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Companies

Companies are incorporated and regulated in terms of the Companies Act, 1973 (Act 61 of 1973).  The Companies Act applies to every company incorporated under the Act as well as to every external company with a place of business in the Republic of South Africa and to every company which had been a company in terms of any Act which was repealed on the commencement of the Act.  The Companies Act does not apply to mutual banks, friendly societies, pension funds, trade unions and employers' organisations or co-operative societies or companies.

For ease of reference this page has been broken up as follows:

1. Definition and concept of a company    (The constitution of the company / Shares and share capital / Shareholders / Meetings of members / Directors / Auditors)

2. Types and forms of companies   (Companies with a share capital - private companies & public companies / Companies without a share capital - associations not for gain & unlimited companies / External companies)

3. Preparation of documentation for the incorporation of companies   (Standard documents / Companies with a share capital / Companies without a share capital / External companies)

4. Company forms

5. Documents to be completed after the incorporation of a company

6. Special resolutions   (Changing the name of a company / Changing the capital structure of a company)

7. Conversion of companies   (Conversion of a private company to a public company / Conversion of a public company to a private company / Conversion of a private or a public company to an association not for gain / Conversion of a close corporation to a company)

8. Deregistration of a company

9. Restoration of a company

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1.    Definition and concept of a company

Broadly speaking a company can be defined as an association of people who work together for the common object of the acquisition of gain, meaning a commercial or material benefit or advantage.  A company exists separate from its members (the shareholders) and is therefore a separate legal entity but with legal personality.  As a legal person, a company is able to acquire rights and duties in its own name.  It can acquire assets, employ employees, be a party to a contract and sue and be sued in court.  The following are consequences of the fact that a company is a separate legal entity:

• The debts of the company belong to the company and not to the members.  The sequestration of the estates of the members do not result in the liquidation of the company and vice versa, the liquidation of the company does not result in the sequestration of the estates of the members.

• The profits of the company belong to the company and not to the members.  The members are only entitled to the profits of the company once dividends have been declared.

• The assets of the company belong to the company and only after a company has been liquidated are the members entitled to share in the distribution of the assets of the company.

• The members of the company are not allowed to act on behalf of the company.  The day to day running of the company vests in the directors of the company who have been appointed in terms of the company's articles as the representatives of the company.

Despite being a separate legal entity, the company consists of a combination of its members and directors and together they form a unity.  The members who contributed towards the company's share capital ultimately control the company in general meeting but the directors are responsible for managing the company.

The constitution of the company, shares and share capital, shareholders/members, meetings of members, directors and auditors are explained below:

The constitution of the company

The company's constitution consists of the Memorandum of Association and the Articles of Association.

The Memorandum of Association is the founding document and it is the dominant document of a company.  It provides the basis for the whole corporate structure and it consists of the following aspects:

• The proposed name of the company and, if applicable, the shortened form of the name and the translated name  reflected on form CM2.

• The main business and main object of the company reflected on form CM2A.  An initial statement of the general nature of the main business to be conducted by the company must be made.  It is followed by a formulation of the company's main object - that is, a statement of the general sphere of economic activity within which falls the already stated main business.

• Ancillary objects of the company that are excluded reflected on form CM2A.  A company shall have the capacity determined by the main object and there shall be included in its capacity unlimited objects ancillary to the said main object except such specific ancillary objects as are expressly excluded in this section.  Usually there are no ancillary objects that are excluded.

• The powers of the company reflected on form CM2A.  Every company has plenary powers including the common powers stated in Schedule 2 to the Act, to enable it to realise its main and ancillary objects, except such specific powers as are expressly excluded or qualified in its memorandum.  Usually there are no powers which are excluded or qualified except as far as associations not for gain are concerned.

• Special conditions of the company  reflected on form CM2A.  Usually there are no special conditions but additional conditions may be introduced if it is desired to regulate such matters here, rather than in the articles.  This is often done in respect of the conditions and rights attached to particular classes of shares.  When incorporating an association not for gain, the provisions required to be included in the memorandum in terms of Section 21 will feature as "Special Conditions".  So too, a company with investment as its main object could stipulate that any profits made on the realisation of its investments must be treated as a non-distributable capital reserve and not as profits available for dividend.  Similarly, on incorporating a professional practice, such as that of attorneys or professional engineers, statutorily prescribed requirements as to the contents of the memorandum are accommodated under this heading.

• Pre-incorporation contracts reflected on form CM2A.  In the event of a proposed company being a party to an agreement the said agreement must be adopted by the proposed company as a pre-incorporation contract.  A pre-incorporation contract must be in writing as has to be ratified after the incorporation of the company.  A notarially certified copy and a normal copy of the pre-incorporation contract have to be lodged.  The pre-incorporation contract must be inserted between the Association Clause to the Memorandum of Association and the Articles of Association.  The notarially certified copy must be included in the bound copy of the Memorandum and Articles of Association that are notarially certified by a notary and the normal copy must be inserted in the documents that are retained by the Registrar.  The wording to be inserted under par 7 of form CM2B for the registration of the contract/agreement as a pre-incorporation contract could be as follows:

"To adopt and ratify the Agreement of Sale entered into on ....... (date) by and between ....... (name of company) as seller and ....... (name of person) as trustee for the company to be formed as purchaser".

• The amount of the share capital and its division into shares must be reflected on form CM2B.  A company limited by guarantee has no share capital and therefore, no statement in respect of share capital is made, but it is stated that the liability of the members is limited to the amount (not being less than R1.00) which each member undertakes, in the event of the company being liquidated, to contribute to the assets of the company for payment of its debts and liabilities and costs of liquidation.

• Association clause reflected on form CM2D if there is one subscriber (member) or form CM2C if there is more than one member.  Each subscriber must sign the association clause in the presence of a witness or the person authorised by a Power of Attorney may sign on behalf of the subscriber.  In the event of a company/trust/close corporation being a subscriber to the memorandum of association an extract from the minutes of a meeting of the directors/trustees/members authorising the subscription must be lodged simultaneously with the registration documentation.

The Articles of Association of the company determine the way of company should function.  If the company has a share capital the Articles of Association for a public company may consist of the articles contained in Table A of Schedule 1 of the Act.  For a private company the articles may consist of the articles contained in Table B of Schedule 1 of the Act.   In these cases form CM44 is used.  A company may also use articles of association which are specifically prepared and should be lodged with form CM44A.  In addition the Signatories to the Articles of Association (form CM44C) must also be lodged.  A company limited by guarantee, being a public company without a share capital, is obliged to register an original set of articles and Table A can therefore have no application.  The articles should be lodged with form CM4B.

Understandably the Registrar of Companies will not read the whole of the Articles of Association but there are certain clauses which are perused, namely:

• The quorum of meetings of the members.  In the event of a private company always make provision for one member (voting personally or by proxy).  For a public company at least three members must be personally present.

• Number of directors.  The minimum number of directors has to correspond with the number of directors reflected on form CM29.

• Quorum at meetings of directors.  The quorum of directors present at meetings should correspond with the number of directors reflected in the articles.

• Private company clause.  The restriction of the right to transfer its shares, limits the number of members to fifty and prohibits any offer to the public for the subscription of shares.

• Borrowing powers.  This refers to funds borrowed by the directors for the company.  In the event of the borrowing powers being limited the company will not be able to borrow any amount that exceeds the authorised share capital of the company.

• Voting rights at meetings of members.  Any person present and entitled to vote, will at any meeting, on a show of hands, have only one vote, either as a member or as a proxy or as a representative of a body corporate, irrespective of the amount of shares he/she holds or represents.  On a poll at any meeting any member (including a body corporate) or his proxy shall be entitled to exercise all his/her voting rights.

• Signatories to the Articles of Association.  The signatories must correspond with those on form CM2C or CM2D.

• Variation of rights clause.  Specifies that the special rights or restrictions attached to all or any shares of a class may be amended, modified, varied or cancelled by a general meeting.

• Notice of general meeting - written notice.  The words "per registered post" must be inserted after the words "written notice" to amend section 39 of Table A  or section 38 of Table B of Schedule 1 of the Act.

• Proxy form.  A third column marked "abstain" must be added to the proxy form to amend section 52 of Table A  or section 53 of Table B of Schedule 1 of the Act.

Shares and  share capital

A share is an abstract concept that indicates ownership.  Owning a share in a company means owning a part thereof.  The size of the share will depend on agreement between the owners.  The creators of the company must establish how many shares there will be in the company.  There is no limit on the number of shares.  A shareholder cannot subscribe for less than one share (a fraction of a share does not consist).

The share capital of the company is the funds belonging to the company contributed by its shareholders. Shares are issued at the nominal value thereof, also known as the par value of the share.  Shares can also be issued at a premium and the issue price of the share will then be the nominal value (par value) plus the premium of the share.  If the nominal value of a share is of fixed amount it is a par value share.  If shares are fixed in number but not in value it is a no par value share.  A company cannot have par value and no par value shares of the same class e.g. ordinary par value and ordinary no par value shares.  There are different classes of shares which the shareholders can subscribe for, namely preference shares, redeemable preference shares, ordinary shares and deferred shares.  The present day tendency is to keep the capital structure of the company as simple as possible, and thus to limit the classes of shares.  All shares of the same nominal value enjoy the same rights.

• Preference shares can only be found where another class of shares (usually ordinary shares) exists, in relation to which they carry some preferential rights.  This preferential right is generally expressed as a percentage of the nominal value of the shares, for example 12% preference shares of R1.00 each.  Preference shares were initially designed for the investor who desires a fixed income coupled with a reasonable degree of security as to capital.  Shareholders are only entitled to claim their preference dividend from the company if both sufficient profits are available for such distribution and such dividend has been declared in the manner provided by the articles.  Cumulative preferential rights to dividends are usually expressly stipulated and also reflected in the designation of the shares, i.e. 12% cumulative preference shares.  This means that if in a given year or years no dividends are declared, the arrear and current preference dividends have priority at a subsequent dividend distribution before a dividend can be declared in respect of any other class of share.  In the case of participating preference shares the shareholders are entitled to both the fixed percentage preference dividend as well as to a share in the residual distributable profits.  Convertible preference shares are preference shares which are issued under conditions which confer on the shareholders a right to convert, usually after a given date, all or part of those preference shares into other, generally ordinary, shares of the company.

• Redeemable preference shares are sometimes used as a technique for alterations of control.  A company, if so authorised by its articles, may issue preference shares which are redeemable either at the option of the company or on or before a given date.  The terms and manner of redemption may be prescribed by the articles.  Preference shares can be redeemed 1) out of the proceeds of a fresh issue of shares, or 2) out of divisible profits.  The redemption of redeemable preference shares may not reduce the company's authorised share capital.  If the preference shares are to be redeemed at a premium, provision for the premium must be made prior to redemption either out of divisible profits or out of the share premium account.  Within one month of the redemption, notice thereof must be given to the Registrar by lodging a form CM19.  If so authorised by its articles, a company may convert any of its shares into redeemable preference shares.

• Ordinary shares only come into consideration for a dividend after provision for the dividend on preference shares has already been made.  There is no limit to the amount of the dividend which the ordinary shareholder can receive other than the availability of divisible profit and the rights conferred by other classes of shares.

• Deferred shares usually only come into consideration for a dividend after a prescribed minimum dividend has been paid to ordinary shareholders.  Deferred shares are usually issued by way of remunerating promoters for services rendered in the formation of the company (founders' shares) or to persons who have sold assets - including a business as a going concern - to the company (vendors' shares).  These shares are frequently issued as fully paid for a consideration other than cash.  Not all founders' or vendors' shares are deferred shares, they are often ordinary shares.

If the case of a company of which the share capital is divided into different classes of shares,  provision is made in the memorandum or articles for authorising the variation of the rights attached to any class of shares, subject to the consent of any specified proportion of the holders of the issued shares of that class or the sanction of a resolution passed at a separate general meeting of the holders of the shares of the class.

The authorised share capital of a company is the share capital a company is authorised to issue to its shareholders.  The authorised share capital is divided into shares of a fixed amount.  The issued share capital of the company is the amount of shares issued to the shareholders of the company.  If the authorised share capital of the company is R1000.00 divided into 1000 shares of R1.00 each and 100 shares have been issued then the issued share capital will be R100.00.  Unissued shares are shares that are in reserve.

All the shares of the company do not have to be allocated when the company is registered and to be a shareholder of a company a person does not have to subscribe to the company's memorandum of association.  Shares can be allotted after a company has been incorporated. 

Shareholders/Members

Persons who own shares in the company are called shareholders or members.  A person can become a member of a company having a share capital 1) by subscribing to the memorandum of association, or 2) by agreeing to become a member of the company and the subsequent entering of his name in the register of members.  A person's membership in a company is terminated by 1) the transfer of all his shares to another and deletion of his name from the register of members, 2) the sale and transfer of his shares by the company in terms of a lien conferred by the articles and the deletion of his name from the register of members, and 3) the dissolution of the company after liquidation.  On the sequestration of a member's estate the rights and duties of membership pass from the insolvent to the Master and then to the trustee.  On the death of a member his membership ceases, but his estate succeeds to the rights and duties of membership.  Only a person having contractual capacity can undertake to become a member of a company.  Where a person has limited contractual capacity, such as a child over seven years of age, such a person must be assisted when undertaking to become a member,  Where a person has no contractual capacity, such as a child under seven years of age and a mentally incapacitated person, he cannot undertake to become a member.  A company can become a member of another company but a company cannot become a member of itself.  A partnership cannot become a member of a company as it does not have independent legal existence but shares may be registered in the names of partners as co-owners.  Trusts and close corporations can become members of companies. 

The shareholders exercise control of the company by means of a general meeting.  They have the right to vote at meetings for the passing of resolutions (decisions to be approved by the shareholders of the company).  Resolutions passed by the company depend on who votes in favour of or against the proposed resolution.  To prove that a shareholder own shares in a company the shareholder will have to produce a share certificate when required.  The share certificate indicates who the shareholder is, how many shares have been issued to the shareholder and what the distinctive numbers of the shares are.  If the ownership of shares are transferred from one shareholder to another, share transfer forms must be completed, stamped, ten existing share certificates will be cancelled and new share certificates will be issued.

Every company must keep a register of members in one of the official languages.  This register, which is also referred to as the share register, is usually kept at the registered office of the company.  The name and address of the member, the date on which his name was entered in the register as a member and the date on which he ceased to be a member must be entered in the register.  In the case of a company having a share capital the number of shares issued to each member, the distinguishing numbers (if any) of the shares, the class or kind of share and the amount paid or agreed to be considered as paid on the shares must be entered in the register.  Any transfer of its shares shall be registered by the company by entering in the register of members the name of the transferee, the description of the shares transferred and the date of registration of the transfer.  On the conversion of any of the shares into stock the register of members must show the amount of stock held by each member instead of the number of shares.  The register of members must be open for inspection for at least two hours a day, free of charge to any member or his duly authorised agent, or on payment of a maximum amount of twenty five cents to any other person.  A public company may, however, close its register of members for a total period of not more than sixty days per annum.

A person can acquire title to shares in a company by 1) acquiring the shares from an existing shareholder, usually by way of purchase, and have the shares transferred into his name, or 2) he may acquire them directly from the company, usually by applying to the company which can then allot and issue shares to him.  A company may not issue and allot any shares unless the full price of (or other consideration for) such shares has been paid to and received by the company.  Every company must keep at its registered office a register of allotments of shares.  After allotment the names and addresses of the allottees, the number of shares allotted to each and the amount paid for the shares or in the case of shares allotted as fully paid other than for cash, full particulars of the consideration and of the transaction or contract concerned must be entered in the register.  Within one month after the allotment the company must lodge with the Registrar a return of allotments on a form CM15.

Information pertaining to shareholders cannot be obtained from the Registrar of Companies as the Registrar only keeps record of the initial shareholders - the shareholders who created the company and who subscribed for the shares in the memorandum of association.  A company is required in terms of the Act to keep a register of its shareholders at its registered office.  Form CM22 reflects the company's registered address.   If the address where the share register is kept differs from the registered address, a company has to file a form CM21 with the Registrar of Companies.

Meetings of members

Members of a company assemble as such in 1) meetings which are convened for attendance by the general body of shareholders (general meetings), and 2) separate meetings which are convened for attendance by only those members who are holders of shares of a specific class (class meetings).  General meetings are usually convened by the directors as it is customary and logical that this duty be assigned to them.  General meetings may also be convened by members in terms of Section 180 of the Act,  by members on requisition, by the court or by the Registrar.

The annual general meeting is a statutorily prescribed meeting to be held once a year.  The first annual general meeting must be held within 18 months after the company's incorporation.  Subsequent annual general meetings are to be held not later than nine months after the end of each ensuing financial year end but still within 15 months of the date of the preceding annual general meeting.  Application may be made to the Registrar for extension of the time within which the annual general meeting has to be held by lodging a form CM17 with the Registrar.  At least 21 days' clear notice in writing is required for the annual general meeting, unless a longer period is laid down in the articles.  Any company matter can be dealt with at an annual general meeting including the sanctioning of a dividend, the consideration of the annual financial statements, the election of directors and the appointment of an auditor.  The directors must ensure that the annual financial statements are laid before the annual general meeting.  In addition to the balance sheet and the income statement, the annual financial statements, by definition, also consist of a cash flow statement, a directors' report and an auditor's report.

For a general meeting at least 14 days' notice must be given to the members.  Where a special resolution is to be passed at least 21 days' notice must be given.  A shorter notice than the required minimum is permitted if it is so agreed, before or at the meeting, by a majority in number of the members having a right to attend and vote at the meeting and who hold at least 95% of the total voting rights of all the members.  In this event of the passing of a special resolution, a form CM25 signed by the majority in number of the members together with the notice must be lodged with the Registrar.  A meeting can also be convened by giving no notice at all if all the members agree to this in writing.  In the case of passing a special resolution a form CM25A signed by all the members must be lodged with the Registrar.  This is especially used where a company has a minimal number of shareholders.

An exceptional type of notice, known as special notice, must be given when the removal of directors or auditors is proposed.  The resolution requires only a simple majority but the notice must be given 28 days before the meeting at which it is to be proposed.  The person who is to propose the motion must give notice to the company and the company in turn must give notice of the motion simultaneously with the notice to its members of the meeting at which the motion is to be moved.

Notice of a meeting must be served on every member as well as the auditor of the company.  It must state the place, the day and the hour of the meeting and it must provide sufficient information on the business to be transacted and the purpose of the meeting.  In the case of a special resolution the notice must not only give notice of the intention to propose a special resolution but also the terms of the resolution, its effect and the reasons for it.  A statement must appear with reasonable prominence in the notice of the meeting that a member is entitled to appoint a proxy to attend and speak on his behalf, and that the proxy may vote in his stead on a poll and, if the articles so provide, also on a show of hands.

Matters relating to proceedings at general meetings are usually dealt with in detail in the articles, namely the election of a chairman, the quorum requirements at meetings, the adjournment of meetings, voting and voting rights and proxies.

Minutes must be kept of all proceedings at any meeting of the company in a minute book and it must be entered within one month of the date of the particular meeting.  The minute book must be kept at the registered office of the company.  The minutes of a meeting signed by the chairman of that meeting shall be evidence of the proceedings.  The minute book(s) must be available for inspection by any member free of charge at the registered office or at the office where it is made up.

Directors

The directors of the company are the "managers" of the company.  They are appointed by the shareholders and are responsible for the day to day running of the company.   Shareholders may be directors but it is not a requirement.  The directors are responsible for the management and organisation of the company, except in matters specifically allotted to other organs by the Act or the articles of association.  The managerial rights and powers of the directors is to be found in the articles.  Until directors are appointed, every subscriber to the memorandum of a company shall be deemed for all purposes to be a director of the company.  The appointment of the first directors of a company is effected by 1) lodging the written consent of each director to act as such with the company by means of form CM27, and 2) if the holding of qualification shares are prescribed by the articles, each director either subscribing in the memorandum for such shares or lodging a written contract on a form CM28 with the Registrar to take up such shares against payment.  Subsequent directors are appointed by lodging each such person's written consent on form CM27 with the company within 28 days.  This does not apply to the re-appointment of a retired director.  Though failure to lodge form CM27 with the company will not invalidate the appointment, failure to do so is an offence.  The company and every director or officer commits an offence if the company publishes the name of any person as a director when he is not a director or has not validly been appointed as director.  On the other hand, a company commits an offence if it does not state, in respect of every director, his present (and any former) names and his nationality (if not South African) on all its business letters, trade catalogues and trade circulars.

 Every company is obliged to keep a register of its directors and officers.  It is normally kept at its registered office where it is open to public inspection.  Failure to comply with this constitutes an offence.  The register of directors must contain the following in respect of every director or officer:

• His full names and any former names, his ID number (or his date of birth if he has no ID number) and if any officer is a body corporate, the registration number.

• His nationality if he is not a South African, his occupation, his residential, business and postal addresses and date of appointment.

• The name and registration number of every other company of which he is a director.

• Any changes in these particulars and the date and nature of the change.

In the case of a change in any of the particulars above a director must within 14 days of the change (except when he vacates his offices) inform the company of the change.  The company must enter the particulars of change in the register of directors and must within 14 days lodge a form CM29 with the Registrar of Companies.

A director terminates his office simply by tendering his resignation.  When a company is wound up by the court the directors, on the winding-up order being granted, cease to be directors and their powers and duties terminate automatically.  When a company is wound up voluntarily the liquidation commences on registration of the special resolution authorising the winding-up and from that time all powers of the directors cease except in so far as continuance thereof is sanctioned by the liquidator or the creditors or the company in general meeting.

Any of the following persons shall be disqualified from being appointed or acting as a director of a company:

• A body corporate.

• A minor or any other person under legal disability.

• Any person who is disqualified as director by an order from court.

• Unless authorised by the court:

  • an unrehabilitated insolvent;

  • any person removed from an office of trust on account of misconduct; and

  • any person who has been convicted and sentenced either to imprisonment without the option of a fine or to a fine exceeding R100.00 for theft, fraud, forgery or uttering a forged document, perjury, an offence under the Prevention of Corruption Act 6 of 1958; any offence involving dishonesty or any offence in connection with the promotion, formation or management of a company.

A company may, notwithstanding anything in its memorandum or articles or in any agreement between it and any director, by resolution in general meeting, remove a director before the expiration of his period of office.  This excludes a director of a private company who was holding office for life on the 13th June 1949.  Before the director can be removed by simple majority, 28 days' special notice of the intention to remove the director must be served on the company.  A copy of this notice must be sent to the director concerned, who is entitled to make personal representations at the meeting.  The director may also submit written representations in opposition to the proposal which the company must send to members or, if these were received too late, permit them to be read out at the meeting.  The power to remove a director shall not be construed as depriving him of any claim which he may have to compensation or damages in respect of his untimely removal.  Companies may provide for the removal of their directors in the articles even by amending the articles to incorporate such powers.  In such case it will be unnecessary to comply with the above procedure.

Although the directors are responsible for the daily decision making the decisions are not made by them individually but by a board of directors.  Each director has one vote and normal decisions are taken by a majority of vote.  Unless the articles provide to the contrary, the board of directors as such can only act at a meeting properly convened and at which a quorum is present.  The procedure at meetings of directors is regulated by the articles and supplemented by provisions laid down by the board of directors in accordance with powers conferred on them by the articles.  The directors must cause minutes of the proceedings at their meetings to be entered in a minute book kept for that purpose at the registered office.  Minutes of a meeting signed by the chairman of that meeting shall be evidence of the proceedings.

Auditors

Only chartered accountants are entitled to act as auditors of a company.  The following persons are disqualified for appointment as auditors of a company:

• A director, officer or employee of the company.

• A director, officer or employee of any company performing secretarial work for the company.

• A partner or employer or employee of a director or an officer of the company.

• A person who, personally, or whose partner or employee, habitually or regularly, performs the duties of secretary or bookkeeper of the company; an exception applies in the case of a private company, provided 1) that the person in question is a registered accountant and auditor, 2) that all the shareholders agree in writing to his appointment, and 3) that the relevant circumstances are set out in the auditor's report.

• A person who at any time during the financial year was a director or officer of the company.

• A person not qualified to act as such under the Public Accountants' and Auditors' Act 80 of 1991.

A disqualified person who acts as auditor of a company is guilty of an offence.  When the memorandum and articles of a company to be incorporated are lodged with the Registrar for registration, a written consent by a person to his appointment as auditor of the company to be formed may be lodged simultaneously, and such auditor shall be deemed to have been appointed as such by the company.  If no appointment of auditor of a company is made, the directors of the company shall appoint the first auditor of the company within twenty one (21) days after the date of incorporation of the company.  The first auditor holds office until the conclusion of the first annual general meeting of the company.  If the directors fail to appoint an auditor of the company, the Registrar may appoint the first auditor.  If the directors fail to appoint the first auditor of the company, every director shall be guilty of an offence.  A company must at every annual general meeting appoint an auditor to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting of the company.  When no auditor is appointed or re-appointed at an annual general meeting, the directors must appoint an auditor within thirty (30) days; if they fail to do so the Registrar may at any time appoint such auditor.

A company may, at any general meeting by an ordinary resolution of which special notice has been given to the company, remove an auditor before the expiration of his term of office and appoint another person as auditor in his place: Provided that where an auditor has reason to believe that in the conduct  of the affairs of the company a material irregularity has taken place or is taking place which has caused or is likely to cause financial loss to the company or to any of its members or creditors, and he has made a report thereon in writing to the directors of the company, he may not be removed from office until the provisions of Section 26(3)(b) of the Public Accountants' and Auditors' Act, 1951, have been complied with.  A company may, at an annual general meeting by ordinary resolution of which special notice has been given to the company, passed by not less than three-fourths of such members entitled to vote as are present in person or by proxy, determine that an auditor appointed by an annual general meeting shall not be re-appointed or that another person be appointed auditor of the company: Provided that where an auditor has reason to believe that in the conduct  of the affairs of the company a material irregularity has taken place or is taking place which has caused or is likely to cause financial loss to the company or to any of its members or creditors, and he has made a report thereon in writing to the directors of the company, he may not be removed from office until the provisions of Section 26(3)(b) of the Public Accountants' and Auditors' Act, 1951, have been complied with.  The company must send a copy of the special notice of the proposed resolution to the auditor concerned, who is entitled to make written representations to the company for notification to members.

An auditor may resign at any time during his period of office.  He must deliver to the company and to the Registrar a written notification on form CM31 to the effect that he has no reason to believe that in the conduct of the affairs of the company a material irregularity, involving financial loss to the company or to any of its members or creditors has taken (or is taking) place, other than an irregularity which has been reported to the Public Accountants' and Auditors' Board.  On receipt of such notification the directors must forthwith appoint an auditor to fill the vacancy.   On the first appointment of an auditor of the company and on the subsequent appointment of a new auditor, such auditor must give written consent on form CM31 of his acceptance of the appointment.  Within 14 days of any change concerning the particulars to be entered in the register of directors and officers, the auditor must give the company notice thereof on form CM31.  Such change must be lodged with the Registrar within 14 days of such entry.  The name and date of appointment of the auditor and the date and particulars of any change must be entered in the register of directors and officers.

The auditor has the right of access at all times to the accounting records and to all books and documents of the company.  He is entitled to require from the directors or officers such information and explanations as he thinks necessary for the performance of his duties as auditor.  The auditor of a holding company has the right of access to all current and former financial statements of any subsidiary.

The auditor is entitled to attend any meeting of the company and to receive all notices of, and other communications relating to, any general meeting which any member is entitled to receive, and to be heard at any general meeting which he attends on any part of the business of the meeting which concerns him as auditor.

The remuneration of the auditor of a company is determined by agreement with the company.

2.    Types and forms of companies

Two types of companies may be formed and incorporated under the Companies Act:

• A company having a share capital; or

• A company not having a share capital and having the liability of its members limited by the memorandum of association (a company limited by guarantee).

Companies with a share capital

These companies have a share capital which they obtained by issuing shares to its members.  The members usually have no more to lose than the amount they paid for their shares.  There are two types of companies, namely private companies and public companies:

Private companies

The number of directors and shareholders is limited to fifty (50).  The minimum membership is one (1) and a private company may have a single director.  A private company is prohibited from offering its shares or debentures to the general public.  The transfer of a private company's shares is restricted and a restriction clause must be added in the articles of association of the company.  A private company is not required to lodge financial statements/interim reports/provisional financial statements with the Registrar of Companies as are required in the case of public companies.  The name of the company ends with the words "(Proprietary) Limited" [(Pty) Ltd].  Unless the articles of association provide otherwise, a member of a private company may not appoint more than one proxy.  Unless the articles of association provide for a greater number, the quorum at meetings in the case of a private company, not being a company with one member, two members entitled to vote, present in person or by proxy or, if the member is a body corporate, represented.  The voting rights in a public company are proportional to the number of shares held but in the case of a private company, the voting rights can be regulated more freely in the articles.  A director who held office for life in a private company on 13 June 1949 cannot be removed from office.  The auditor of a private company may also be the secretary or bookkeeper of the company if he is registered under the Public Accountants' and Auditors Act, 1991, and all the shareholders of the private company have agreed in writing to his appointment.  In the case of a public company, this is strictly prohibited.

Section 53(b) of the Act makes provision for a private company that wants to arrange the unlimited liability of its directors.  This section authorises a private company to determine in its memorandum of association that  the directors and past directors shall be liable jointly and severally, together with the company, for such debts and liabilities of the company as are or were contracted during their periods of office, in which case the directors and past directors shall be so liable.  The directors and the company are then singuli in solidum  liable for company debts.  The concluding word in the name of such a company must be "Incorporated" (Inc).  These companies are mainly aimed (although not exclusively) at professional associations such as companies registered for attorneys, medical practitioners, pharmacists, engineers, brokers, auditors, etc.

 

Public companies

Public companies have a minimum number of seven (7) members and a minimum number of two (2) directors.  The maximum number of members and directors is unlimited.  The shares in a public company may be transferred freely and  members of the public may obtain shares in the company.  A public company is obliged to lodge annual financial statements/interim reports/provisional financial statements with the Registrar of Companies for each financial year end.  It is not required that public companies be listed on the Johannesburg Stock Exchange.  The name of the company ends with the word "Limited" (Ltd).  Unless the articles of association of the company state otherwise, the quorum at meetings in the case of a public company is three members entitled to vote, personally present, or if a member is a body corporate, represented.  The voting rights in a public company are proportional to the number of shares held.  The auditor of a public company may not be a secretary, director or employee of the company.  It is a ground for liquidation if the membership of a public company falls below seven.  If so authorised by its articles, a public company may, with respect to any paid-up shares, or to stock, issue a share warrant.  The directors of a public company must appoint a secretary who is permanently resident in the Republic of South Africa and who has the requisite knowledge and experience.

 

Companies without a share capital

A minimum of seven (7) members associated for any lawful purpose is required for the incorporation of a company limited by guarantee.  These companies are deemed to be public companies for the purpose of the Act.  The concluding word in the name of the company is "Limited" (Ltd) but the statement "Limited by Guarantee" must be subjoined to the name to distinguish it from the ordinary public company.  The company does not have a share capital but the liability of the members is limited by its memorandum by the amount (not less than R1.00) that each member undertakes to contribute to the assets of the company in the event that the company is wound up.  Every provision in the memorandum or articles or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member shall be void.  Companies limited by guarantee must lodge financial statements at the office of the Registrar but is not obliged to lodge interim reports/provisional financial statements.  This type of company is not suitable for business purposes and is used almost exclusively in cases where the object is one not for gain, i.e. mutual benefit societies or research associations.

Associations not for gain (Section 21 company)

Any association -

• formed or to be formed for any lawful purpose;

• having the main object of promoting religion, arts, sciences, education, charity, recreation, or any other cultural or social activity or communal or group interests;

• which intends to apply its profits (if any) or other income in promoting its said object;

• which prohibits the payment of any dividend to its members; and

• determine it its memorandum that -

  • the income and property of the association shall be applied solely towards the promotion of its main object, and no portion thereof shall be paid or transferred, directly or indirectly, to the members of the association or to its holding company or subsidiary; and

  • upon its winding-up, de-registration or dissolution the assets of the association remaining after the satisfaction of all its liabilities shall be given or transferred to some other association or institution having objects similar to its main object, to be determined by the members of the association at or before the time of its dissolution or, failing such determination, by the Court.

may be incorporated as a company limited by guarantee.  The word "Limited" and the statement "Limited by Guarantee" is not used but the statement "Association incorporated under section 21" must be included in and be subjoined to the name.  An association not for gain incorporated before the commencement of the Companies Amendment Act in June 1980, may instead of the said statement include in and subjoin to its name the statement "Incorporated association not for gain".  An association not for gain is, as a company limited by guarantee, subject to all the duties imposed on a public company.  For this reason at least seven persons associated for a lawful purpose are required for the formation, incorporation and existence of an association not for gain.  The company must also have at least two directors.  An association not for gain may not be converted to a company with a share capital but a company with a share capital may be converted to an association not for gain.  Incorporation in terms of Section 21 affords no automatic income tax advantages.  Such a company will have to apply to the South African Revenue Service for exemption on any of the grounds set out in Section 10 of the Income Tax Act of 1962.

 

Unlimited companies

These types of companies are not registered anymore but the few that were registered in terms of the repealed Companies Act of 1926 may continue to exist.  Most of these companies came into being due to the setting up of consortiums of professional people associated with big engineering projects.  If such a company does not convert itself into another form of company, the provisions of the repealed Act shall continue to apply to such unlimited company as if that Act had not been repealed.  Any such unlimited company which is a private company (and which has not converted itself into another form of company) must lodge its annual financial statements with the Registrar as if it were a public company.

External companies

The term external company refers to a company or association of persons that was incorporated outside the Republic of South Africa.  Every external company shall within twenty-one (21) days after the establishment of a place of business in the Republic of South Africa lodge with the Registrar the required documents.  See the section below on the documentation that must be lodged for the registration of an external company.  The statement "incorporated in ...(stating the name of the foreign country concerned)" must be included in the name of an external company.  An external company of which the memorandum has been registered in terms of the Act shall have the same power to own immovable property in the Republic of South Africa as if it were a company incorporated in the Republic.  The external company must continuously have a person appointed resident in South Africa who is authorised to accept service on behalf of the external company.  Financial statements together with the report of the auditor of the company must be lodged within six months after the end of every financial year with the Registrar of Companies in respect of its financial position, trade and business in the Republic.  A certified copy of its latest complete annual financial statements as prepared under the requirements of its country of incorporation must also be lodged with the Registrar within six months of the end of the financial year.  If the financial statements are in a foreign language, a certified translation thereof in one of the official languages must be lodged.  An external company must conspicuously exhibit outside all its places of business in the Republic the name of the company and the foreign country in which the company is incorporated.  It must also have the name of the company and of the foreign country in which it is incorporated, as well as the registration number, mentioned in legible characters in all bill-heads, notices, advertisements and other official publications of the company.  An external company is given the same power to own immovable property in the Republic of South Africa as a local company provided its memorandum has been registered.

3.    Preparation of documentation for the incorporation of companies

The following are standard documents to be completed and lodged, regardless of the category of the company:

Companies with a share capital

The following documents, in addition to the standard documents stated above, should be completed and lodged for companies with a share capital, namely private and public companies:

The certificate of incorporation, memorandum of association, association clause, articles of association  and signatories to the articles of association must be prepared in duplicate.  The original set duly stamped must be stapled together in the above order.  The second set must be notarially bound consisting of the notary's seal on every page and his/her  certificate between the certificate of incorporation (form CM1)  and the memorandum of association (form CM2).

Companies without a share capital

The following documents, in addition to the standard documents stated above, except for forms CM46 and CM47, should be completed and lodged for companies without a share capital, namely companies limited by guarantee or associations not for gain (associations incorporated under section 21):

The certificate of incorporation, memorandum of association, association clause, articles of association  and signatories to the articles of association must be prepared in duplicate.   The original set duly stamped must be stapled together in the above order.  The second set must be notarially bound consisting of the notary's seal on every page and his/her  certificate between the certificate of incorporation (form CM3)  and the memorandum of association (form CM4).

External Companies

The following documents should be completed and lodged for external companies in addition to the standard documents stated above.  Forms CM5, CM46, CM47 and a power of attorney are not required:

No form CM5 or Power of Attorney is required.  A copy of the original memorandum and articles of association in book form, signed and sealed (on every page) by a notary of the country of origin must be lodged.  If the memorandum and articles of association are not in one of the official languages of the Republic of South Africa, a certified translation thereof in one of the official languages must be lodged, together with a translator's certificate and sealed (on every page) by a notary of the country of origin.  If the notary public is in a foreign country, other than the United Kingdom of Great Britain and Northern Ireland, Zimbabwe, Lesotho, Swaziland, Namibia or any state the territory of which formed part of the Republic of South Africa and which became an independent state in terms of an Act of Parliament, his signature shall be authenticated.  A document shall be deemed to be sufficiently authenticated at such foreign place by the signature and seal of office -

• of the head of a South African diplomatic or consular mission or a person in the administrative or professional division of the public service serving as a South African diplomatic, consular or trade office abroad; or

• of a consul-general, consul, vice-consul or consular agent of the United Kingdom or any other person acting in any of the aforementioned capacities or a pro-consul of the United Kingdom; or

• of any Government authority of such foreign place charged with the authentication of documents under the law of that foreign country; or

• of any person in such foreign place who shall be shown by a certificate of any person referred to in paragraph (a), (b), or (c) or of any diplomatic or consular officer of such foreign country in the Republic of South Africa to be duly authorised to authenticate such document under the law of that foreign country; or

• of a notary public in the United Kingdom of Great Britain and Northern Ireland or in Zimbabwe, Lesotho, Botswana or Swaziland; or

• of a commissioned officer of the South African Defence Force.

4.    Company Forms

Forms must be written in block capitals or be typewritten in legible characters in black ink and printed on white paper.  The use of coloured paper for some of the forms was cancelled.  It is advisable when forms are lodged that a stamped copy of the form be retained as proof of lodgement and for the company's records.  In many instances only a tear-off portion of a form is returned to the applicant and having a stamped copy ensures that the company has a copy of the form for its own records.  It is also advisable to make use of an agent for the lodgement of forms as the agent is in a better position to follow up on the registration of forms and to obtain a stamped copy for the company's records.  The following forms can be lodged with the Registrar of Companies:

The following forms have been cancelled:

• CM13

• CM14

5.    Documents to be completed after the incorporation of  a company

After a company has been incorporated, the statutory documents in respect of the company must be kept in a safe place, preferably at the company or with the auditors.  The register of members must be kept at the registered office for inspection and it is important to obtain a company register and minute book in order to record every aspect of the company and to file the minutes of the meetings.  The following documents must be completed after the company has been incorporated:

• A share certificate has to be issued to every shareholder of the company within twenty one (21) days from the date of incorporation.  The stamp duty on the certificate is 5 cents for every R20.00 issued.  The stamp must be properly cancelled.  The certificate must be signed by two directors of the company or by one director if the company has only one director.  The shares must be distinguished by appropriate numbers.

• Any transfer of shares must be entered into the company's minute book or with the share certificates which form part of the statutory records of the company.  The stamp duty on the transfer form (form CM42) is 2.5 cents for every R10.00 issued.  If the form is not stamped within six (6) months of the date of the transfer, the duty is three (3) times the original amount.  A share certificate must be issued in the name of the new shareholder and the transferor's share certificate must be cancelled.

• The allotment of further shares issued (form CM15) has to be lodged with the Registrar of Companies.  Share certificates must be issued to the new shareholders within twenty one (21) days and duly stamped.  The stamp duty is 5 cents for every R20.00 issued.  If not stamped within this period the duty is twice the amount of the original stamp duty.  When a share is issued at a premium the premium must be included in the value of the shares to calculate the stamp duty payable.  The allotment of shares must be entered into the register of allotments of shares.

• The company must hold its first Annual General Meeting within a period of eighteen (18) months after the date of the incorporation of the company and thereafter within not more than nine (9) months after the end of every ensuing financial year of the company and within not more than fifteen (15) months after the date of the last preceding such meeting of the company.  The minutes of the meeting must be inserted into the company's minute book.

6.    Special resolutions

A company may change any of the information contained in its memorandum and articles of association by passing a special resolution, excluding the date of incorporation, original subscribers and its registration number.  A special resolution not registered within six (6) months of the passing thereof will lapse and will become nil and void unless the court decides otherwise.  A special resolution takes effect on the date which it is registered by the Registrar.  Ordinary resolutions which are not required to be registered by the Registrar, takes effect on the date of the passing thereof.  A special resolution can state the date on which it takes effect provided that it is not a date prior to the passing thereof.

A special resolution can only be duly passed if the quorum requirements for the passing thereof has been met by the shareholders of the company.  Only special resolutions which have been duly passed may be submitted to the Registrar for registration.  A company can pass various special resolutions at one meeting and such resolutions are reflected on form CM26 or to an annexure to the form.  The following are examples of special resolutions:

• Changing the name of the company including a translated name or a shortened form of a name.

• Changing the main business or main object of the company.

• Changing the capital structure of the company, e.g. increasing the share capital, converting the shares into another class of shares, consolidating or subdividing the number of shares etc.

• Changing the minimum and maximum number of directors.

• Changing the quorum requirements for meetings of the shareholders.  This must however be in line with the minimum requirements in terms of the Act.

• Changing the quorum requirements for meetings of the directors. 

• Changing the borrowing powers of the directors.

A special resolution is passed by the shareholders of the company.  The company may convene a meeting for the passing of the proposed special resolution and all the shareholders of the company must receive notice of the proposed meeting (even shareholders who are not entitled to vote at the meeting).  The notice to shareholders must comply with the requirements of the Act, namely -

• The time, date and place of the meeting must be specified.

• The proposed special resolution to be passed at the meeting must be specified.

• The terms and effect of the special resolution and the reasons therefor must be specified.

A period of twenty one (21) clear days' notice must be given to all the shareholders of the company for the passing of the special resolution.  The days are calculated form the date that the chair person has signed the notice of the meeting (including the first day and excluding the last day) to the date of the passing of the special resolution.

If it is not possible to give 21 days notice a company may give "short" notice for the convening of a proposed meeting (less than 21 clear days) to shareholders.  A form CM25 has to be submitted together with the notice and form CM26.  Form CM25 must be signed by the majority in number of the members of the company having the right to attend and vote at the meeting and who hold in aggregate not less than ninety five per cent (95%) of the total votes held by all the members of the company.  A director/officer of the company must co-sign the form to certify that the members who signed the form are the majority in number of the members.

If a company has a minimal number of shareholders the company may waive the notice of the meeting by submitting a form CM25A signed by all the shareholders of the company as well as by a director/officer of the company.  Form CM25A must be submitted together with form CM26.

Form CM26 must be submitted in duplicate.  The stamp duty is R80.00.  If the form is not submitted to the Registrar within one (1) month of the date of the passing of the special resolution a penalty of R150.00 is payable.  The documentation submitted together with form CM26 is:

• A copy of the notice (21 clear days) ; or

• A copy of the short notice and form CM25; or

• Form CM25A

Changing the name of a company

A company may change its name, translated name or shortened form of its name by special resolution at any time, provided that the proposed name is not undesirable in the opinion of the Registrar.  The name of the company has to be in line with the main business and main object of the company.

Before the name of a company can be changed a form CM5 has to be lodged first to apply for the reservation of the proposed name.  See the page on names for a comprehensive discussion of this topic.  If a translated name and/or a shortened form of the name have to be registered also, separate forms CM5 have to be lodged.  The stamp duty on form CM5 is R50.00.

Once a name has been approved the following documentation has to be lodged for the registration of the name:

• Form CM26 in duplicate.  The stamp duty is R80.00 or R150.00 extra if not lodged within one month after the date of the passing of the special resolution.

• Form CM9 which consists of an application to change the name and two certificates of the change of name.  The stamp duty is R30.00.

• Copy of the approved form CM5.

• If the company intends to change a translated name or a shortened form of its name, a form CM9A with a stamp duty of R30.00 must be lodged.  In addition, a form CM9B must be lodged to deregister the former translated name or shortened form of the name.  The stamp duty is R5.00.

• If the company wants to register a new translated name or a shortened form of its name and it does not have any of these names registered, a form CM7 must be lodged.  The stamp duty is R30.00

• Copy of the notice (21 clear days) or copy of the short notice together with form CM25 or form CM25A.

 The following is an example of the wording on form CM26 for changing the name of a company:

Changing the capital structure of a company

A company may alter its share capital, by special resolution, if so authorised by its articles of association.  There are various special resolutions pertaining to the share capital of the company e.g. increase, consolidation, division, subdivision, conversion, cancellation, reduction and redemption.

A company can increase its authorised share capital by the creation of new shares or shares of another class.  In the event of the creation of shares of another class, the company's articles of association must be amended accordingly to include the rights, privileges and conditions attached to the class of shares which are created.  The following documents are lodged in addition to form CM26 and the notice:

• Form CM11 - The stamp duty is R5.00 for every R1000.00 with which the authorised share capital is increased.  If the share capital is increased from R1000.00 to R4000.00 the stamp duty payable is R15.00 as R5.00 had been paid on the R1000.00 when the company was incorporated.

• Amendment to articles of association in duplicate (if applicable).  The amendment can be printed on form CM26 or new articles can be attached to form CM26 replacing the previous articles.

The following is an example of the wording on form CM26 for the increase of the authorised par value share capital:

A company may also change the par value of its shares by consolidating or subdividing the number of shares, e.g. shares that have a par value of R1.00 can be consolidated into shares with a par value of R10.00 or shares that have a par value of R1.00 can be subdivided into shares with a par value of R0.50.  A company may also cancel shares which have not been taken by any person, or which no person has agreed to take and thereby diminish the amount of its authorised share capital by the amount of the shares so cancelled.  Only the usual documents for a special resolution should be lodged.

The following is an example of the wording on form CM26 for consolidation and division of par value shares:

The following is an example of the wording on form CM26 for the cancellation of authorised par value shares:

A company can also convert any of its shares, whether issued or not, into shares of another class if so authorised by its articles of association.  A company van convert its shares into any existing class of shares in the capital of the company or to any other class of shares.  If a company convert its shares to a class which does not form part of the existing share capital of the company, the company must amend the articles of association to include the rights, privileges and conditions attached to those shares.  The following documents are lodged in addition to form CM26 and the notice:

• CM20 - Only applicable if issued shares are converted.

• Amendment to articles of association in duplicate (if applicable).  The amendment can be printed on form CM26 or new articles can be attached to form CM26 replacing the previous articles.

The following is an example of the wording on form CM26 for the conversion of shares:

A company can also redeem its preference shares.  Redeemable shares are redeemed at their par value plus the premium at which the shares were issued, if any.  Redeemable shares can only be redeemed out of the profits (available for dividends) or out of the proceeds of a fresh issue of shares (for purpose of redemption).  A redemption of shares does not result in a reduction of the company's authorised share capital.  The repayment of the premium paid on redeemable preference shares will be paid out of the share premium account of the company.  Form CM19 must be lodged within one month if preference shares are redeemed.  When a company convert its issued preference shares into shares which can be redeemed the documents necessary for a special resolution must be lodged.

A company can reduce its share capital by special resolution or by confirmation of court.  A company which reduces its share capital has to be so authorised by its articles of association, have no creditors (if there are creditors they must give consent thereto) and the reduction must affect all its shares or any class of shares proportionally.  A letter must be sent to the company's creditors (see example below).  A reduction by court is necessary only when reduction cannot be effected in terms of Section 83 of the Act.  The company must lodge a copy of the signed Notice of Motion with the Registrar for his perusal and report.  The report from the Registrar must be placed before the court on the day of the hearing.  For the reduction of share capital by special resolution the following documents are lodged in addition to form CM26 and the notice:

• CM14A

• Written consent from creditors (if any)

The following is an example of the wording on form CM26 for the reduction of the share capital:

The following is an example of the notice to be sent to a company's creditors in regard to a reduction of capital by special resolution:

When a reduction of the share capital is confirmed by the court, the following documents are lodged in addition to form CM26 and the notice:

• Original order of court which was granted

• CM18 - the stamp duty is R20.00

• CM14A

7.    Conversion of companies

The following conversions of one type or form of company to another type or form of company are possible:

1. Conversion of a private company, having a share capital, to a public company.

2. Conversion of a public company, having a share capital, to a private company.

3. Conversion of a company into an association not for gain, or to a company limited by guarantee.

4. Conversion of a company limited by guarantee to a company having a share capital.

5. Conversion of an unlimited company to any other type or form of company.

In all the above cases a special resolution is required for the conversion of a company.  In terms of section 26 the company must give notice in the Government Gazette at least three weeks before the particular meeting of its intention to convert, specifying the particulars of the proposed conversion and the date and place of the meeting.  No such notice is required, however, when a private company converts itself into a public company having a share capital.  If the company being converted is a public company with a share capital, notice of the conversion to be published in the Government Gazette must also be sent to every creditor by registered post, not less than three weeks before the meeting at which it is to be converted. 

Conversion of a private company to a public company

The following forms are required for the conversion of a private company to a public company:

The following is an example of the wording on form CM26 for the conversion of a private company to a public company if new articles are adopted:

Conversion of a public company to a private company

The following forms are required for the conversion of a public company to a private company:

The following is an example of the wording on form CM26 for the conversion of a public company to a private company if new articles are adopted:

The following is an example of the notice of conversion of a public company to a private company to be published in the Government Gazette:

Conversion of a private or a public company to an association not for gain

A private or a public company may convert itself to an association not for gain (association incorporated under section 21), however, an association not for gain may not convert itself to another type or form of company.  A private or public company which converts itself to an association not for gain must cancel its share capital.  The following forms are required for the conversion:

The following is an example of the wording on form CM26 for the conversion of a public company to an association not for gain:

Conversion of a close corporation to a company

A close corporation may, with the written consent of all its members, be converted to a company provided that every member of the close corporation becomes a member of such company.  The financial year end of the company must correspond with that of the existing close corporation otherwise it must be changed before the registration of the conversion or thereafter.  The same forms that are required for the registration of a company, are required for the conversion as well as the following additional documentation:

• Original written consent of all the members of the close corporation in terms of Section 29C(1) signed by all the members of the close corporation.

• Application by the members of the close corporation in terms of Section 29C(2) signed by all the members of the close corporation.

• Original written statement of the paid-up share capital in terms of Section 29C(4)(a)(i) signed by all the members of the close corporation.

• Original statement by the accounting officer of the close corporation in terms of Section 29C(4)(a)(ii).

The certificate of incorporation (form CM1) must reflect the following certification:

"The company was converted from the close corporation ..... (name of close corporation) with registration number ...... on the ...... day of.............".

On the registration of a company converted from a close corporation all the assets, liabilities, rights and obligations of the close corporation shall vest in the company.  Any legal proceedings instituted before the registration by or against the close corporation, may be continued by or against the company, and any other thing done by or in respect of the close corporation, shall be deemed to have been done by or in respect of the company.  The juristic person which existed as a close corporation before the conversion shall notwithstanding the conversion continue to exist as a juristic person, but in the form of a company.

8.    Deregistration of a company

Deregistration concerns the process whereby an association of persons, which acquired legal personality by registration as a company, is deprived of that legal personality and its corporate status because it has ceased to carry on business or operate.  It is defined by the Registrar of the registration of the memorandum and articles of the company.

Deregistration is to be distinguished from the dissolution of a company; the company's existence is terminated for all purposes by dissolution while on deregistration the association of persons sustaining the company merely loses its corporate personality.  Should a deregistered "company" nevertheless continue with business, it is no longer a company doing so but an association without legal personality.

A company can be deregistered if the Registrar has reason to believe that the company is not carrying on business or is not in operation and he has enquired by letter, sent by registered post to the company as to what the position is and either 1) the company has confirmed that no business is being carried on or that it is not in operation, or 2) the company has not replied to his letter within one month of it being sent.  The Registrar may publish in the Government Gazette and send to the company by registered post a notice that at the expiration of two months from the date of that notice the company will be deregistered.  After two months, or on earlier receipt of a written statement from the company signed by every director that the company has ceased to do business and has no assets or liabilities, the Registrar may deregister the company. 

The company may also request the Registrar to deregister the company in which case a written statement from the company signed by every director that the company has ceased to do business and is therefore dormant and has no assets or liabilities must be lodged with the Registrar.  The company's tax number must also be supplied to the Registrar.

Before a company can be deregistered the Registrar must write to the Workmen's Compensation Commissioner, the Receiver of Revenue and the Unemployment Insurance Commissioner to enquire whether they have any objection to the deregistration of the company.

The Registrar must give notice of the deregistration in the Government Gazette.  The publication date of the notice is the effective date of deregistration.

Even though a company is deregistered, the liability of every director, officer and member of the company continues and may be enforced as if deregistration did not take place.  A debt due by a company is not extinguished by deregistration but is merely rendered unenforceable while the company is deregistered.  Hence deregistration does not extinguish the obligation of a surety to pay an amount due by the company.  On deregistration the assets of the company, if there are no ascertainable claimants, become bona vacantia and, as such, accrue to the state.  An action cannot be instituted by or against a deregistered company and a court order is also invalid.

9.    Restoration of a company

If it appears after deregistration that the company was in operation after all or that it would be unjust to leave it deregistered, for example where assets were discovered or not taken into account or assets presumed to be worthless appreciated in value, it may be necessary to restore the registration of the company.

The deregistered company, a member of the company, a creditor, any interested person or the Registrar may apply to the court that the company be restored.  When requesting the restoration of registration it may be necessary to ask the court to order that assets which became bona vacantia on deregistration are no longer bona vacantia but restored to the company.  The order may contain such directions as the court deems just for placing the company and other persons in the same position as before the deregistration.  If the court is satisfied that 1) at the time of the deregistration the company carried on business or was in operation, or 2) it is equitable that the registration be restored, the court may order that the registration be restored.  The company shall be deemed to have continued in existence as if it had not been deregistered.

The applicant has to file a court order at the High Court that has jurisdiction over the company and arrange for the publication thereof in a local newspaper as well as the Government Gazette.  A copy of this court order must be lodged with the Registrar together with the original cutting showing publication of the court order in a local newspaper, a copy of the Government Gazette reflecting publication of the court order as well as forms CM22, CM29 and CM31.

Bibliography

Cilliers HS and Benade ML  Corporate Law  3rd ed  Butterworths  2000

Cilliers HS, Benade ML, Henning JJ, du Plessis JJ, Delport PA, Fourie JSA & de Koker l  Ondernemingsreg  Butterworths  1993

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