Corporations and Partnerships in South Africa

Transcription

1 Corporations and Partnerships in South Africa Second Edition Michele Natania Locke This book was originally published as a monograph in the International Encyclopaedia of and Partnerships- General Editor: Roger Associate General Editor: Michele Colucci Volume Editor: Koen Geens Law & Business

2 The Authors 3 List of Abbreviations General Introduction 1. GENERAL BACKGROUND 13 I. Geography 13 II. Cultural Composition ffl. Political System 14 IV. Population and Employment Statistics 15 V Companies and Close Corporations Statistics VI. Social and Cultural Values 2. COMPANIES, PARTNERSHIPS AND CLOSE CORPORATIONS: HISTORICAL BACKGROUND DEFINITIONS AND STRUCTURE OF CORPORATIONS AND PARTNERSHIPS 17 I. Principal Forms of Enterprise 17 A. Sole Proprietorship 18 B. Partnership 18 C. Company D. Close Corporation 19 E. Business Trust 19 F. Co-operative Society SOURCES AND HIERARCHY OF THE LAW ON COMPANIES, PARTNERSHIPS AND CLOSE CORPORATIONS 20 I. Companies 20 A. Common Law 20 B. The Companies Act 20 n. Partnerships 21 A. Common Law B. Legislation 22 Close Corporations 22

3 IV. The Constitution of the Republic of South Africa PRIVATE INTERNATIONAL LAW THE LABOUR LAW CONNECTION: CO-DETERMINATION AND CORPORATE STRUCTURE 24 Part I. Companies CHARACTERISTICS FORMATION 28 I. Formal Requirements 28 II. Notification, Registration, Incorporation, and Publicity 32 Contracts Concluded on Behalf of a Company to Be Incorporated 33 IV. Number of Subscribers 34 V. Initial Share Capital 34 VI. Other Material Formation Requirements ESSENTIAL ELEMENTS OF THE LEGAL PERSON 35 I. The Company Name 35 n. The Legal Nature of a Company 36 HI. Nationality, Domicile, and Residence 37 IV The Capacity and Representation of the Company 38 A. The Doctrine of Constructive Notice 39 B. Limitations in Authority 39 C. The Turquand Rule D. Estoppel CAPITAL AND SHARES 42 I. Different Concepts of Capital 42 A. Nominal or Authorized Share Capital 43 B. Issued and Unissued Share Capital 43 C. Minimum Share Capital 43 D. Consideration for Shares 44 Alteration of Capital Requirements 44 Preferential Right of Subscription 45 IV. Public Requirements: Offers in the Primary Market 45 A. Allotment and of Shares 45 B. Prospectus 46 C. Allotment and Acceptance Pursuant to a Public Offer 47 V. Securities Exchange Requirements 47 VI. Offers for Sale: The Secondary Market 49 VII. Capital Rules 50 A. General Requirements for Distributions Authorization by the Board Application of the Solvency and Liquidity Test 52

4 3. Board Resolution Acknowledging Satisfaction with the Solvency and Liquidity Test 54 B. Acquisition of Own Shares by the Company (Share Buy-back) 54 C. Capitalization Shares 56 D. Payment of 57 E. Redemption of Shares 57 Types or Classes of Shares 57 A. Preference Shares 58 B. Ordinary Shares 59 C. Deferred Shares 59 LX. Variation of Class Rights 59 A. Class Rights and the Power to Vary Them 59 X. Transfer of Shares 60 A. The Securities Register 61 B. Securities to be Evidenced by Certificates or Uncertificated 61 C. Beneficial Interests in Securities 61 D. Transfer of Securities 63 E. Security by Means of Shares 63 F. Insider Trading 64 XI. Debt Instruments SHAREHOLDERS, MANAGEMENT AND CONTROL 66 I. Shareholders 68 A. Shareholders' Meetings 68 The Annual General Meeting General Meetings Notice of Meetings Conduct of Meetings Quorum Proxies Voting Resolutions Unanimous Assent and Informal Voting Minutes 78 II. Directors 79 A. Powers of Management and Representation 79 B. Appointment and Administrative Matters 79 C. Duties of Directors to the Company, the Shareholders and Third Parties 84 Fiduciary Duties Duties of Care and Skill Insider Trading Other Statutory Duties 90 D. Liability of Directors 91 Personal Liability towards Others Criminal Liability Indemnity from Liability and Relief by the Court 98

5 III. Other Officers 99 A. The Company Secretary 100 B. The Managing Director C. The Chairman of the Board of Directors 102 IV. The Auditor V. Annual Financial Statements and Reports VI. Remedies and Enforcement 110 A. Majority Rule: Protection of Minority Interests 1. Statutory Derivative Action Common-Law Personal Action Statutory Remedies for Shareholders 115 B. Application to Declare Director Delinquent or Under Probation 119 C. Protection for Whistle-blowers 121 D. Alternative Dispute Resolution 122 E. Complaints to the Companies and Intellectual Property Commission or the Takeover Regulation Panel 6. LIQUIDATION OF THE COMPANY I. Winding-up of Solvent Companies 123 II. Winding-up of Insolvent Companies 126 HI. The Effect of Winding-Up: Liquidation BUSINESS RESCUE AND COMPROMISE 132 I. Business Rescue A. Initiation of Business Rescue 1. Initiation by Way of a Board Resolution Initiation by Way of a Court Order B. Effects of Business Rescue General Moratorium on Legal Proceedings Protection of Property Interests Post-commencement Financing 4. Employees and Contracts 5. Shareholders and Directors 139 C. The Business Rescue Practitioner 139 D. Rights of Affected Persons during the Business Rescue Proceedings 140 E. The Business Rescue Plan 141 II. Compromise FUNDAMENTAL TRANSACTIONS AND TAKEOVERS 143 I. Regulation of Fundamental Transactions 143 n. Affected Transactions and the Takeover Regulation Panel 147 m. The Competition Act 89 of HOLDING COMPANIES AND SUBSIDIARIES I. Definition 151

6 II. Group Accounts and Enhanced Accountability III. Prevention of Abuse of Control 153 A. Distributions 153 B. Loans to Directors and Group Companies C. Financial Assistance for Subscription or Purchase of Securities D. Standards of TAXATION OF COMPANIES AND SHAREHOLDERS NON-PROFIT COMPANIES 157 Part II. Partnership DEFINITION, NATURE AND ELEMENTS OF A PARTNERSHIP 159 I. Definition 159 II. Nature of a Partnership ffl. Types of Partnership IV. Essential Elements of a Partnership V. Natural Consequences of a Partnership 2. THE RELATIONSHIP BETWEEN THE PARTNERS 162 I. Introduction 162 II. Rights and Duties of Partners ffl. Enforcement of Partners' Rights and Duties THE RELATIONSHIP BETWEEN PARTNERS AND THIRD PARTIES I. Introduction 165 n. Contracts A. Representation 166 B. The Principle of Mutual Mandate C. Estoppel D. Ratification 167 ffl. Delictual Liability 167 IV. Criminal Liability 167 V. Proceedings against the Partnership 4. DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP 169 I. Dissolution 169 H. Grounds for Dissolution 169 A. Mutual Agreement B. Effluxion of Term 169 C. Completion of the Partnership Business 170 D. Change in Membership 170 E. Court Order 171 F. War 171 G. Sequestration

7 IH. Formalities for Dissolution 171 IV Consequences of Dissolution 172 V Liquidation of the Partnership Estate 172 A. The Liquidator 172 VI. Distribution TAXATION OF PARTNERS 174 Part III. Close Corporations 177 DEFINITION, NATURE AND DISTINCTIVE CHARACTERISTICS OF A CLOSE CORPORATION 177 I. Background 177 n. Nature and Distinctive Characteristics of a Close Corporation 2. FORMATION, NAME, AND CONVERSIONS CONTRACTS MEMBERSHIP AND MEMBERS' INTERESTS 180 I. Membership 180 n. Acquisition of Member's Interest INTERNAL RELATIONS 183 I. Association and Other Agreements 183 n. Management 184 HI. Fiduciary Duties and Duties of Care and Skill 185 IV. Statutory Protection of Members and the Corporation 6. EXTERNAL RELATIONS ACCOUNTING AND DISCLOSURE 187 I. Accounting Records and Disclosure 187 n. The Accounting Officer HI. Appointment of Auditors and Enhanced Accountability LIABILITY OF MEMBERS AND OTHERS FOR DEBTS INCURRED BY OF THE CLOSE CORPORATION I. Civil Liability 191 Criminal Liability WINDING-UP, DISSOLUTION AND DEREGISTRATION TAXATION OF CLOSE CORPORATIONS AND THEIR MEMBERS 196 Selected Bibliography 199 Index