COMPANY LAW POWER-POINT National University.pptx

Company law Lecture

1. COMPANY LAW CIN2106 13 December, 2021

2. Acronyms/words/synonyms &terminology PBC – Private Business Corporation COBE Act – Companies and Other Business entities Act Act/Enactment/Statute/Legislation – these words are used interchangeably Members /subscribers/ shareholders – used interchangeably Memorandum - Memorandum of Association Articles - Articles of Association Legal Persona / Corporate body/ Juristic Person – synonymous He/him/his - is used as a gender neutral term May/can –these words are used where provisions of the sections are discretionary. Shall/must/should/needs to - used where the provisions of the section are mandatory.

3. COMPANY - Definition A n entity that is formed by one or more persons for a lawful purpose ,incorporated in terms of the COBE Act ,which is separate and distinct from its members ,with the ability to sue or be sued in its own name and its sole purpose is to generate gain or profit. (s 76) BREAKING DOWN THE DEFINITIONAL ELEMENTS An entity that is formed by one or more persons (either natural or juristic) created for a lawful purpose Should have limited Liability (in case of private companies) which is either limited by shares or guarantee Incorporated/ in terms of the Companies and other Business entities Act With an objective of creating gain/profit

4. Companies that are Registrable under This Act (s 5) Public Limited Company; Private Limited Company; company limited by guarantee; Co-operative company; Foreign Company Private business co-operation; Sec 278 Other business Entities – these entail voluntary registration of partnership agreements, syndicates, joint ventures & certain Association of persons.

5. Institutions to which the COBE Act does not apply. Institutions Whose formation, registration, and management is governed by other legislation. Trade Unions and Employer’s Organisations as defined in the Labour Act Chapter 28:01

6. FORMATION OF COMPANIES A person who forms a company is called the promoter Promoter prepares documents expressing intention to create a company Such documents would state names and objectives of he company Documents lodged with the Registrar of Companies If the Registrar is satisfied with the (Memorandum of association and the articles of association comply with the stipulations of the Act ) a certificate of incorporation shall be issued s18. NB - If the Registrar is satisfied that any document submitted to him contains matters contrary to the law; or by reason of any omission or misdescription has not been duly completed; or does not comply with the requirements of the Act; or contains any error or erasure/deletion ,he may refuse to register or receive the documents s11

7. Effects of Incorporation s19 From the date the Registrar issues a certificate of incorporation, a company or private business corporation is incorporated, with capacity and powers of a natural person with full legal capacity until it is struck off the register or dissolved in terms of the Insolvency Act Chapter 6:07 For a Company – Subscribers to the memorandum shall be deemed to have agreed to become members & every person who agrees to be a member of a company will have their name entered in the Register of Members , membership is terminated when company is dissolved. For Private Business Corporations- membership shall commence at the registration of the incorporation statement and terminate at the dissolution of the of the PBC

8. Choosing a Company Name It is mandatory for the memorandum to have the name of the company upon registration, However the discretion to accept it lies with the Registrar S 25 States that the Registrar may refuse to register a name which Is identical to or similar with a name of a company or PBC that is already in the register Is likely to mislead the public Is blasphemous Is indecent or likely to cause offence Suggests patronage of the Government or some other authority/ organisation Is undesirable for some other reason (such as politically offensive names or one which cannot be pronounced)

9. THE SIGNIFICANCE OF A NAME TO THE FORMATION OF A COMPANY A name is central to the formation of a company, this is because without a name a company cannot assume or acquire legal persona. The name is also important so that the public can identify the company and distinguish it from other companies or business entities. It is the name that can also attract clients to want to associate with a particular company and its products. A trader who feels aggrieved by the use of a deceptive name can find recourse under common law remedy of passing off in the law of Delict. ( Passing off prevents a trader from holding out his goods or service as having some association or connection with another when this is not true). In the case Pick and Pay v Pick Pay Stores 1947 (1) SAS97 (RA). Pick and Pay (SA) sought an interdict against Pick and Pay (Rhodesia)stating that due to the identical names, it would be misleading to clients, however the court declined to grant the interdict , it ruled that the requirements of passing off were not satisfied. The idea behind this common law remedy of passing off , is to prevent a new company from riding on the Goodwill and popularity of an established company.

10. WHAT ARE THE IMPLICATIONS OF CORPORATE LEGAL PERSONA? LIMITED LIABILITY PROPERTY SUING AND BEING SUED PERPETUAL SUCESSION TRANSFERABLE SHARES BORROWING

11. LIMITED LIABLILTY S20 (4) States that, “members of a Company or a PBC shall not ,solely by reason of their membership ,be liable for the debts or obligations of the company or PBC”. Limited liability means that members are not liable for the debts incurred by the company Members can benefit from the profits of the company while knowing that their personal liability is limited to only the amount they have purchased in shares. IN SUMMARY- at the time of the incorporation of a company there exists a legal fiction of a “Corporate veil” . The company has a legal personality separate and independent from the identity of its shareholders. Hence, any rights , obligations or liabilities of a company are descrete from those of its shareholders, where the latter are responsible only to the extent of their capital contributions , known as “limited liability”.

12. ii PROPERTY A Company can acquire assets in its own name and such assets or property belong to the company. Which means assets of the company are used only for the objectives of the company as set in the Memorandum MEMBERS HAVE NO INTERESTS IN THE COMPANY PROPERTY In Macaura v Northern Assurance Co Ltd (1925)AC 619 The owner of a Timber estate sold all his timber to a company which was owned almost solely by him. He was the company’s largest creditor. Mr Macaura insured the timber against fire, but in his own name . Later on the timber was destroyed by fire and Mr Macaura brought an insurance claim on the policies. The court denied his claim stating that the timber was no longer his property to insure as it now belonged to the company. Macaura took the matter on appeal Legal question – whether Mr Macaura had any claim under the insurance policy? Held - The timber was the property of the company and did not belong to him anymore . The fact that the appellant was the company’s major shareholder made no difference. The timber was not his property and he could not raise any claim under the insurance policy.

13. iii. SUING AND BEING SUED Ability to sue and the liability to be sued Where the concept of limited liability is an advantage of an incorporated company, it can still be of a disadvantage to 3 rd parties such as creditors. The creditor is entered into a contract will be capable of suing a company, there is still a risk that they may not recover all of its money should the company become insolvent This concept works both ways legally, because a company can also sue its debtors.

14. iv. PERPETUAL SUCCESSION People are not immortal or everlasting, whereas companies in essence are. A company can survive the death of its members. Remember that shareholders are just agents of the company , they may come and go, this enables the continuous succession of the company, members/shareholders come and go without affecting the existence of the company. Even if the employer were to change hand or die, the employees’ jobs are not at risk because the company continues existing.

15. v. TRANSFERABLE SHARES vi. BORROWING A company can be incorporated with its liability limited by shares and these shares constitute items of property which are freely transferable in the absence of any express provision to the contrary, such as section 85 (1)(c) of the COBE Act which restricts a private limited company to transfer shares. Borrowing- it is easier for a company to borrow money than a sole trader. The Company is able to get more security to secure indebtedness.

16. THE COURT’S APPROACH TO THE CONCEPT OF SEPARATE LEGAL PERSONA In Salomon v Salomon and Co Ltd [1897] AC 22 Mr Salomon transferred his business of boot making, initially run as a sole proprietorship, to a company (Salomon Ltd), incorporated with members comprising of himself and his family. Salomon owned 20,001 of the company’s 20,007 shares–the remaining six were shared individually between the other six shareholders. Mr Salomon sold his business to the new corporation for almost £ 39 000 , of which £10 000 was a debt to him, this therefore made him the company’s principal shareholder and its principal creditor. At the time of the liquidation of the company , the liquidator s argued that the debentures used by Mr Salomon as security for the debt were invalid & that they were based on fraud. The court of 1 st instance accepted this argument ruling that since Mr Salomon had created the company solely to transfer his business to it, the company was in reality his agent and he as the principal was liable for debts incurred in the course of such agency. On Appeal, the House of Lords reversed the above ruling and held that the company was duly incorporated , it is an independent person . Members of the company would not automatically , in their personal capacity, be entitled to the benefits nor would they be liable for the responsibilities or the obligations of the Company.