;
(d) a register of pledges and bonds;
(e) a register of debenture holders;
(f) a register of directors and officers;
(g) a register of declarations of interest in
contracts by directors and officers;
(h) a register of attendance of directors' and
managers' meetings;
(i) accounting records including a register of
fixed assets.
Written
by:
Una du Toit
PETZER, DU TOIT AND RAMULIFHO
