CSB Law

• The Companies Act 71 of 2008 came into force on 1 May 2011
• There were amendments to the 1973 Act, e.g. The Companies Amendment Act of 1984 inserted sections allowing a Close Corporation to convert into a company
• The Companies Amendment Act 37 of 1999 allowed a company to acquire its own shares from existing shareholders in certain circumstances
• The Close Corporation Act was introduced alongside the 1973 Act and it created a new form of business enterprise
• Juristic persons are not allowed to be members of a close corporation
• The Companies Act, 2008 gives rights to stakeholders including employees, trade unions, and minority shareholders
• There was a need to stimulate growth and entrepreneurship, maintaining balance between no regulation and over-regulation, and make the formation of a company a right of all persons, not a privilege, abolishing unnecessary hurdles that impede growth and entrepreneurship
• A 2004 paper published by the Department of Trade and Industry proposed significant developments and reform of Company law focusing on simplicity, flexibility, corporate efficiency, transparency, and predictable regulations
• Key objectives for corporate law reform agreed at NEDLAC were simplification, flexibility, corporate efficiency, transparency, and predictable regulations
• Directors should have regard where appropriate to the need to ensure productive relationships with other stakeholders, such as employees, customers, suppliers, creditors, and the community
• Directors must have regard to the long-term consequences of their actions, but with shareholders' interests retaining primacy
• Directors may prioritize stakeholders
• Directors must have regard to the long-term consequences of their actions

  Shareholders’ interests retain primacy
• Directors may prioritise stakeholders’ interests


  Only if it promotes the success of the company for the benefit of the shareholders as a whole
• Directors are required to balance shareholders’ interests with those of other stakeholders

  Pluralist approach
• Types of Companies

  • Public Company
  • State-Owned Company
  • Personal Liability Company
  • Private Company
  • The Non-Profit Company
• Companies Act 71 of 2008


  • 9 Chapters and 5 Schedules
  • Chapter 1: Interpretation, purpose and application
  • Chapter 2: Formation, administration and dissolution of companies
  • Chapter 3: Enhanced accountability and transparency
  • Chapter 4: Public offerings of company securities
  • Chapter 5: Fundamental transactions, takeovers and offers
  • Chapter 6: Business rescue and compromise with creditors
  • Chapter 7: Remedies and enforcement
  • Chapter 8: Regulatory agencies and administration of Act
  • Chapter 9: Offences, miscellaneous matters and general provisions
  • Schedule 1: Provisions concerning non-profit companies
  • Schedule 2: Conversion of close corporations to companies
  • Schedule 3: Amendment of laws
  • Schedule 4: Legislation to be enforced by commission
  • Schedule 5: Transitional arrangements
• Key Concepts of Companies Act 71 of 2008

  • The right to form a company: recognises the right of any person to form a company with minimal legal requirements prescribed for company formation
  • The Memorandum of Incorporation: sole, alterable document that governs the affairs of the company and replaces articles of association
  • Principle of flexibility and simplicity: simplified regulatory system provided for companies
  • Liquidity and solvency test: focuses on liquidity and solvency of the company
  • Enlightened shareholder value approach: extended legal standing provided for some stakeholders
  • Business rescue: aimed at rescuing financially distressed companies instead of liquidating such companies
  • Partial codification of directors’ duties: sets out the nature of the fiduciary duties of directors and the duty to exercise reasonable care
  • Decriminalisation: provides for administrative fines and remedies instead of criminal
  • Types of companies: recognises a wide range of companies
• Shareholder


  The holder of a share issued by a company and entered as such in the certificated or uncertificated securities register of a company
• Shareholders meeting


  A meeting of those holders of a company’s issued securities who are entitled to exercise voting rights in relation to that matter
• Types of meetings


  • General meetings
  • Class meetings
• Calling a shareholders meeting

  Properly convened if the prescribed notice for convening the meeting was given by the board of directors, any other person specified in the Memorandum of Incorporation or rules, the shareholders by written demand (10 percent voting rights attaching to share). Failure to comply with the prescribed formalities for a meeting could result in an invalid decision. Exceptions are made to the rules and formalities for shareholders meeting
• If the required percentage of the shareholders have demanded the calling of a shareholders meeting


  The board of directors is obliged to hold the meeting. The board cannot over-rule the shareholders on that point
• Notice of meetings


  Must be in writing. Public company/NPC: 15 business days before. Other companies: 10 business days before. Lack of proper notice: meeting may proceed if all persons are present / waive notice / ratify the defective notice
• A public company must hold its first AGM no more than 18 months after the company’s date of incorporation, and thereafter no more than 15 months after the date of its previous AGM. The Companies Act of 2008 prescribes the matters which must be discussed at the AGM
• Business to be provided for at AGM

  Presentation of directors’ report, audited financial statements and an audit committee report, Election of directors, Appointment of an auditor and an audit committee, Any matters raised by shareholders. General practice for the chairman to submit a chairman’s report. Proceedings regulated by MOI
• Record date


  The board of directors may set a record date for determining which shareholders are entitled to receive notice of a shareholders meeting, participate in the vote at a shareholders meeting, decide any matter by written consent or electronic communication. A company must deliver a notice to all of the shareholders. Failure to do so will render decisions taken at the meeting invalid
• Proxies


  A proxy is an agent appointed by a shareholder to attend, participate in, speak and vote on his or her behalf at a shareholder’s meeting. The proxy may be any individual (who does not have to be a shareholder of the company) or two or more persons concurrently appointed to exercise voting rights attached to different shares held by the shareholder. The proxy form must be in writing, signed by the shareholder appointing the proxy, delivered to the company prior to the proxy exercising any rights of the shareholder at the shareholder’s meeting. The appointment of a proxy is valid for one year after it was signed, and remains valid until the end of the meeting at which it was intended to be used. The shareholder who appointed the proxy has the right to revoke the appointment by cancelling the appointment in writing, making a later inconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to the company. The proxy may vote as he or she thinks fit unless the shareholder has indicated on the proxy form whether the proxy must vote in favour of or against a particular resolution
• Appointment of a proxy

  Inconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to the company
• The proxy may vote as he or she thinks fit unless the shareholder has indicated on the proxy form whether the proxy must vote in favour of or against a particular resolution
• Quorum and Conduct at Meetings

  At least 25% of all the voting rights that are entitled to be exercised in respect of at least one matter to be decided at the meeting
• Quorum for a meeting to commence

  If a company has more than 2 shareholders, at least 3 shareholders must be present at the meeting in order for the meeting to commence or for a matter to be considered, provided that the members present can exercise at least 25% of all the voting rights that are entitled to be exercised
• Show of hands


  Any person present (including proxy) and entitled to exercise voting rights has only one vote, irrespective of the number of shares held by that person
• Meetings can be electronic
• Postponement and adjournment of meetings

  A meeting may be postponed or adjourned for one week (MOI may alter) if, within one hour (MOI may alter) after the appointed time for a meeting to begin, a quorum is not present. Where a quorum is not present at the postponed or adjourned meeting, those present in person or by proxy will be deemed to constitute a quorum. A meeting may be adjourned from time to time without further notice on a motion supported by a majority of the voting rights held by all those present at the meeting
• Decisions taken at a general meeting

  Ordinary resolutions require the support of more than 50% of the voting rights exercised on the resolution. Special resolutions require at least 75% of the voting rights exercised on the resolution. The Memorandum of Incorporation may specify a higher percentage of voting rights to approve the resolution. The Memorandum of Incorporation may permit a lower percentage of voting rights to approve the resolution. There should be a margin of at least 10 percentage points between the requirements for the adoption of an ordinary and a special resolution. Required for various decisions such as amendment of the Memorandum of Incorporation, approving the voluntary winding-up of the company, approval of a sale of assets, a merger, an amalgamation or a scheme of arrangement, approval of directors’ remuneration, and any other matter required by the Memorandum of Incorporation
• Proposing shareholder resolutions


  A shareholder resolution may be proposed by the board of directors or any two shareholders. A proposed resolution must be expressed with sufficient clarity and specificity, accompanied by sufficient information or explanatory material to enable shareholders to decide whether to participate in the meeting and to cast their votes
• Decisions taken without convening a meeting


  Written resolutions are permissible without the need for a formal meeting. The resolution must be supported by the same threshold majority generally required for an ordinary or special resolution. Business required to be conducted at the annual general meeting of the company may not be conducted in this way. All shareholders must vote in writing within 20 business days after the resolution is submitted to them. If adopted, the resolution has the same effect as if approved by voting at a meeting. Within 10 business days after adopting the resolution, the company must deliver a statement describing the results
• Who is a director?
• Definition of “Director” – sec 1 of the Companies Act, 2008 “means a member of the board of a company, as contemplated in section 66, or an alternate director of a company and includes any person occupying the position of a director or alternate