Companies: Different legal entities

Companies: Different legal entities

There are three legal entity types generally used in South Africa:

  • Trusts
  • Close Corporations and
  • Companies.

Although they share they share their status of juristic person, each of them has a specific purpose in modern day trading. Trusts are generally used for estate planning purposes whilst Close Corporations and Companies are generally used for trading purposes. We will cover the distinctive features of each type of entity in future posts. In this post we will take a look at the different types of companies that can be registered in South Africa:

  • Profit companies;
  • Non-profit companies;
  • Foreign and
  • External Companies

The registration and maintenance of company records are administered by the Companies and Intellectual Property Commission (CIPC).

Profit Companies:

Private Companies

This is the most common type of company to be registered within South Africa due to its simplicity. Some of the key features of a private companies are:

  • The company can be incorporated by 1 member
  • The company must have a minimum of 1 director
  • There is no restriction on the number of shareholders in the company. (Restricted to 50 shareholders under the old Act)
  • Prohibited on offering its shares to the public
  • There are restrictions on the transferability of the shares
  • The name ends with “(Pty) Ltd”

Public Companies

A public company is incorporated by one or more persons associated for a lawful purpose. It may raise capital from the general public, and its shareholders enjoy free transferability of shares and interests in the company. There is a compulsory regime of disclosure for public companies.

The name of a public company ends with “Ltd.”

Personal Liability Companies

The personal liability company is regarded as a successor to the section 53(b) company of the 1973 Act. This is a company

  • which meets the criteria, stated already, for a private company; and
  • whose Memorandum of Incorporation states that it is a personal liability company.

The directors, both past and present, are jointly and severally liable for the contractual debts and liabilities of the personal liability company. The liability of a director is limited, however, to the company’s contractual debts and liabilities, and therefore does not include delictual or statutory liability.

The name of a personal liability company ends with the expression “Incorporated.”

State Owned Companies

A State owned company is either a company defined as a “state-owned enterprise” in the Public Finance Management Act 1 of 1999 or a company owned by a municipality. The majority of the provisions of a public company will apply to state-owned companies as well.

Non-profit Companies (NPC):

The non-profit company (NPC) is dealt with in Schedule 1 to the Act, and is regarded as a successor to the section 21 company in the 1973 Act. An NPC must be incorporated by three or more persons, and formed for a lawful purpose. That purpose must relate to the public benefit; otherwise it must have an object relating to one or more cultural or social activities, or communal or group interests. These may include the promotion of religion, arts, sciences, education, charity or recreation.

The income and property of an NPC are not distributable to its incorporators, members, directors, officers or persons related to any of these people (except to the extent permitted by item 1(3) of Schedule 1). All profits are to be applied solely to the promotion of the NPC’s main object.

Upon its winding-up, deregistration or dissolution, the remaining assets of the NPC must be given or transferred to another NPC with similar objects, to be determined by the members of the association or, if they fail to do so, by a court.

An NPC is different from an NPO (non-profit organisation). An NPC may register, but is not obliged to register, as an NPO with the Registrar of NPOs. Organisations which are not companies, and therefore not NPCs (charitable trusts, for example) may also register as NPOs. The difference, in other words, is that NPOs are not limited to companies.

Foreign Companies:

A foreign company is a company incorporated outside of South Africa , irrespective of whether it is a profit or non-profit company or carrying on business in South Africa or not. A foreign company is prohibited from offering securities to the South African public unless it follows the specific provisions of the companies Act, relating to offers to the public.

External Companies:

Foreign companies that do business or carry out non-profit activities in South Africa are known as external companies.

 Such a company should be reasonably seen as intending to engage in business or non- profit activities in South Africa, though activities such as:

  • being party to one or more employment contracts within South Africa; or
  • engaging in a course or pattern of activities within South Africa over a period of at least six months.

 Branches of foreign companies are accorded legal status in South Africa by virtue of their registration as external companies but are not recognised as separate legal entities – except for exchange control purposes.

 An external company must register with the Companies and Intellectual Properties Commission within 20 business days after it first begins to conduct business, or non- profit activities, in South Africa.

Companies
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