Reference documents and sites:
The Companies Act, No. 71 of 2008
In this article, we look at the basics of companies; types, registration, financial reports and auditing applicable to South Africa.
Companies may be public or private. They exist as separate legal entities from their shareholders. No distinction is made in the Companies Act between companies that are locally owned and those that are foreign owned.
Once formed, a company has an unlimited lifespan provided that the annual return is submitted, and the annual duty is paid to the Registrar of Companies.
Companies must be incorporated and registered with the Registrar of Companies. Companies incorporated in South Africa must have a registered office and maintain certain statutory and accounting records. If the accounting records are maintained outside South Africa, the company must receive such financial information and returns as will enable the statutory financial statements to be prepared.
Approval of the name of the company must be obtained from the Registrar of Companies before incorporation (the choice of name is restricted by certain criteria; such as conflicting with existing company names).
Public companies may offer their shares for sale to the public and do not need not be listed on the stock exchange for the public to hold an interest in the business.
Public company characteristics:
- the number of shareholders is unlimited,
- there are no restrictions on the transfer of their shares, and
- they must file with the Registrar of Companies, a copy of their annual financial statements which is available for public inspection.
There are a number of stock exchanges in South Africa; the main one being the Johannesburg Stock Exchange.
All public companies must be audited by a registered auditor.
Private companies characteristics:
- they may not offer their shares for sale to the public.
- the number of shareholders is unlimited but the right of transfer of their shares is restricted.
- they are not required to file their annual financial statements with the Registrar of Companies.
- they must however include certain information from the annual financial statements in their annual return.
- they must include the word “Proprietary” or “(Pty)” at the end of the registered name immediately before the word “Limited” or “Ltd”.
A company is incorporated by completing and filing a Memorandum of Incorporation (MOI) and a Notice of Incorporation to the office of the Registrar of Companies in Pretoria.
Standard versions of the MOI are included in the Companies Act. A company may choose to amend the standard versions of the MOI, as allowed under the Companies Act, to cater for its specific circumstances.
The MOI replaces the previous Memorandum and Articles of Association that had to be drafted for the formation of a company.
For companies that existed before 1 May 2011, the Memorandum and Articles of Association of such companies will continue to be effective for two years, even if there is a conflict between these documents and the Companies Act. The existing Articles can continue to be effective beyond the two years if there is no conflict between the Articles and the Companies Act.
Author Craig Tonkin