1. The different types of companies according to the Act (2008) and the procedure involved in forming a company.
1.1 The different types of companies in terms of the Companies Act (2008)
Type Public Company
Description A company in shares are traded freely on a stock exchange market.
– The MoI allows the company to offer shares to the public but limits their right of pre-emption.
– The incorporators must consist of at least one juristic person as amended in the Companies Act.
– There must be at least three directors.
Name …. Limited or ….Ltd
Type Private Company
Description a company in which shares cannot be offered to the public for sale and it operates under legal requirements which are less strict than those for a public company.
– There are restrictions on how to issue share capital
– There are also restrictions on the transferability of ownership of shares
– All shareholders are directors so that need to seek shareholder approval for certain board actions is reduced.
– All the shares are owned by related persons so that the need to protect minority shareholders is lessened
– The board of a private company must have at least one director or any minimum number as stated in its MoI.
Name …. Proprietary Limited or… (Pty) Ltd
Type Personal liability company
Description It is a private company which is commonly used by ‘associations’ such as Lawyers, Engineers and Accountants.
– It meets the criteria of a private company
– Directors are liable for all the company’s debts and liabilities
Name ….Incorporated or …. Inc
Type State-owned company
Description It is a legal entity that is registered under the government in order to engage in commercial activities on behalf of the government.
Name ….SOC Ltd
1.2 Procedures involved in forming a company.
1.2.1 choose a company name
A company will come up with a suitable name for the company. A request should be made to the CIPC using a form to use the name. Should the name already exist, or if the name is undesirable, the CIPC can prevent you from using it.
1.2.2 Company’s objectives and goals
According to the Companies Act of 2008, incorporators of a company will have to submit a memorandum of incorporation (a document which sets out the responsibilities, rights and duties of shareholders and directors) as the founding document of a company.
2 Advantages and disadvantages of a Partnership
As it is not a separate legal entity, it is easy to form/set up As it is not a separate legal entity, it is difficult to keep track of the results of the business separately from personal activities
Competition can be easily abolished if more than one person form a single entity selling or delivering the same products and services All the partners have the responsibility and are liable for the business’s debts and liabilities
Increased opportunity for accumulation of capital There is a high potential for conflict, disagreements, and friction between partners and management
• There is an opportunity for income to be split, this an advantage of particular importance resulting from resultant tax savings Relative difficulty in disposing of an interest in the partnership
• It’s going to be easy to change the legal structure later should the circumstances change. • If partners want to join or leave, one will probably have to value all the partnership assets and this might be costly.
3 Key differences between a Non-Profit Organisation (NPO) and a company
3.1 A company is defined as a legal entity, which is run with the sole aim of making profit from the business activities. But, a non-profit organisation is one that is run with the objective of benefiting the public as a whole.
3.2 The main source of profits, for a company, is from the sale of goods and services. In opposition, the non-profit organisation, obtain a substantial part of their income from donation, subscription, membership fee, charity and so on.
3.3 When it comes to the formation of the entity, a large amount in the form of capital is brought in by the owners to run the business. Unlike the non-profit organisation, raises funds for commencement in the form of contribution through donation, grant, legacies, subscription, etc.
3.4 The financial statement of a company includes the statement of profit or loss, statement of cash flow and statement of financial position. On the contrary, the non-profit organisation prepares payment& receipt account, expenditure & income account and the statement of financial position prepared at the end of the financial year.
3.5 Money earned over and above by the company, i.e. revenue, is transferred to the capital account. On the other hand, the excess of income over expenses of a non-profit organisation results in the surplus which is transferred to the capital fund.
4 Steps needed to convert a Close Corporation (CC) into a company
The Companies Act (2008) has made the conversion of close corporations to companies simpler. Members wishing to convert a close corporation to a company must:
acquire a written statement of consent from members holding a summative 75% or more of the members’ interests in the close corporation, approving of the conversion of the close corporation; then draw up a Memorandum of Incorporation to oversee the new company after conversion; and file the written statement and Memorandum of Incorporation with the Companies and Intellectual Property Commission (CIPC) under cover of a notice of conversion.
On conversion, all assets, liabilities, rights and obligations of the close corporation vest involuntarily in the company after the conversion.
All the members then automatically become shareholders in the company, but the shares in the company need not necessarily be in percentage to the members’ interests as set out in the founding statement of the close corporation. The conversion will only be possible if members are in agreement on how the shares on the company will be held and what the different classes of shares with different right will be.
In conclusion, the assignment was of a great deal as it has empowered my knowledge on Partnerships and companies in general.
There are no restrictions on the types of juristic persons whom may hold shares in a company as is the case with close corporations; the number of people who can benefit from the profits of the company is not limited. In terms of the Close Corporations Act, a trust may hold a member’s interest in a close corporation but the number of beneficiaries of that trust, added to the number of members of the close corporation, may not at any time exceed 10; it is possible to have more than 10 shareholders; the potential for creating different classes of shares with unique rights attaching to each class provides an opportunity to tailor the share capital to the needs of shareholders; and former members who do not wish to engage in the business of the new company can elect to be shareholders but not directors.