Forms of Business Enterprise - 2021

FORMS OF
BUSINESS
ENTERPRISE
Syllabus
The syllabus is compiled by

practitioners with experience in
practice.
Training Guide The author of this guide was
Version 004 Learning Resources No 016
Kobus Markgraaf.
Publish date: 01/01/2021
____________
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FormS oF BuSineSS enterpriSe
CONTENTS
A. AIM OF THE COURSE 2
B. SYLLABUS 2
C. PRACTICE NOTES 3
1. GENERAL INTRODUCTION – FORMATION OF THE BUSINESS 3
2. COMPARISON OF THE MOST IMPORTANT FORMS OF BUSINESS ENTITIES 3
2.1. THE SOLE PROPRIETORSHIP 4
2.1.1. CHARACTERISTICS 4
2.2. THE PARTNERSHIP 5
2.2.2. TYPES OF PARTNERSHIPS 5
2.3. THE CLOSE CORPORATION 6
2.4. THE COMPANY 6
2.4.2. TYPES OF COMPANIES 7
2.4.3. CATEGORIES OF PROFIT COMPANIES 7
2.5. THE BUSINESS TRUST 11
2.6. THE SHARE BLOCK COMPANY 12
3. CHOOSING A FORM OF BUSINESS ENTITY 12

3.1. CHOICE OF FORM 12
3.2. COMPULSORY REGISTRATIONS 13
3.3. TRADING LICENCES 14
4. INTELLECTUAL PROPERTY 14
4.1. INTRODUCTION 14
4.2. PATENTS 15
4.2.1. WHAT IS A PATENT? 15
4.2.2. PRIOR ART 16
4.2.3. THE PATENTING PROCESS 16
4.2.4. PATENT PROSECUTION 16
4.2.5. TO PATENT OR NOT TO PATENT? 17
4.2.6. CAN A CLIENT FILE HIS/HER OWN PATENT APPLICATION? 17
4.2.7. WHAT INFORMATION DO YOU NEED TO GIVE YOUR PATENT ATTORNEY? 17
4.2.8. FOREIGN PATENT APPLICATIONS 17
4.3. REGISTERED DESIGNS 18
4.3.1. WHAT IS A REGISTERED DESIGN? 18
4.3.2. WHAT IS THE DIFFERENCE BETWEEN AN AESTETHIC DESIGN AND A
FUNCTIONAL DESIGN? 18
4.3.3. REQUIREMENTS FOR A DESIGN TO BE REGISTRABLE 18
©LSSA
4.3.4. DIFFERENCES BETWEEN PATENTS AND REGISTERED DESIGNS 18
4.3.5. HOW LONG DOES A REGISTERED DESIGN REMAIN IN FORCE? 18
4.3.6. FOREIGN DESIGN APPLICATIONS 19
4.4. TRADE MARKS 19
4.4.1. WHAT IS A TRADE MARK? 19
4.4.2. IS IT NECESSARY TO REGISTER A TRADE MARK? 20
4.4.3. WHAT TRADE MARKS CAN BE REGISTERED? 20
4.4.4. SELECTION OF A TRADE MARK 20
4.4.5. HOW DO I GO ABOUT DOING A TRADE MARK SEARCH? 21
4.4.6. THE TRADE MARK REGISTRATION PROCEDURE IN SOUTH AFRICA 21
4.4.7. FOREIGN TRADE MARKS 22
4.4.8. PROPER USE OF A TRADE MARK 22
4.4.9. MARKING 22
4.4.10. DOMAIN NAMES 22
4.5 COPYRIGHT 23
4.5.1. WHAT IS COPYRIGHT? 23
4.5.2. WHAT TYPE OF CONTENT ENJOY COPYRIGHT PROTECTION? 23
4.5.3. WHAT ARE THE REQUIREMENTS FOR COPYRIGHT PROTECTION? 23
4.5.4. WHAT IS THE DURATION OF A COPYRIGHT? 23
4.5.5. WHO OWNS THE COPYRIGHT? 24
4.6. ANTI-COUNTERFEITING 24
4.6.1. WHAT ARE COUNTERFEIT GOODS? 24
4.6.2. HOW CAN A CLIENT PROTECT ITSELF AGAINST COUNTERFEITERS? 24
4.7. CONFIDENTIAL INFORMATION, TRADE SECRETS AND KNOW-HOW 25
4.8. MANAGING INTELLECTUAL PROPERTY 25
4.9. INTELLECTUAL PROPERTY RIGHTS AND THE CONSTITUTION 26
4.10. SOUTH AFRICAN INSTITUTE OF INTELLECTUAL PROPERTY LAW (SAIIPL) 26
5. CLOSE CORPORATIONS 26
5.1. THE CLOSE CORPORATION ACT, 1984 AND THE AMENDMENTS MADE BY THE
COMPANIES ACT 27
6. FORMATION AND FUNCTIONING OF COMPANIES 28

6.1. COMPANY NAMES 28
6.1.1. RESERVATION OF NAME 29
6.1.2. DEFENSIVE NAMES 29
6.1.3. DISPUTES REGARDING COMPANY NAMES 29
6.1.4. DEFENSIVE NAMES 30
6.2. INcorporaTION and registration 30
6.2.1. INCORPORATION 30
6.2.2. POWER OF ATTORNEY 31
6.2.3. REGISTRATION 32
6.2.4. ONLINE INCORPORATION AND REGISTRATION OF COMPANIES 32
6.2.5. ADDITIONAL REQUIREMENTS 32
6.3. THE MEMORANDUM OF INCORPORATION, GOVERNING RULES AND SHAREHOLDER
AGREEMENTS 33
6.3.1. THE MEMORANDUM OF INCORPORATION 33
6.3.2. GOVERNANCE RULES 35
©LSSA
6.3.3. SHAREHOLDER AGREEMENTS 36

6.4. APPOINTMENT AS AUDITOR 37
6.4.1. APPOINTMENT AS AUDITOR 36
6.4.2. RIGHTS AND RESTRICTED FUNCTIONS OF AN AUDITOR 37
6.5. DIRECTORS 37
6.5.1. LIABILITY OF DIRECTORS 38
6.5.2. TYPES OF DIRECTORS 38
6.5.3. KEY ISSUES RELATING TO DIRECTORS 39
6.6. shares 40
6.6.1. ONLINE SHARE CHANGES 41
6.6.2. AUTHORITY TO ISSUE SHARES 41
6.6.3. CERTIFICATED AND UNCERTIFICATED SHARES 41
6.6.4. TRANSFER OF SHARES 41
6.7 SHAREHOLDERS AND MEETINGS 42
6.7.1. GENERAL 42
6.7.2. CALLING OF SHAREHOLDER MEETINGS 42
6.7.3. DEMAND TO CONVENE A SHAREHOLDERS MEETING 43
6.7.4. RECORD DATE 43
6.7.5. NOTICE OF MEETINGS 43
6.7.6. PROXIES 44
6.7.7. QUORUMS 45
6.7.8. RESOLUTIONS AT SHAREHOLDER MEETINGS 45
6.8 PRE-INCORPORATION CONTRACTS 46
6.9. COMPANY SECRETARIAL WORK 48
6.10. REGISTERS, DOCUMENTS AND RECORDS 48
7. PUBLIC INTEREST SCORE 49

8. CONVERSIONS 50
8.1. CONVERSIONS TO ANOTHER TYPE OF COMPANY 50
8.2. CONVERSION OF CLOSE CORPORATIONS INTO COMPANIES 50
9. FINANCIAL DIFFICULTIES 52
9.1. BUSINESS RESCUE 52
9.1.1. REQUIREMENTS FOR BUSINESS RESCUE 52
9.1.2. COMMENCEMENT OF BUSINESS RESCUE PROCEEDINGS 52
9.1.3. EFFECT OF BUSINESS RESCUE 54
9.1.4. POST-COMMENCEMENT FINANCE 54
9.1.5. THE BUSINESS RESCUE PRACTITIONER 55
9.1.6. THE BUSINESS RESCUE PLAN 56
9.2. COMPROMISE WITH CREDITORS 56
9.3. DEREGISTRATION 57
9.4. WINDING-UP 58
9.4.1. WINDING-UP OF SOLVENT COMPANIES 58
9.4.2. WINDING-UP OF INSOLVENT COMPANIES 59
9.5. DEREGISTRATION AND WINDING-UP OF CLOSE CORPORATIONS 59
9.5.1. WINDING-UP 59
9.5.2. DISSOLUTION OR DEREGISTRATION 60
©LSSA
10. TRUSTS 60
10.1. DIFFERENT TYPES OF TRUSTS 60
10.2. MAIN PARTIES TO A TRUST 60
10.3. DEFINITION OF A TRUST 61
10.4. WHAT IS TRUST PROPERTY? 61
10.5. REGISTRATION REQUIREMENTS 61
10.5.1. LODGEMENT OF TRUST INSTRUMENT 61
10.5.2. SECURITY 61
10.5.3. NOTIFICATION OF ADDRESS 61
10.5.4. LETTERS OF AUTHORITY 61
10.6. VARIATION OF TRUST DEEDS 62
10.7. POWERS OF TRUSTEE(S) 62
10.8. EXAMPLE OF A TRUST DEED 62
10.9. CONTENTS OF TRUST DEEDS 62
11. REGULATORY AGENCIES 62

11.1. COMPANIES AND INTELLECTUAL PROPERTY COMMISSION (CIPC) 62
11.2. COMPANIES TRIBUNAL 62
11.3. TAKEOVER REGULATION PANEL 63
11.4. TAKEOVER SPECIAL COMMITTEE 63
11.5. FINANCIAL REPORTING STANDARDS COUNCIL 63
12. INTER-RELATION WITH OTHER AREAS OF LAW 63

12.1. CIVIL PROCEDURE 63
12.2. CONTRACTS 63
12.2.1. SOLE PROPRIETORS 64
12.2.2. PARTNERSHIPS 64
12.2.3. CLOSE CORPORATIONS 65
12.2.4. COMPANIES 65
12.2.5. TRUSTS 65
12.3. CRIMINAL LAW 65
12.4. LABOUR LAW 66
12.5. INCOME TAX, CAPITAL GAINS TAX (CGT) AND VALUE-ADDED TAX (VAT) 68
12.5.1. INCOME TAX 68
12.5.2. INDIVIDUALS 68
12.5.3. EFFECTS OF SEQUESTRATION 68
12.5.4. DIVIDEND TAX 69
12.5.5. PARTNERSHIPS 69
12.5.6. CLOSE CORPORATIONS 70
12.5.7. SMALL BUSINESS CORPORATIONS 70
12.5.8. TRUSTS 71
12.5.9. CAPITAL GAINS TAX 71
12.5.10. VAT 72
12.6. INSOLVENCY LAW 74
12.7. LAW OF PROPERTY 75
©LSSA
D. BIBLIOGRAPHY 76
13. GENERAL 76
14. SELECTED BIBLIOGRAPHY 76
14.1. The Partnership 76
14.2. The Close Corporation 76
14.3. The Company 76
14.4. The Business Trust 76
14.5. The Share Block Company 76
14.6. Business Rescue 76
14.7. Schemes of Arrangement and Compromises 76
14.8. Deregistration and Winding-up of Companies 77
14.9. Criminal Law 77
14.10. Labour Law 77
14.11. Income Tax and Value-Added Tax 77
14.12. Insolvency Law 77
14.13. Income Tax; VAT, Capital Gains 77
14.14. Intellectual property – A practical guide to intellectual property 77
15. INTERNET RESOURCES 77

16. APPLICABLE STATUTORY PROVISIONS 78
1. THE PARTNERSHIP 78
2. THE CLOSE CORPORATION 78
3. THE COMPANY 78
4. THE BUSINESS TRUST 78
5. THE SHARE BLOCK COMPANY 78
6. INTELLECTUAL PROPERTY LAW 78
©LSSA
LEARNING OUTCOMES Forms oF Business enterprise
After completing this practice manual you should be able to:
• Identify and distinguish the characteristics, advantages and disadvantages of the
following enterprises:
* the Sole Proprietorship;
* the Partnership;
* the Close Corporation;
* the Private company;
* the Personal liability company;
* the Public company;
* the Non-profit company;
* the State-owned company;
* the Business Trust;
* the Share Block Company.
• Explain the procedure to be followed in the reservation of a name, including the
online procedure.
• Indicate the initial legal formalities that every entity operating a business has to
comply with before commencing business.
• Indicate when a trading licence will be required.
• Identify the various forms of intellectual property and explain the requirements for
each.
• Discuss the requirements and implications of entering into a pre-incorporation
contract.
• Discuss the Doctrine of Constructive Notice
• List the information needed in order to register a company.
• Explain how to incorporate a private or non-profit company online.
• Discuss the requirements and content of a Memorandum of Incorporation
• Explain what a ring-fenced company is.
• Identify the function and duties of the company secretary.
• List the statutory registers which must be opened and maintained.
• Discuss the duties and responsibilities of directors.
• Discuss the duties and responsibilities of shareholders.
• Discuss the appointment of auditors of a company.
• List the requirements for the giving of effective notice of a shareholders meeting.
• Explain how shareholders meetings held by a company should be conducted.
• Distinguish between the different types of resolutions that can be taken by the share-
holders of a company.
• Distinguish between authorised and issued shares.
• Explain how a company’s share capital may be amended online.
• Explain how a company’s Public Interest Score is calculated.
• Explain how a close corporation is converted to a private company and one type of
company to another type of company.
• Explain the amendments made to the Close Corporations Act by Schedule 3 of the
Companies Act.
• Explain the purpose of Business rescue and indicate the crucial considerations to be
borne in mind when Business rescue is considered.
• Explain the purpose and procedure of Section 155 of the Companies Act which
pertains to the compromise with creditors.
• Explain the significance of compliance with Section 34 of the Insolvency Act relating
to the transfer of a business.
• Distinguish between de-registration and dissolution of a company.
©LSSA 1
• Distinguish between the two methods whereby a company or close corporation may
be wound up.
• Indicate when a partnership will be bound by a contract which was concluded on
behalf of the partnership.
• Explain the principle of “mutual mandate” in a partnership.
• Explain how contracts of a trust are concluded.
• Distinguish between the various types of trusts.
• Identify the main parties to a trust.
• Define the concept “trust” and explain the nature thereof.
• Define “trust property”.
• Indicate how and by whom a trust deed can be varied.
• Explain when one would make use of a mortis causa trust and when one would make
use of an inter vivos trust.
• Explain the effect of Section 332 of the Criminal Procedure Act 51 of 1977 on compa-
nies.
• Name the principle Acts which impose minimum conditions of employment on all
employees.
• Give an explanation of the working functions and organisation of the CIPC and other
Regulatory Agencies
• Explain how various fields of law relate to business enterprises.
A. AIM OF THE COURSE
The purpose of the course is to provide a broad overview of the subject from a practical point of view.
The course is presented in an e-learning format and an instructor will only assist with practical
questions as they arise. Such questions will be dealt with on the relevant electronic forum.
B. SYLLABUS
The purpose of the notes is to supplement the e-learning content and, hopefully, to be of use in
practice.
Notes do not form a complete manual on the subject – the use of relevant sources is still necessary.
Candidate attorneys should, with a view to basic practical application, have a working knowledge
of the various Forms of Enterprise, the functioning of the office of the Commissioner of the Companies
and Intellectual Property Commission and material aspects with regard to the registration, operation,
deregistration and liquidation of companies, as well as of the conversions of close corporations.
Candidates should also be able to identify the different forms of intellectual property and have a basic
understanding of each form.
©LSSA 2
Forms oF Business enterprise
C. PRACTICE NOTES
1. GENERAL INTRODUCTION – FORMATION OF THE BUSINESS

One of the most important decisions confronting a person setting out to conduct business on a
full-time basis is the choice of the appropriate legal form for the enterprise.
Such decision will, inter alia, have to be based on considerations concerning the attributes of
each entrepreneurial form as well as its advantages and disadvantages as determined by statute and
common law.
Important concepts such as legal personality, maintenance of capital, the rights and duties of
the partners, the directors, the shareholders and the members of a close corporation, the doctrine of
disclosure and other common law rules like ultra vires and constructive knowledge, all have legal
implications of which the prospective entrepreneur and his or her advisers must take due notice.
Persons who are already in business who find that their business entities are no longer appropriate
are faced with a similar decision. There are a variety of business entities to choose from and each one
has different legal and tax implications for business owners and managers.
Business owners often turn to attorneys for advice on their choice of business enterprise. The
professional adviser must be fully acquainted with the characteristics, advantages and disadvantages
of different business enterprises, as well as the tax implications, before being in a position to take
instructions regarding the formation thereof. Attorneys should, with a view to basic practical appli-
cation, have a working knowledge of the various Forms of Enterprise, the functioning of the office of
the Commissioner of the Companies and Intellectual Property Commission and material aspects with
regard to the registration, operation, deregistration and liquidation of companies, as well as of the
conversions of close corporations.
The course also deals briefly with intellectual property rights.
Insofar as reference is made to the Companies Act, these notes refer to the Companies Act (Act 71
2008) (“the Companies Act”), unless otherwise indicated.
2. COMPARISON OF THE MOST IMPORTANT FORMS OF BUSINESS

ENTITIES
A relatively wide choice of forms of commercial enterprise is available to a person or group of persons
who wish to embark on a commercial activity with a view to making a profit or who wish to achieve
certain social goals. Each of these choices has its own characteristics, advantages and disadvantages.
The person or group of persons concerned will choose the form of business entity best suited to his
or her or their objectives.
• The following are the most important forms of undertakings:
• The sole proprietorship;
• The partnership;
• The business trust;
• The close corporation;
• The private company;
• The public company;
• The non-profit company;
• The personal liability company;
• The state-owned company;
• The share block company.
©LSSA 3
It should be remembered that some of the specific forms of enterprises are regulated by statute,
whereas certain forms rely on the common law for their application. For example, banks and insur-
ance enterprises are obliged by law to incorporate as companies and, in addition, may also be subject
to registration and regulation in terms of legislation specifically applicable to them. On the other
hand, certain professions are restricted by law to specific types of enterprises. For example, attorneys
may organise themselves in personal liability companies in terms of Section 8(2)(c) of the Companies
Act, or otherwise practice as sole proprietorships or in partnerships.
The choice of a form of business entity must be exercised with great caution as important conse-
quences may flow from the choice of the appropriate form of business entity.
• Criteria which can be considered to assist one in making the above-mentioned choice are:
• Legislation – does legislation prescribe or prohibit a particular form of business entity?
• Participants – the number of participants and/or whether they are natural or legal persons.
• Participation in management involvement as a passive investor.
• Independence of business entity – a juristic person is independent from its members.
• Limited liability of participants.
• Formalities and costs of formation.
• Management and eventual dissolution of business entity.
• Taxation liability of the respective business entities and their members.
• Profit motive no profit motive.
2.1. THE SOLE PROPRIETORSHIP

This is the most general form of business entity for the small businessman or -woman. The owner
owns the business and receives all the profit, but he or she alone carries the risk attaching to the
business. There is no distinction between his or her private assets and the assets of the business. The
income of the business is taxed on the normal scale applicable to individuals.
2.1.1. CHARACTERISTICS
• There are relatively few legal requirements and formalities which must be complied with in order
to establish a sole proprietorship.
• Trading licences or in other cases, liquor licences or other consents or approvals by the appropriate
authorities may be necessary, but the costs of establishing a sole proprietorship are relatively low.
• The sole proprietorship can be terminated easily and without formality.
• The owner has the sole right to all the profits of the enterprise.
• The enterprise can easily be adapted to changing circumstances.
• The creditworthiness of the sole proprietorship is linked to the creditworthiness of its owner.
• The sole proprietorship is subject to very little control by the authorities.
• There is no statutory audit requirement in respect of a sole proprietorship.
• The owner carries the entire risk of the sole proprietorship and the debts and liabilities of the busi-
ness are also the personal debts and liabilities of the owner.
• The owner’s liability for the debts of the business is accordingly unlimited and he or she could lose
his or her personal assets in the event of the insolvency of the business.
• The continued existence of the business is at risk. The death of the owner brings the sole proprie-
torship to an end. There is no perpetual succession.
• The size of the sole proprietorship or its ability to increase its size is restricted.
©LSSA 4
2.2. THE PARTNERSHIP

A partnership can be described as an association of two or more persons, who are contractually bound
to one another to operate a joint business, with the object of making a profit and in respect whereof
each partner has contributed money or goods or services to a joint fund on the understanding that
any profits made by the enterprise will be shared between the partners.
• The object of the partnership must be to make a profit.
• A contractual relationship is established between the parties, which relationship can come about
verbally or in writing and can be express or implied.
• The partnership does not have juristic personality separate and apart from the partners.
• Each partner can bind the partnership.
• There is an underlying relationship of trust between the partners.
• Although in practice a separation is effected between the assets of the partners and the assets
of the partnership, there is no such separation in law. Each partner is, together with the other
partners, a co-owner of the partnership assets and carries the full risk of failure of the enterprise,
save in the case of particular types of partnerships. If the estate of the partnership is sequestrated,
excussion of the estates of each of the partners can follow unless the partners undertake to pay the
debts of the partnership personally within a specified time or furnish security for payment thereof.
A similar problem could arise with the death of a partner, where such a partner is an individual.
• Each partner must make a contribution to the partnership whether in the form of money, goods,
services or a combination thereof, which contribution will determine his or her interest in the
partnership.
• The profits of the partnership, as well as the net assets thereof, are usually distributed between
the partners on dissolution of the partnership in the same proportion as their respective interests
in the partnership.
• The life of a partnership is not separate from the lives of the partners for on the death or seques-
tration of a partner the partnership comes to an end. There is no perpetual succession.
• In the event of dissolution, the partnership assets are liquidated, the creditors paid and the
balance, if any, is divided between the partners. If there is no balance but a shortfall, that shortfall
is recovered from the partners. If the partnership goes insolvent and is sequestrated, the individual
estates of each of the partners are also sequestrated.
• A partnership is not a “person” for the purposes of Income Tax and is not taxed as an entity. The
income accruing to a partnership accrues to the partners and permissible deductions are granted
to the partners. The partners pay income tax in their individual capacities.
• No statutory audit requirement exists in respect of partnerships. Certain professions are however,
governed by statute which prescribes audit requirements such as attorneys and auditors.
2.2.2. TYPES OF PARTNERSHIPS

• General/ordinary partnership
The partners are liable jointly and severally for the debts of the partnership.
• Anonymous (sleeping) partnership
The anonymous partner is not known to the public and is liable to his or her partners only for his
or her pro-rata share of the debts or eventual shortfall.
• Commanditarian partnership
The partner is purely a financial participant with a restricted liability -similar to a shareholder in
a company. Such a partner is not known to the public. He or she shares in the profits and losses
but his or her liability is restricted to his or her specific contribution; or an agreed amount.
©LSSA 5
2.3. THE CLOSE CORPORATION
The close corporation is a business entity established in terms of the Close Corporation Act No. 69
of 1984, as amended (“the Close Corporation Act”). It should be noted that the new Companies Act
has amended the provisions of the Close Corporations Act to the effect that it is no longer possible to
incorporate new close corporations. Close Corporations which were incorporated before the coming
into effect of the Companies Act however, continue to exist, subject to certain amendments imposed
by the Companies Act.
• It has a legal personality separate from its members. The members accordingly enjoy the benefit of
continuity for its continued existence is not affected by changes in membership.
• The administration and operation of a Close Corporation are subject to a minimum number of
formalities, administrative requirements and duties for its members.
• A Close Corporation may not have more than ten members.
• All the members must be natural persons or trustees of natural persons. Trusts can under certain
circumstances be or become members of Close Corporations.
• No shares are issued in a Close Corporation and the corporation does not have a share capital.
Members have members’ interests in the corporation which interests are expressed as percentages
of the total members’ interests (which always amounts to 100%).
• Each member is entitled to be involved in the business of the corporation and has equal rights to
manage and represent the corporation. The corporation does not have a Board of Directors sepa-
rately and apart from its members and the members occupy a position of trust the corporation.
• Every member is an agent of the Close Corporation and can bind its credit.
• Under certain specified circumstances the corporation may buy in members’ interests or may
render financial assistance to members for the acquisition of members’ interests.
• Members run the risk of being personally liable for the debts of the corporation if certain provi-
sions of the Close Corporation Act are not complied with or if they have placed the corporation and
its creditors unduly at risk.
• The income of the corporation is taxed at the current rate of taxation applicable to companies but
the distribution of profits to members is tax free in the hands of the recipients.
• If a close corporation (or any other business) qualifies as a SBC (Small Business Corporation), then
certain tax concessions are given to such a corporation.
• There are Annual Returns which need to be submitted to the Companies and Intellectual Property
Commission on an annual basis.
• A Close Corporation can hold shares in a company, even to the extent of controlling it. A company
(with certain limited exceptions) cannot hold a member’s interest in a Close Corporation.
• The audit requirements of a Close Corporation are determined with the help of its Public Interest
Score. The Public Interest Score is a calculation that determines the audit or independent review
requirements of an entity. Please refer to module 7 for a detailed discussion on the Public Interest
Score.
2.4. THE COMPANY
The Companies Act was signed by the President on 8 April 2009 and published in Gazette 32121
(Notice 421) on 9 April 2009. The Companies Act and the Companies Amendment Act 3 of 2011 (“the
Amendment Act”), together with the Regulations, came into operation on 1 May 2011. In addition to
the Companies Act, the Companies Amendment Act and the Regulations, the Company and Intellec-
tial Property Commission (“CIPC”) has also published (and continues to publish) numerous guidance
and practice notes that may be of value for the practitioner.These guidance and practice notes may
be found on the CIPC website at www.cipc.co.za.
©LSSA 6
The Companies Act replaced its predecessor, the Companies Act 1973, except for Chapter XIV which
will continue to apply to the winding-up of companies and close corporations. It is envisaged that
once reforms are brought about to the Insolvency Act, Chapter XIV will at that point be replaced appro-
priately.
An advantage of the company form is its organised structure – the functions of the company are
rationally divided between the directors, who are responsible for the management of the organisation
and the shareholders who provide the share capital and who can exercise ultimate control of the company
in general meeting.
Another important characteristic of a company is its separate legal personality. The company exists
independently of its members or subscribers (“shareholders”). This in turn means that the assets of the
company belong to the company itself.
The shareholders do not have any proportionate right of ownership in the assets. It is only in the event
of liquidation or winding up that the shareholders become entitled to share in the assets of the company.
The debts of the company are its own debts and cannot be recovered from the shareholders. The
profits belong to the company and the shareholders only become entitled to the profits when a dividend
is declared.
Shares in the company are transferable. A shareholder is not as such entitled to conclude a transac-
tion on behalf of a company and only those persons who have been appointed as representatives of the
company in accordance with the Memorandum of Incorporation (“MOI”) of the company may bind the
company.
2.4.2. TYPES OF COMPANIES
Types of
companies
Non-profit State-owned External Domesticated

Profit company
company “NPC” company “SOC” company company
Personal liability
Public “Ltd” Private “Pty Ltd”
“inc/Incorporated”
“Special Conditions”
*additional requirements
for amendment (RF)
(Constructive notice
applies – S 19(5))
In terms of section 8(1) of the Companies Act, two types of companies may be formed, namely a profit
company and a non-profit company.
2.4.3. CATEGORIES OF PROFIT COMPANIES

A Profit Company is a company incorporated for the purpose of financial gain for its shareholders
In terms of section 13(1) of the Companies Act a profit company may be incorporated by one or more
persons. The number of members in a profit company is not restricted.
The Companies Act provides for four kinds of profit companies, namely:
• private companies;
©LSSA 7
• personal liability companies;
• state-owned companies;
• public companies.
Private company:
A Private Company is a profit company that is not a public, personal liability or state-owned company
and which satisfies the criteria set out in section 8(2)(b) of the Companies Act.
A private company may not offer its shares to the public and the transferability of its shares is
restricted.
The name of the company ends with the abbreviation (Pty) Ltd.
Private companies may be incorporated by one or more persons.
The minimum number of directors required is 1.
The minimum number of members (shareholders) required is 1.
Annual Financial Statements (AFS) must be prepared within 6 months after the financial year end.
Private companies are required to have their AFS audited if:

• the company holds assets for another party and the assets are worth more than R5 000 000.00;
• the company’s Public Interest Score ((PIS) Public Interest Scores are dealt with in detail in module
7 of this manual) is more than 350;
• the company’s PIS is more than 100 and the AFS is compiled internally; or
• it is required by the MOI, by a shareholders’ or directors’ resolution or in terms of an agreement
If an audit is not required, a private company must have its AFS reviewed independently, except where
its PIS is less than 100 and all shareholders are also directors.
An annual return must be filed within 30 business days after the anniversary of the date of incorpo-
ration and a copy of the AFS must be lodged with the annual return if the company is required to be
audited. The CIPC recently introduced the use of XBRL when submitting AFS online. XBRL will make it
easier for Companies to report their financial information in an electronic format. CIPC mandated the
digital reporting system for all qualifying entities from 1 July 2018. XBRL is an Extensible Business
Reporting Language for electronic communication of business information providing major benefits
in the preparation, analysis, communication of the AFS. Digital reporting in the format of XBRL
will assist companies with filing their Annual Financial Statements to egress from a PDF reporting
format to a more structured format. This will ultimately reduce the burden of multiple submissions
to different regulators.
It is not mandatory for a private company to have a company secretary and an audit committee.
Private companies whose PIS exceed 500 in any two of the previous 5 years require a social and ethics
committee.
Private companies are only required to have an AGM if it is stated in the MOI.
If a private company proposes to issue shares, then each shareholder of that company has a right,
before any person who is not a shareholder, to be offered a percentage of the shares to be issued equal
to their current voting power. This right can, however, be excluded in the company’s MOI.
Personal Liability Company:

A Personal Liability Company is a profit company that satisfies the criteria in section 8(2)(c) of the
Companies Act.
In a personal liability company the directors and past directors are jointly and severally liable together
with the company for any debts and liabilities arising during their term of office.
The name of the company ends with the abbreviation Inc.
Personal liability companies may be incorporated by one or more persons.
©LSSA 8

The minimum number of members required is 1.
Personal liability companies are required to have their AFS audited if

• the company holds assets for another party and the assets are worth more than R5 000 000.00;
• the company’s PIS is more than 350;
• the company’s PIS is more than 100 and the AFS is compiled internally; or
• it is required by the MOI, by a shareholders’ or directors’ resolution or in terms of an agreement.
If an audit is not required, a personal liability company must have its AFS reviewed independently,
except where its PIS is less than 100 and all shareholders are also directors.
audited.
It is not mandatory for a personal liability company to have a company secretary and an audit
committee.
Personal liability companies whose PIS exceeds 500 in any two of the previous 5 years require a social
and ethics committee.
Personal liability companies are only required to have an AGM if it is stated in the MOI.
If a personal liability company proposes to issue shares, then each shareholder of that company has a
right, before any person who is not a shareholder, to be offered a percentage of the shares to be issued
equal to their current voting power. This right can, however, be excluded in the company’s MOI.
State-owned company:
A state-owned company is an enterprise registered in terms of the Companies Act as a company and
either listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act (Act 1 of
1999); or is owned by a municipality as contemplated in the Local Government: Municipal Systems
Act (Act 32 of 2000) and is otherwise similar to an enterprise referred to above.
The name of the company ends with the abbreviation SOC Ltd.
State owned companies may be incorporated by one or more persons or an organ of state.
The minimum number of directors required is determined by specific legislation.
Annual Financial Statements (AFS) must be prepared within 6 months after the financial year end
and must comply with the Public Finance Management Act.
State owned companies are required to have their AFS audited.
ration and a copy of the AFS must be lodged with the annual return.
State owned companies are required to have a company secretary, an audit committee, as well as a
social and ethics committee.
A State owned company is required by law to have an AGM.
Public company:
A Public Company is a profit company that is not a state-owned company, a private company or a
personal liability company.
A public company is allowed to offer its shares to the public and freely transfer its shares.
All listed companies must be public companies, but not all public companies have to be listed on a
stock exchange.
©LSSA 9
The name of the company ends with the abbreviation Ltd.
Public companies may be incorporated by one or more persons.
Annual Financial Statements (AFS) must be prepared within 6 months after the financial year end
and in time to give notice of the AGM.
Public companies are required to have their AFS audited.
An annual return must be filed within 30 business days after the anniversary of the date of incorpora-
tion and a copy of the AFS must be lodged with the annual return.
Public companies are required to have a company secretary and an audit committee.
Public companies that are listed or whose PIS exceeds 500 in any previous 2 years require a social
and ethics committee.
Public companies are required to have an AGM.
Foreign Companies
A Foreign Company means an entity incorporated outside the Republic, irrespective of whether it
is a profit or non-profit entity; or carrying on business or non-profit activities within the Republic.
External Companies
An external company means a foreign company that is carrying on business, or non-profit activi-
ties, within the Republic, subject to section 23(2) of the Companies Act (which section deals with the
concept of “conducting business or non-profit activities”).
In terms of section 23(1) an external company is compelled to register with the CIPC within 20
business days of first beginning to conduct business, or non-profit activities, within the Republic as
an external non-profit company or as an external profit company.
An external company is regarded as “conducting business or non-profit activities” if that company
is a party to one or more employment contracts within the Republic; or has engaged in its activities
for a period of six months, such as would lead a person to reasonably conclude that the company
intended to continually engage in such business or non-profit activities.
The procedural requirements for registration of an external company are set out in Regulation 20. In
terms of Regulation 20 an external company must register by filing a notice a Form CoR 20.1 which
form must be accompanied by –
• the filing fee set out in the Table CR1;
• a certified copy of the company’s MOI, or similar document;
• a certified copy of the company’s Certificate of Incorporation, or similar document;
• A translation of any of the aforementioned documents if the original is not in an official language
of the Republic;
• A statement in Form CoR 20.1 setting out the address of its principal office outside the Republic
and the names of its directors at the time of filing of the form;
• The address of its registered office in the Republic;
• The name and address of the person in the Republic who has consented to accept service of docu-
ments on behalf of the external company, together with evidence of that person’s consent and
appointment. The details of such person can be changed by way of filing a Form CoR 20.2 advising
the CIPC of such change.
The CIPC must, as soon as possible after accepting the filed notice, issue a registration certificate to
the external company, in Form CoR 20.2.
An external company is required to continuously maintain at least one office in the Republic. The
address of this office, or of its principal office within the Republic if it has more than one office, must
be registered with the CIPC. An external company is also required to file annual returns, section 33(2).
©LSSA 10
Domesticated companies
A domesticated Company means a foreign company whose registration has been transferred to the
Republic in terms of section 13(5) to (11) of the Companies Act.
A foreign company will be able to apply to transfer its incorporation to South Africa in terms of
sections 13(5) to (11) of the Companies Act. As a domesticated company it will then be subject to the
Companies Act as if it had originally been incorporated and registered under the Companies Act.
Domestication neither establishes a new juristic person nor affects the identity and continuity of the
juristic person.
The requirements for a transfer of registration are set out in section 13(6) of the Companies Act.
Despite satisfying the requirements set out in section 13(6), section 13(7) prohibits certain foreign
companies from transferring their registration to South Africa.
Non-profit Companies:
A Non-profit Company (“NPC”) is a company incorporated for public benefit or other objects as required
by item 1(1) of Schedule 1 to the Companies Act; and the income and property of which are not distrib-
utable to its incorporators, members, directors, officers or persons related to any of them except to the
extent permitted by item 1(3) of Schedule 1.
A non-profit company must have a public benefit as its object or an object relating to cultural, social,
communal or group interest.
Non-profit companies are allowed to make a profit, but this profit should be used to promote the object
of the company.
These companies were previously known as Section 21 companies.
The name of the company ends with the abbreviation NPC.
Non-profit companies may be incorporated by three or more persons acting together, by an organ of
state or by a legal entity.
A non-profit company may be with or without members.
Non-profit companies are required to have their AFS audited if

• the company holds assets for another party and the assets are worth more than R5 000 000.00
• it was incorporated by the state, an international entity, foreign state entity or foreign company
• it was incorporated to perform a statutory, regulatory or public function
If an audit is not required, a non-profit company must have its AFS reviewed independently.
audited.
It is not mandatory for a non-profit company to have a company secretary and an audit committee.
Non-profit companies whose PIS exceeds 500 in any two of the previous 5 years require a social and
ethics committee.
Non-profit companies are only required to have an AGM if it is stated in the MOI.
2.5. THE BUSINESS TRUST

The trust is a versatile legal concept which may be utilised for a variety of purposes, amongst others
for carrying on a business. A business trust is defined as a trust where the trustee does not simply
protect and manage the trust assets, but primarily use these for carrying on a business for profit in
order to benefit the trust beneficiary or to further the aims of the trust.
In private business trusts the parties concerned are usually known to each other or may even be
©LSSA 11
related to each other.
The typical structure of a private business trust is that the founders create a business trust and
appoint themselves as trustees and trust beneficiaries. They manage the trust business jointly and
often distribute the trust benefits partly as salaries to themselves. This type of business trust greatly
resembles the partnership, private company and close corporation. In particular, the trust may be said
to have limited liability in that only trust assets can be attached to satisfy trust debts. The assets of
the trustees and beneficiaries are thus not at risk.
Entering into a business trust as a beneficiary normally implies a financial or other contribution in
exchange for the expected benefits. The contribution, once committed, is placed on risk in the hands
of the trustees. The beneficiary’s control over the acts of the trustee is wholly dependent on the provi-
sions of the trust deed which, traditionally, are minimal and are supplemented only by the fiduciary
duty of the trustee to act in accordance with their instructions as formulated in the trust deed.
This element of risk and the minimal control over the trustee, linked with the absence of disclosure
requirements and uncertainty as to the benefits, will have to be weighed up against other advantages.
Great care must be exercised in drawing up a trust deed. The common law powers of trustees are
wholly inadequate for the functions of a business trust. Therefore, the parties must ensure that they
set out the powers for trustees which they require in the trust deed.
Although the Master requires the appointment of an auditor to a trust, an audit of a trust is not
a requirement unless the trust deed specifically so determines.
It should be noted that the income- and capital gains tax obligations of a tax are much higher
than those of companies or close corporations.
2.6. THE SHARE BLOCK COMPANY

A Share Block company is a form of company, the activities of which are regulated by the Share Blocks
Control Act 59 of 1980 as amended.
A share block, as the term is generally understood, consists of a block of shares in a limited liability
company granting the shareholder a personal right to occupy a particular part of a building or piece of
land owned or leased by the company.
The terms on which the occupancy rights are granted, are regulated by the constitution of the
company and by a use agreement between the shareholder and the company.
The purpose of a share block scheme is to provide each participant with occupancy rights to a
certain portion of a building or piece of land for the duration of the scheme through shareholding in a
company. The company need not necessarily own the land but may only be the lessee.
The occupants participate in the management of the scheme and the land or building through the
general meeting of shareholders and also indirectly through the board of directors elected by the general
meeting.
A so-called time-sharing scheme whereby holders of different share blocks obtain the right to occupy
the same portion of a building successively for a determinable period of time each year also qualifies
as a share block scheme for purposes of the Act.
The essential characteristics of a share block or time-sharing scheme are that the title to the land
and buildings which are subject to the scheme must vest in a single entity and the members of that
entity must derive the right to occupy a particular part of that property through their membership of
the entity.
In principle, the objects which these schemes seek to achieve are:

• to place participants as far as possible in the position of owners of the land or buildings which
they occupy with a proportionate interest in the surrounding structure, common facilities and the
land,
• to give the members the advantages of the economic principle of co-operation whereby mainte-
nance and other costs are shared equitably between the members,
• the entity must be democratically controlled by the participants in the scheme, and
• to minimise the risk of the members becoming personally liable for the debts of the entity.
©LSSA 12
3. CHOOSING A FORM OF BUSINESS ENTITY
3.1. CHOICE OF FORM

There are various factors that influence the choice of form of business entity. Each business owner,
together with his or her advisers, should carefully consider all these factors before deciding on a form
of business entity. There is no one-stop solution when it comes to the choice of business form. Each
business is unique and careful consideration should be given to the various factors that influence the
choice of form. The most important factors that will influence the choice of business enterprise are
the following:
• Financing: Certain rules need to be followed when it comes to financing and these vary with each
type of business. A sole proprietorship, for instance, may only raise finance from a loan, while a
private company can sell shares in the company to raise funds.
• Legal requirements to commence with business: There are no formal legal requirements to be met
before a sole proprietor or partnership may commence business. A company may not commence
business before receiving a registration certificate from the CIPC.
• Administration costs: Sometimes the costs of running a certain types of business can cost more
money in administration fees than it’s worth. For example, the administration costs of a sole
proprietor are very little compared to that of a company.
• Tax considerations: The tax implications for the various business entities differ greatly. Sole
proprietors pay tax according to their relevant personal income tax scale and companies and close
corporations are taxed at the fixed rate applicable to companies.
• Accounting and auditing requirements: There are statutory audit requirements for companies and
close corporations based on their Public Interest Score (PIS). Sole proprietors and partnerships have
no statutory audit requirements, save in the case of professionals such as attorneys and auditors
where an audit is prescribed by a different statute.
• Continuity: What will happen to your business at the death of a sole proprietor, member or share-
holder? Sole proprietors and partnerships have no continuity and come to an end at the death of
the sole proprietor or any partner. Companies have perpetual continuity and will continue to exist
even after the death of its shareholders.
• The sale of the business: The type of business will also impact on the conditions under which the
business can be sold. For example, in a partnership it is only possible to sell the assets of the part-
nership and not the partnership itself.
• Insolvency: Companies and close corporations are separate from their members and the liquidation
of these will not normally impact the members of these entities. Sole proprietors are not separate
from their owners and the liquidation of these entities will result in the sequestration of the estates
of the sole proprietor. The partners in a partnership are also personally liable for the debts of the
partnership, but only to the extent that such liabilities cannot be met out of partnership assets.
3.2. COMPULSORY REGISTRATIONS

There are certain compulsory registrations for all businesses, regardless of its form. A practitioner
should be aware of these registrations to effectively advise his or her clients. The failure of a business
to register with these authorities may result in the imposition of fines on the business.
Registration with the office of the local receiver of revenue (SARS) for income tax, VAT, and
employee withholding tax (PAYE and SITE).
Business entities with an annual taxable income of more than R1 000 000.00 need to register for VAT.
Business entities should also register as an employer to be able to pay all the applicable withholding
taxes such as PAYE, SITE and UIF.
©LSSA 13
Registration with SARS for skills development levy
Employers must pay 1% of their workers’ pay to the skills development levy. The money goes to Sector
Education and Training Authorities (SETAs) and the Skills Development Fund to pay for training.
The Skills Development Levies Act applies to all employers except–

• the public service;
• religious or charity organisations;
• public entities that get more than 80% of their money from Parliament; and
• employers whose total pay to all its workers is less than R 250 000 per year; and who do not have
to register according to the Income Tax Act.
Registration with the Department of Labour for Unemployment Insurance

The employer is obliged to deduct 1% of the employees’ salary from such salary and to add another
1% of his own money to match the employee’s contribution. The 2% of the employee’s salary has to be
paid over to SARS on a monthly basis.
Registration with the Commissioner according to the Compensation and Occupational Injuries
and Diseases Act
Every employer must register as an employer with the Workmen’s’ Compensation Commissioner. The
employer is obliged to submit a return of earnings on which his monetary contribution to the compen-
sation fund is calculated.
3.3. TRADING LICENCES

The requirement of a trading licence is governed by the Business Act 71 of 1991. A trading licence is
required for a business involved in:
• Health clinics, spas, saunas, and public baths
• Massage, laser, and ultraviolet treatment centres
• Escort agencies
• Adult shops
• Cinemas
• Nightclubs
• Pool rooms
• Arcades
• Any business with three or more vending or slot machines
• Hawkers
• Places that serve food, provide take-aways or transport meals
Trading licences are obtainable from the local authority (municipality) for the area where the business
is to operate. A business owner may be liable for the payment of a fine or even imprisonment if such
a business operates without the necessary trading licence.
4. INTELLECTUAL PROPERTY
The content of this module was supplied by Spoor & Fisher Attorneys and is based on their guide:
“Intellectual Property – a practical introduction to intellectual property”. All content is used with the
permission of Spoor & Fisher Attorneys, which retains its copyright therein.
©LSSA 14
4.1. INTRODUCTION
Successful innovation and marketing attracts imitators. In a competitive world it is increasingly impor-
tant for businesses to protect the originality of new products, the confidentiality of know-how and the
distinctiveness of names, trade marks and get-up. In many instances a business entity is established
with the sole purpose of managing, owning, protecting and exploiting intellectual property.
These aspects are referred to collectively as “intellectual property” – products of human creativity
having a definite and often very considerable commercial value. Most businesses rely on several
intellectual property components. These components could take any of a range of forms such as an
invention, a product name, a logo, the plot of a novel, a musical theme tune or the design of a product.
The law recognises various categories of rights that can be established over ideas and these rights are
referred to as intellectual property rights.
It is important to note that, unlike other forms of property, intellectual property may only be trans-
ferred in writing – oral agreements are not enforceable.
The following categories of intellectual property rights are recognised:

• Patents
• Registered designs
• Trade marks, trade names and domain names
• Copyright
• Confidential information, trade secrets and know-how
• Other special categories of rights such as plant breeders’ rights.
Intellectual property is an area that has grown in importance over the past few decades, to the extent
that many businesses now reflect the value of their intellectual property on the balance sheet. Certain
intellectual property rights may also be hypothecated.
These rights are recognized not only as assets that must be protected and registered but also as assets
that can be traded and which must be managed to create value.
This module explains the different types of intellectual property and the way in which intellectual
property rights can be established. It concludes with a section briefly explaining the management of
an intellectual property portfolio.
4.2. PATENTS
Although a basic understanding of patent definitions is required it is strongly recommended that the
services of a qualified patent attorney are sought to advise your client.
4.2.1. WHAT IS A PATENT?

Patents are regulated by the Patents Act 57 of 1978.
A patent is the instrument that is used to protect an invention. It is issued by a Patent Office to
prevent inventions being copied and reproduced. The State allows inventors to secure protection for
their inventions provided that the inventor discloses the details of the invention to the Patent Office.
The document that describes the invention is referred to as a patent specification. It not only describes
the invention but also defines the specific features of the invention that enjoy protection. These
features are defined in a series of statements called the patent claims.
A patent right is restricted in a number of ways.

• It is limited to the countries in which patents are granted. There is no such thing as a worldwide
patent.
• It is limited to a maximum period of 20 years, subject to annual fees being paid to keep the patent
in force.
• The claims define the specific features of the invention that enjoy protection.
©LSSA 15
A commonly held misconception is that by simply making cosmetic changes the patent can be avoided.
This is generally not the case and the differences have to be more fundamental and well thought
through to avoid patent infringement.
Once a patent is secured in a particular country the owner of that patent has a monopoly, which
allows the owner to control a range of commercial activities relating to that invention.
The control that can be exercised includes

• the making of the invention;
• the using and exercising of the invention; and
• the sale, licensing and leasing of the invention.
An invention can take a number of forms, such as: a process, a method, a machine, a device, a new
material, a chemical compound or chemical composition. In fact, anything which meets three criteria
defined by patent legislation can be considered an invention.
These three criteria are:

• the invention must be new, in that it is not previously known anywhere in the world;
• the invention must not be an obvious variation on known technology; and
• it must be capable of being applied in trade, industry or agriculture.
Assuming that the invention meets all of these criteria it is patentable, save for a few exceptions such
as abstract ideas, natural phenomena and laws of nature.
Exceptions also include discoveries; scientific theories; mathematical methods; literary, dramatic,
musical and/or artistic works; schemes, rules, methods of performing mental acts, playing games or
doing business; computer software programmes; and the presentation of information, are considered
unpatentable subject matter.
4.2.2. PRIOR ART

Searches are often conducted to determine if an invention is new. The aim of the search is to identify
what is referred to as “prior art”, which is technology or similar inventions that predate the inven-
tion. Identifying this prior art is a critical step in determining whether an invention is patentable and
whether meaningful patent protection can be secured for the invention. These searches can be done
using a number of different sources:
• the inventor’s knowledge of his or her field of work;
• the internet;
• keyword searches on Patent Office databases;
• paper-based searches at Patent Offices; and
• technical literature.
These different types of searches vary in complexity, reliability and cost. It is the interplay of these
factors that determines the selection of the type of search.
4.2.3. THE PATENTING PROCESS

Patent rights are ultimately secured by filing a final or complete patent application in every country
where patent rights are being sought. It is the steps leading to the filing of this final application where
flexibility exists in the process. In general there are three routes that are followed:
• file the final application immediately, without filing earlier patent applications;
• file a provisional application to establish a filing or “priority date” with the final application being
filed within twelve months of the provisional application;
• if the patent is to be extended to foreign countries, the PCT or Patent Co-operation Treaty is often
used which allows the same application to be filed in more than one country at one time.
©LSSA 16
Combinations of these processes are also used. The important features of any patent filing program is
to secure a priority date by way of the first patent filing (whatever form this takes) and then from this
date to ensure that deadlines are met and observed in each step in the patenting process.
4.2.4. PATENT PROSECUTION

Once a final patent application has been filed at a Patent Office, it is subjected to examination. The
level of this examination varies from country to country with some countries only reviewing the
documents to ensure that formalities have been complied with (these are so-called “non-examining
countries”) while other countries will consider the inherent patentability of the invention relative to
earlier inventions and prior art (so-called “examining countries”). The process of examination and
interaction with the inventor during this phase of the patenting process is referred to as “patent prose-
cution”.
Based on the outcome of this examination, a decision is made to either grant or reject the patent
application. If the application is accepted, the patent is granted and advertised or published in a
patent journal or database.
4.2.5. TO PATENT OR NOT TO PATENT?

Once an invention has been developed a decision has to be made whether or not to protect it by way of
a patent. There is always an option not to file a patent application and to protect the invention by way
of confidentiality. This may be an appropriate strategy to follow in certain circumstances. However,
this can only be done where the confidentiality of the invention can be preserved and the invention
does not become self-evident from the product or process that is sold or used commercially. Relying on
confidentiality is also not an appropriate strategy where the intention is to license or sell the inven-
tion. The reason for this is that patents are tradable forms of protection while it is more difficult to
license or sell confidential information and know-how.
It must be stressed that even if it is decided to file a patent application it is important to keep
the invention confidential, at least until the application has been filed. The reason for this is that
any prior disclosure of the invention can be used to invalidate the patent application. All forms of
non-confidential disclosure must be avoided, including the sale of products using the invention, the
implementation of any process invention on a commercial scale, the publication of articles about the
invention or giving presentations to prospective customers and commercial partners.
Once the patent application has been filed the invention can be disclosed to others without preju-
dicing the patent.
4.2.6. CAN A CLIENT FILE HIS/HER OWN PATENT APPLICATION?

Some inventors file their own provisional patent applications in the belief that this will save them
money. This is usually done for less sophisticated inventions and by inventors who are using the
patent process for the first time. The success rate of inventions patented in this way is extremely low.
A lack of appropriate experience can result in an inventor who files his or her own provisional patent
application running the risk of not gaining adequate protection for the invention. The filing of a provi-
sional patent application is not simply a case of compiling a description of the invention. In South
Africa the complete (or final) patent application will have to be filed by a patent attorney.
4.2.7. WHAT INFORMATION DO YOU NEED TO GIVE YOUR PATENT ATTORNEY?

Before preparing a patent application the patent attorney will interview the inventor so as to under-
stand the invention and all its features. It is useful to compile a description of the invention before
going to the meeting with the patent attorney. This can often be made easier by using a drawing
cross-referenced to the description. A well compiled pack of information will certainly speed up the
process and this will ultimately save costs. In compiling the description of the invention it is also
useful to include details of other inventions in the relevant field of technology, particularly if the
invention has advantages over the existing technology. Highlight these advantages and improve-
ments.
©LSSA 17
4.2.8. FOREIGN PATENT APPLICATIONS
During the patenting process a decision must be made whether or not to secure patents in foreign
countries. Bear in mind that a patent that is granted in South Africa will only provide patent protec-
tion in this country. There is no such thing as a worldwide patent.
4.3. REGISTERED DESIGNS

As with patents, it is strongly recommended that a patent attorney is appointed to advise your client
on securing protection of a registered design.
4.3.1. WHAT IS A REGISTERED DESIGN?

Registered designs are regulated by the Designs Act 195 of 1993.
Registered designs are monopoly rights that are granted on the outward appearance of an object.
They protect the way an object looks – as opposed to patents that protect inventions, or the way in
which an object is made or the manner in which it works.
A registered design allows the owner of the design to control the way in which the design is used.
This includes the right to charge royalties for the use of the design and the ability to prevent compet-
itors from using the design, or for copies of the design to enter the market.
Design legislation affords protection to registered designs. In South Africa we have the Designs Act,
which differentiates between two different types of design registrations, namely:
• aesthetic designs
• functional designs.
It goes without saying that a design may have both aesthetic and functional features. These would be
protected separately.
4.3.2. WHAT IS THE DIFFERENCE BETWEEB AN AESTETHIC DESIGN AND A

FUNCTIONAL DESIGN?
Generally speaking, aesthetic designs relate purely to the appearance of an article – what is commonly
called the “eye appeal” of the article. This is in contrast to functional designs, which relate to features
of design that are necessitated by the function of the article; in other words features that are not
purely aesthetic.
4.3.3. REQUIREMENTS FOR A DESIGN TO BE REGISTRABLE

In order to be registrable the design must be new. In deciding whether a design is new it is not only
compared with designs that are available in South Africa but with all known designs in the world.
Functional designs have a further requirement that has to be met. In addition to being new the
functional design must not be “commonplace”. The intention here is to exclude everyday and obvious
variations of known designs.
4.3.4. DIFFERENCES BETWEEN PATENTS AND REGISTERED DESIGNS

An important difference between patents and registered designs is that there is greater flexibility
regarding the novelty requirements for registered designs as they allow for limited disclosure to have
taken place before an application is made for the design registration. In South Africa the design
registration will not be compromised as long as an application is made for registration of the design
within six months of the design having been released. The release of the design could take a number
of forms, including publishing the design or sale of products that incorporate the design. There are
however drawbacks to using this procedure and it is recommended that a design application be filed
before any public disclosure is made.
©LSSA 18
4.3.5. HOW LONG DOES A REGISTERED DESIGN REMAIN IN FORCE?

An aesthetic design registration remains in force for 15 years while a functional design is registered
for 10 years. Throughout the life of a registered design, renewal fees must be paid to keep it on the
Register.
4.3.6. FOREIGN DESIGN APPLICATIONS

As with patents, separate design applications must be filed in each country where design protection
is required. With designs the time periods for filing design applications are shorter. Final applications
must be filed in each country within six months of the first application having been filed in South
Africa.
There are also international agreements which make it possible to file a single application for
registration of a design in a number of countries. The Hague Agreement provides for the registration
of industrial designs in a number of jurisdictions by filing a single design application at WIPO in
Geneva. Unfortunately, The Hague Agreement is currently not of much use to South African compa-
nies because South Africa is not a party to this agreement. The European Community Design, on
the other hand, can provide cost-effective design protection in all countries that are members of the
European Union, by filing one design application.
4.4. TRADE MARKS

Trade marks are likely to be the form of intellectual property most commonly encountered in practice
and a basic understanding of this right is imperative. If an enterprise has a name (and/or logo), it has
a trade mark, irrespective of its enforceability.
4.4.1. WHAT IS A TRADE MARK?

Trade marks are regulated by the Trade Marks Act 194 of 1993.
Trade marks are words or other marks (such as logos) that are used to distinguish the goods or
services of the trade mark owner from the same or similar goods and services of other manufacturers
and suppliers.
Although trade mark rights may be established following extensive and unfettered use, rights are
generally established following the filing of a trade mark application.
Before a trade mark is adopted, it is imperative to establish that the proposed trade mark is indeed
available for use and registration and a two-pronged assessment is required:
• is the trade mark inherently distinctive to qualify for registration (i.e. it does not directly describe
the goods and/or services in respect of which it is proposed to be used); and
• does the trade mark infringe the rights of existing trade marks?
Provided it fulfils the functions mentioned, there is virtually no limit to the form which a trade mark
can take. The Trade Marks Act defines a mark as “any sign capable of being represented graphically”,
i.e. capable of visual representation and this includes a device name, signature, word, letter, numeral,
shape, configuration, pattern, ornamentation, colour or container for goods, or any combination of
these.
Thus, a mark can be: a symbol which may or may not have any particular significance, a person’s
name or image, a corporate logo, an invented word or an ordinary word, or a distinctive container for
goods. A mark may be something applied to the surface of goods or incorporated in their shape or
structure. It may be a musical jingle or a slogan, or a combination of colours in a particular format.
The three stripes down the sides of Adidas® shoes, the little red tab projecting from the hip pocket of
Levi’s® jeans and the arrow device on the Parker® pen clip are all well-known and valid trade marks.
Generally speaking anything which distinguishes one product or service from another, and which can
be represented graphically, constitutes a mark. As strange as it may seem, even sounds and smells
could be registered.
In addition to the traditional form of the trade mark applied to goods, it is possible for trade marks
to be registered in respect of services such as engineering, computer programming, advertising,
©LSSA 19
banking and insurance, leasing, entertainment, hotels, restaurants and beauty salons, to name but
a few.
South African trade mark legislation allows a wide range of marks to be protected, in addition
to simple words and logos. For example, trade marks can be registered for the shape and colour of
goods; service marks which distinguish a service as opposed to a product; and certification marks
that certify the origin of goods.
4.4.2. IS IT NECESSARY TO REGISTER A TRADE MARK?

Registration of a trade mark has many advantages, some of which are:
• The owner of a registered trade mark can stop the use or registration of another trade mark in
respect of the same or similar goods or services if that other trade mark so nearly resembles the
registered trade mark as to be likely to deceive or cause confusion, without having to prove prior
use of the trade mark;
• A trade mark registration enables the owner to object to another’s unauthorised use of the trade
mark or a similar mark if the registered mark is well known in South Africa and the use would be
likely to take unfair advantage of, or be detrimental to, the distinctive character or repute of the
registered mark. This so-called “anti- dilution” provision in the law enables the owner to object to
comparative advertising or use which adversely affects the advertising image of the mark.
• Registration gives notice of all interested parties of the rights claimed by the trade mark owner
throughout the country. Rights in an unregistered trade mark may be much more localised.
• Registered trade marks endure indefinitely, subject to use and the payment of renewal fees every
ten years.
Unregistered trade marks enjoy a limited form of protection under South African common law. The
owners of unregistered trade marks may, in certain circumstances, be able to prevent the use of the
marks by others, provided that the owner can show that the mark has a reputation and that the use
of the contentious mark will cause the public to be misled. This does, however, require that evidence
be gathered establishing the trading record of the trade mark and thereby establishing its reputation.
It is far simpler to have a trade mark registration which can be relied on to prevent competitors using
the mark, as the registration does away with the need to prove that the mark has a reputation.
4.4.3. WHAT TRADE MARKS CAN BE REGISTERED?

Not all trade marks qualify for registration. It is a fundamental requirement for registration that a
trade mark must be “capable of distinguishing”. Generally speaking, it can be said that a mark which
is reasonably required by other traders for use in connection with the particular goods or services is
not registrable.
A mark will be considered capable of distinguishing if at the date of application it is intrinsically
capable of distinguishing or is capable of distinguishing by reason of its prior use. An invented word
such as KODAK or XEROX, or an invented logo, is clearly immediately capable of distinguishing,
whereas terms such as EXCELLENT or BEST are not, and it is difficult to envisage any circumstances
under which they could be shown to have become capable of distinguishing one party’s products or
services, even after lengthy use.
Between the extremes of inherently distinctive and clearly non-distinctive marks, is a grey area
into which many marks potentially fall. A word which is merely suggestive of a particular character
or quality of the goods would usually qualify for registration. Thus, “NEVER WET” could probably not
be registered for a waterproof garment, but “DUCK’S BACK” would be quite acceptable for such goods.
On the other hand, surnames or marks consisting of numerals or of less than three alphabetical letters
may not qualify, and detailed advice should be sought.
As indicated above, the definition of a “mark” includes shapes and containers for goods. To qualify
for registration as a trade mark, the shape or container must, of course, be distinguishing, as in the
case of all other trade marks, and not necessary to obtain a specific technical result.
©LSSA 20
4.4.4. SELECTION OF A TRADE MARK

When selecting a trade mark one should choose something which can be registered and the marketing
department should work closely with its trade mark experts to ensure selection, as far as possible,
of a mark which is registrable. It should be borne in mind, however, that the more apt the word
or device is to describe the goods or services, the less apt it will be to distinguish those goods or
services from those of others and if it is possible to obtain registration at all for a semi-descriptive
word, it may be very difficult to protect that word against claims by others that they are entitled to
use almost identical descriptive terms. These difficulties are not necessarily avoided by using foreign
or misspelled versions of ordinary descriptive terms. For the reasons mentioned above, geographical
names and surnames as trade marks are also not easy to protect. Once a mark has been selected, a
trade mark search should be conducted to ascertain that the mark is available for registration and
that there will be no infringement of a registered mark.
If there is a likelihood of the trade mark being used on goods for export, additional considerations
could apply in its selection since, not only may a word in one language be difficult to pronounce in
another, but it may, in fact, have an undesirable or even obscene meaning in another language. The
temptation to “adopt” a mark which is well known or successful in a foreign country but not yet used
or registered in South Africa should be avoided. Specific provision for the protection of well-known
marks forms part of the trade marks law.
4.4.5. HOW DO I GO ABOUT DOING A TRADE MARK SEARCH?

All leading intellectual property law firms have systems in place to conduct trade mark searches.
These searches are relatively inexpensive and are certainly money well spent before committing to the
name of a new product or business.
A trade mark search involves assessing whether a proposed mark is inherently capable of distin-
guishing and whether it may be deemed to be identical or confusingly similar to a prior trade mark
which has been registered or applied for in South Africa.
In assessing whether it is confusingly similar, a comparison is made between the proposed mark
and those existing on the South African Trade Marks Register. Prior marks covering the same or
similar (related) goods and/or services are compared with the proposed mark and compared on three
criteria: aural (phonetic), visual and conceptual (meaning) overlap.
Once the comparisons have been made, in detail, an opinion is provided as to whether the mark is
available for use or registration or whether it is confusingly similar to a prior mark and, accordingly,
not available. In some instances the client may find that adoption of its proposed mark is likely to
infringe the rights of an earlier trade mark and client is cautioned to select an alternative mark.
If the proposed trade mark is available for use and registration, client is generally advised to make
formal application.
It is important to note that a trade mark application must be filed in the correct class (there are
34 classes covering goods and 11 covering services) and that the specification adequately covers the
proposed goods and/or services.
4.4.6. THE TRADE MARK REGISTRATION PROCEDURE IN SOUTH AFRICA

The procedure commences with the filing of a trade mark application on the prescribed form. As
mentioned, considerable care must be exercised in the preparation of the specification of goods or
services included in that application, since rights against infringers are confined to use of the name or
a confusingly similar trade mark on the same or similar goods or services covered in the specification.
Some time after filing, the application for registration of a trade mark is examined by the Trade
Marks Registry. After examination, an official action is issued in which the registry indicates whether,
and subject to what conditions, it would be prepared to register the mark. Upon the registry being
satisfied that a trade mark can proceed to registration, it will issue acceptance of the application
and the applicant, usually through his trade mark attorneys, will then arrange for the acceptance of
the application to be advertised in the Patent Journal. After advertisement, the application is open to
opposition by interested parties for a period of three months.
If a party believes it has grounds for opposing, an extension of that period is usually arranged
and, prior to the filing of formal notice of opposition, an attempt is generally made to find a basis for
©LSSA 21
coexistence of the respective trade marks of the parties, or for the application or the objection to be
withdrawn. At the expiry of the three-month period, or any extension thereof, the certificate of regis-
tration is issued.
Unfortunately, there can be a considerable delay in the official examination of trade mark appli-
cations. Upon registration, however, rights in the trade mark date from the date of filing of the appli-
cation. If a search was conducted before the filing of that application, a reasonable indication should
have been obtained as to whether or not objections to the registration can be expected.
4.4.7. FOREIGN TRADE MARKS

The rights of a trade mark are strictly territorial and are limited to the territory in which registration
has been obtained or, in certain cases, where rights through use can be shown to exist. Thus, it is
important to note that a registration in South Africa does not confer any rights in the trade mark in
export markets, and a South African exporter from possible infringement proceedings in the export
country. Thus rights in the mark must be protected in each country of interest or potential interest by
the best means possible, that is, by registration.
4.4.8. PROPER USE OF A TRADE MARK

A trade mark must be used if it is to remain on the trade mark register unchallenged. A registered
trade mark may be expunged from the Register of Trade Marks if it has not been used for a continuous
period of five years any time after the date of registration (not application). Any use of the trade mark,
whether by the owner of the trade mark or by their licensee, would be sufficient to interrupt this time
period and prevent expungement of the trade mark registration.
If a trade mark is not used properly and, in particular, if it is used either deceptively or in a sense
which gives it a generic meaning for the goods or services, it no longer serves a trade mark function
and all rights in the trade mark can be lost.
A trade mark can be used deceptively if it is used in contravention to a particular condition imposed
upon registration, for example, as to mode of use or character of the goods or services. Deceptive use
can also occur where the label falsely suggests origin in a country other than the true country of origin
of where that label suggests a connection with other countries. Similarly, if a trade mark suggests that
the goods have a certain content or ingredient, and this is not so, it could be held to be deceptive and
invalid on that ground.
The other major basis upon which rights in a trade mark can be lost is when the trade mark is used
in such a manner as to become the name of the goods or, in other words, when it becomes generic
and falls into the public domain. Many words of the English language, such as aspirin, linoleum and
escalator, to name but a few, were originally trade marks signifying the product of one source. Cello-
phane is another trade mark which has been lost in certain countries, including the United States,
because it was used to refer to a certain type of transparent film rather than to transparent film from a
certain manufacture. Thermos, jacuzzi and windsurfer have met with a similar fate in some countries.
A number of manufacturers of well-known trade marks, such as Levi’s® for jeans, Dacron® for
fibres, Kleenex® for facial tissue, Jeep® for vehicles, Vaseline® for petroleum jelly, Hoover® for vacuum
cleaners and Xerox® for photocopiers, take active and expensive steps to educate their own dealers,
newspaper editors, publishers of encyclopaedias and the public at large to appreciate that the trade
mark identifies their products alone, and to use it in the proper manner. In particular, the trade mark
should be used adjectivally, always qualifying the generic description of the goods in question, and
should never be used as a noun or a verb. Thus you do not buy a hoover nor do you hoover the car. You
buy a HOOVER vacuum cleaner for the purpose of cleaning the carpet.
4.4.9. MARKING
It is not compulsory to use the expression “Registered Trade Mark” or any abbreviation but it is normally
advisable. The symbol ® is widely recognised as indicating that a trade mark is registered. Thus, if
the symbol were used in conjunction with a trade mark which is not registered, it is likely that this
would constitute an offence under the Trade Marks Act which prohibits the use of any words or letters
which might falsely suggest that a trade mark is registered. There is no objection to using the words
“Trade Mark” or the abbreviation ™ in connection with a trade mark which is not registered, and in
©LSSA 22
fact, this would usually be desirable so that it can be clear that trade mark rights are claimed in the
feature concerned.
4.4.10. DOMAIN NAMES

Domain names are valuable corporate assets and identifiers. With the expansion of the internet and
e-commerce it is important for trade mark owners to protect their trade marks on the internet by regis-
tering domain names. The inter-relationship between domain name and trade mark registrations is
particularly important when securing a channel of business through the internet.
4.5 COPYRIGHT
4.5.1. WHAT IS COPYRIGHT?

Copyrights are regulated by the Copyright Act 98 of 1978.
Copyright is a form of intellectual property protection that prevents another party from copying (or
performing certain other activities in respect of) a work provided for and covered by the Copyright Act
without the authorisation of the copyright owner.
Unlike other forms of intellectual property protection provided for by statute, copyright does not
need to be registered. Copyright subsists automatically. The only form of copyright that is registrable
in South Africa is the copyright subsisting in cinematograph films.
4.5.2. WHAT TYPE OF CONTENT ENJOY COPYRIGHT PROTECTION?

In order to be eligible for copyright, the subject-matter must first qualify as one or more of the
particular types of “works” provided for by the Act.
These works are limited to:

• literary works (for example novels, poems, tables and manuals);
• artistic works (for example photographs, paintings and drawings);
• musical works (for example music, exclusive of any words or action, reduced to writing or musical
notations preserved in a material form, e.g. a record or a tape);
• sound recordings (for example a compact disc or tape on which sounds are embodied);
• cinematograph films;
• broadcasts (for example radio and television;
• programme-carrying signals (for example a signal being emitted passing through a satellite);
• published editions (i.e. the first print of a particular typographical arrangement of a literary or
musical work);
• and computer programs.
4.5.3. WHAT ARE THE REQUIREMENTS FOR COPYRIGHT PROTECTION?

The first requirement for copyright to subsist is that the relevant subject-matter must constitute a
“work” as provided for by the Act.
Secondly, a work must be original, meaning that it was not copied from another source, but that
the author has invested his/her own time, money, effort, skill, knowledge and endeavours to create
the work.
Thirdly, a work must be in a material form in that a physical or tangible product exists. This
requirement entails that the work cannot be a mere thought or idea, but that it must have been created
and then “fixed” in some manner. The fixing can take place in a number of ways, e.g. by having the
content written down, recorded, filmed or captured electronically. The essential requirement is that
the content has become locked into the physical world in some way.
Fourthly, the author of the work must be a “qualified person”. A qualified person in the case of
an individual, a person who is a South African citizen or is domiciled or resident in the Republic. A
©LSSA 23
qualified person in the case of a juristic person who has a registered place of business within South
Africa or in a country which is a member of the Berne Convention.
4.5.4. WHAT IS THE DURATION OF A COPYRIGHT?

The duration of copyright, albeit limited, is a generous one. The exact duration of copyright depends
on the type of work concerned, but can generally be considered as a period of at least 50 years from
the moment of a certain event. In the case of literary, musical and artistic works copyright endures
for a period of 50 years after the death of the author. In other cases such as cinematograph films and
computer programs, copyright will expire 50 years from the end of the year in which the work was
made available to the public with the consent of the owner of the copyright or after the work is first
published, whichever is longer. If the work is not made available or published within 50 years after
the creation of the work, then the copyright in the work will expire 50 years after the creation of that
work. When the term of copyright in a work has expired the work falls into the public domain and the
former restrictions on its use and exploitation cease to have any effect.
4.5.5. WHO OWNS THE COPYRIGHT?

Generally, the person who creates a work owns the copyright in that work. Thus, the author of a work
is normally the first owner of the copyright subsisting therein. However, there are certain exceptions
to this general rule. For example, if the person who creates the work creates it during the course and
scope of his employment, his employer will own the copyright of that work; a person who commissions
the taking of a photograph, the painting or drawing of a portrait, the making of a sound recording or
the making of a film owns the copyright of that work.
The ownership of copyright can be transferred or assigned by means of a written document.
4.6. ANTI-COUNTERFEITING
4.6.1. WHAT ARE COUNTERFEIT GOODS?

Counterfeit goods are regulated by the Counterfeit Goods Act 37 of 1997.
Counterfeit goods (or pirate merchandise) are imitations of the genuine article. Counterfeit goods
are usually imported into South Africa, mostly from the Far East, but are sometimes also manufac-
tured in the country itself. The counterfeit goods are sold or otherwise traded in a variety of manners,
such as through retailers, stalls at organised flea markets, over the Internet, at roadside stalls and
generally in the informal market.
Countering informal trading in counterfeit goods is particularly difficult in the informal market.
This is because it is difficult to identify the transgressors, who are often mobile and are mere “runners”
for larger distributors. Similarly, imported counterfeit merchandise is brought into the country in a
clandestine manner, including in the luggage of travellers or residents arriving from abroad, or in
containers which are mislabelled and which are imported under cover of falsified documents. Here
too, the identity of the true transgressors is difficult to ascertain and those transgressors are difficult
to pin down. The volume of counterfeit goods is often extensive and a considerable effort and financial
investment is necessary to confine piracy or trading in counterfeit goods to acceptable proportions.
4.6.2. HOW CAN A CLIENT PROTECT ITSELF AGAINST COUNTERFEITERS?

The following types of protection are available to a brand holder and/or its distributors:
• Trade mark infringement
A registered trade mark and/or a well-known trade mark can be protected under the Trade Marks
Act. This enables civil law trade mark infringement proceedings to be instituted against counter-
feiters, giving rise to relief in the form of an interdict restraining the infringement, damages, deliv-
ery-up of the offending goods, costs of suit and various other forms of ancillary relief.
• Copyright infringement
Infringement of copyright can give rise to civil law infringement proceedings in which relief similar
©LSSA 24
to that available under the Trade Marks Act is obtainable. In addition, copyright infringement can
be a criminal offence and criminal charges can be laid against counterfeiters, which charges will be
pursued by the South African Police Services and the South African justice system. Criminal copy-
right infringement can give rise to severe penalties being imposed.
• The Counterfeit Goods Act
The Counterfeit Goods Act aims specifically to combat the trade in counterfeit goods and currently
forms the cornerstone of anti-counterfeiting activity in South Africa. In terms of this Act, dealing in
counterfeit goods is unlawful, provided that the goods in question give rise to trade mark infringe-
ment or copyright infringement. If the goods are of an infringing nature, the Counterfeit Goods Act
penalises a wider range of offending conduct than the Trade Marks Act and the Copyright Act when
viewed alone. For instance, under the Counterfeit Goods Act importation, being in possession of,
and exportation of counterfeit goods is unlawful, whereas this may not be the case in terms of the
Copyright Act or the Trade Marks Act alone.
The Counterfeit Goods Act contains procedural provisions which give the police and other inspec-
tors wide-ranging search and seizure powers, which are discussed below. Dealing in counterfeit
goods constitutes a criminal offence and offenders can be prosecuted by the South African Police
Service and the South African justice system. Severe penalties can be imposed by the Court and
counterfeit goods can be ordered to be delivered up to the rights holder irrespective of whether any
conviction takes place.
• The Common Law
Where counterfeit goods are likely to be confused with protected goods, dealing in such goods
constitutes passing-off under the common law and enables the trade mark proprietor to institute
civil law infringement proceedings in which similar relief to that available in the case of trade
mark infringement can be obtained. In addition, where dealing in counterfeit goods constitutes
an offence under the Counterfeit Goods Act, it is possible for the trade mark proprietor, as well as
a duly appointed distributor, to claim unlawful competition against the counterfeiter. A claim of
unlawful competition can bring about the same relief as in the case of passing-off.
• Search and seizure under the Counterfeit Goods Act
The Counterfeit Goods Act contains search and seizure provisions in respect of counterfeit goods.
This Act makes provision for designated inspectors to conduct search and seizure operations. Save
in exceptional circumstances, these operations are conducted in accordance with search and seizure
warrants and the seized counterfeit goods are stored in officially appointed counterfeit goods depots
where they remain until proceedings under the Counterfeit Goods Act have been completed.
In view of the somewhat draconian powers conferred upon inspectors in the Counterfeit Goods Act,
the Act also contains various checks and balances and very strict time periods during which formal
steps must be taken. If any breakdown in the formal procedures occurs, the goods can be returned
to the persons from whom they have been seized.
• Customs and Excise
The Customs and Excise legislation, together with the co-operative attitude of customs officials,
makes it possible for trade mark and copyright owners to record their rights with the Customs
authorities and on completion of an application, Customs officials will detain any suspected coun-
terfeit goods on importation.
4.7. CONFIDENTIAL INFORMATION, TRADE SECRETS AND KNOW-HOW

Know-how is perhaps the category of intellectual property that is most difficult to define. It can
be described loosely as the knowledge possessed by an individual or a company, which provides
the individual or company with a competitive advantage. In some instances this may give rise to
patents, copyright, trade marks and registered designs but generally the main means of protecting
this information is through confidentiality. This might take the form of confidentiality and restraint
provisions in employment contracts with key employees who have access to this information and by
way of non-disclosure and non-competition agreements with third parties with whom the information
is shared.
©LSSA 25
4.8. MANAGING INTELLECTUAL PROPERTY
Having outlined the various forms of intellectual property and the manner in which they are created,
we can now consider what the management of an intellectual property portfolio entails and how to
maximise its value.
It is rare that a business has only one form of intellectual property. Even a simple idea would
usually be protected by more than one form of intellectual property. For example, a simple invention
might be protected by way of a patent but it will almost certainly have a name associated with it,
which could be a trade mark. There may also be confidential information and know-how associated
with the idea, which is not disclosed in the patent documentation. Managing intellectual property is
the art of managing the interplay between these various forms of intellectual property so that the idea
is protected from competition and is best positioned to achieve success.
The management of intellectual property involves various activities, including:
• Developing an IP strategy to identify which IP assets are owned; what additional IP protection is
required; and to determine whether the IP is adequate to fulfil the business plan and objectives of
the idea.
• Annual IP Audits. It is useful for a business to review annually its portfolio of trade marks, patents
and designs to check whether adequate protection has been obtained for new developments and
trade marks currently in use or proposed to be used, whether the IP is being maintained, and
whether it is worthwhile to continue pursuing all trade marks, patents and designs in the portfolio.
• Monitoring Competitor Activity by monitoring their intellectual property and analysing whether
this is going to be a hindrance to the idea or business that is being developed.
• Litigation, which from time to time may be necessary to enforce intellectual property rights.
• Commercialisation of the intellectual property by way of a licensing program, the sale of the IP
portfolio, raising capital to develop the idea, using the intellectual property as security to raise
capital for the development of other portions of the business, and a range of other transactions
such as joint ventures, franchises, distribution agreements etc
• Financial Reporting. Many businesses now report their intellectual property on their balance
sheets.
• New accounting standards prescribe the way in which intellectual property must be reported for
transactions such as mergers and acquisitions.
• Valuations for the purposes of tax and accounting purposes, in addition to determining the value
of a portfolio of intellectual property for the purposes of a commercial transaction.
• Where business entities are liquidated it is important to deal also with any intellectual property
assets the entity may own.
4.9. INTELLECTUAL PROPERTY RIGHTS AND THE CONSTITUTION

As with any other form of property, intellectual property is also subject to section 25 (the constitu-
tional property clause) of the Constitution of South Africa.
4.10. SOUTH AFRICAN INSTITUTE OF INTELLECTUAL PROPERTY LAW (SAIIPL)

Further training is required should you wish to qualify as a Fellow of the Institute of Intellectual
Property Law.
Further information in this regard can be obtained by visiting www.saiipl.org.za .
5. CLOSE CORPORATIONS
One of the consequences of the enactment of the Companies Act is that it is not possible to register
new Close Corporations as legal entities. All CC’s that existed before the inception of the Act will still
continue to exist, with certain amendments to the Close Corporations Act to bring them in line with
the Companies Act.
©LSSA 26
The amended Close Corporations Act incorporates the provisions of the Companies Act dealing with
business rescue proceedings. This means that:
• the members of a financially distressed close corporation may resolve to initiate business rescue
proceedings in respect of the close corporation;
• any member, creditor, trade union or unrepresented employee of a financially distressed Close
Corporation, may apply for a court order placing the Close Corporation under supervision and
commencing business rescue proceedings.
The Companies Act repealed section 26(5) of the Close Corporations Act. Prior to its repeal, this section
provided that if a close corporation was deregistered while having outstanding liabilities, the persons
who were members at the time of deregistration would be jointly and severally liable for those liabili-
ties. Section 26(5) of the Close Corporations Act no longer applies to CC’s that are deregistered after
1 May 2011. However, members who knowingly are a party to the reckless or fraudulent dealings of a
close corporation will still be personally liable for the debts of the close corporation, since the provi-
sion of the Close Corporations Act providing for this liability is unchanged.
The following is a summary of the changes applicable to close corporations:

• All CC’s must prepare financial statements within 6 months after the financial year end;
• All CC’s must file annual returns within 30 business days after the anniversary date of their incor-
poration. An annual return is filed at the CIPC and reflects the current status of a CC’s affairs;
• CC’s that are required to have their annual financial statements (AFS) audited are also required to
lodge these AFS together with their annual returns;
• A CC should be audited if:
* the CC holds assets for another party in excess of R5 000 000.00;
* the CC’s PIS is 350 or more;
* the PIS is less than 350, but more than 100 and the AFS are internally compiled;
• Independent review is not applicable to CC’s;
• Members are no longer jointly and severally liable for the liabilities of the CC after deregistration;
• The disclosure of members’ names on business letters is no longer applicable;
• Financially distressed CC’s may make use of the Business Rescue proceedings as detailed in the
Companies Act.
5.1. THE CLOSE CORPORATION ACT AND THE AMENDMENTS MADE BY THE
COMPANIES ACT
From time to time it will be necessary to be aware of the provisions of certain sections of the Close
Corporations Act, when contracts are negotiated or perused or when clients are advised as to the most
appropriate structure for a particular transaction.
• Section 2, as amended by the Companies Act, Capacity and Powers of Close Corporation.
• Section 39 Payments by close corporation to acquire members’
interest.
• Section 40 Financial assistance by close corporation.
• Section 45 Constructive Notice.
• Section 46 Variable rules regarding internal relations.
• Section 54 Representation of a Close Corporation.
• Section 55 Application of Sections 37 and 226 of the Compa-
nies Act.
• Section 64, 65 Reckless Trading and powers of the Court.
©LSSA 27
Schedule 3 of the Companies Act amended the provisions of the Close Corporations Acts as
follows –
• Names of close corporations
Section 19 of the Close Corporations Act was amended to the extent that the provisions of the
Companies Act relating to company names apply to close corporations. The provisions of the
Companies Act on the use and publication of names were also made applicable to close corpora-
tions.
• Financial disclosure
Regulations on financial disclosure and reporting standards issued in terms of the Companies
Act as well as regulations on auditing of financial statements and on the qualifications of profes-
sionals who conduct reviews, apply to close corporations in terms of an amendment to section 10
of the Close Corporations Act.
Close corporations need not comply with the extended accountability provisions of the Companies
Act, but they may however voluntarily subject themselves to this regime.
• Management
Section 47 was amended to provide that, in addition to minors who do not have the permission of
their guardians, and unrehabilitated insolvents, persons disqualified to be directors of companies
in terms of the Companies Act are also disqualified from taking part in the management of a close
corporation.
The provisions of the Companies Act regarding the declaration of directors as delinquent or under
probation, are made applicable to close corporations through the insertion of section 47(1C). Any
reference to a director must be interpreted as a reference to a director of a company or a member
participating in the management of a close corporation and any reference to a company as a refer-
ence to a company or close corporation.
• Business rescue
Section 66(1A) makes the business rescue procedure created by Chapter 6 of the Companies Act,
applicable to close corporations. References to a company must be regarded as references to a
close corporation, while references to shareholders must be read as references to members of a
close corporation. No indication is given as to how references to directors or the board of directors
should be interpreted.
• Winding up
In line with the position for companies, the amendments introduce a distinction between the wind-
ing-up of solvent and insolvent close corporations. The process for the voluntary winding-up of
close corporations is amended by incorporating Part G of Chapter 2 of the Companies Act, dealing
with winding-up of solvent companies and dissolution.
In regard to insolvent close corporations, the provisions of the previous Companies Act, with the
necessary adjustments, applies to close corporations for any matter not specifically provided for
in the Close Corporations Act. Section 344 of the 1973 Companies Act sets out the grounds for
winding up of companies and applies to insolvent close corporations. The Close Corporations Act
no longer provides its own grounds following the repeal of section 68.
• Dissolution or Deregistration
A close corporation can also be removed from the register on administrative grounds. Applications
for the reinstatement of registration are also possible. The effect of a removal from the register
is that the company is dissolved. Section 83(2) provides for the continued liability of directors or
shareholders in respect of acts or omissions prior to deregistration, but close corporation members
will no longer be liable for outstanding debts upon deregistration.
• Offences and enforcement
The functions of the Registrar of Close Corporations were taken over by CIPC. Various criminal
offences in the Close Corporations Act have been repealed.
Compliance notices may be issued to close corporations and persons involved in their affairs.
Failure to comply with such a notice may be sanctioned by the imposition of an administrative fine
or could lead to a criminal prosecution.
©LSSA 28
6. FORMATION AND FUNCTIONING OF COMPANIES
6.1. COMPANY NAMES

In terms of section 32 of the Companies Act, all printed matter and publications of a company must
reflect the name and registration number of the company as well as the names of its directors and its
registered address.
A name can acquire goodwill, as is clear from names like Coca Cola and Pepsi and which is discussed
in further detail in module 4 of this manual.
Certain guidelines must be borne in mind when choosing a name:
• The Business Names Act, No. 27 of 1960, as amended, contains provisions relating to the control
of business names, more in particular trade names and related matters;
• Section 11(3) (c) of the Companies Act requires that company names must end with the following
expressions, as appropriate for the particular category of the company, as follows:
Personal liability company Incorporated or Inc

Private company Proprietary Limited or (Pty) Ltd
Public company Limited or Ltd
State-owned company. SOC Ltd
Non-profit company NPC
6.1.1. CRITERIA FOR COMPANY NAMES

Section 11 and Regulation 8 of the Companies Act provides for the criteria for company names:
• A company name may comprise words in any language, together with any letters, numbers and
punctuation marks. The symbols +, &, #, @, %, =, or round brackets used in pairs may be used. A
profit company may also use just its registration number, followed by the words (South Africa) and
the prescribed ending as its registered name.
• A profit company may also use just its registration number, followed by the words (South Africa)
and the prescribed ending as its registered name. The number is preceded by the letter “K”and uses
only the year and middle part of the number, for example, K2017123456 (South Africa) Proprietary
Limited.
• A name that is the same or confusingly similar to the name of another company, close corporation
or co-operative, a registered trademark or a restricted mark, word or expression, may not be used.
The name may also not falsely imply or suggest, or mislead a person to believe incorrectly through
using names of persons, organisations etc that are not connected to the company.
• A name may also not be the same as a name that has been registered as a business name in terms
of the Business Names Act 27 of 1960 or a trademark that has been filed for registration in terms of
the Trade Marks Act 194 of 1993.
• If there is reason to believe that a company’s name is inconsistent with the requirements, an appli-
cation may be brought to the Companies Tribunal to determine whether the name should be allowed.
• The name of a company may not include any word, expression or symbol propagating war, violence,
harm or hatred based on race, ethnicity, gender or religion. If the CIPC considers a name to be
inconsistent with these requirements, the matter may be referred to South African Human Rights
Commission who may decide to apply to the Companies Tribunal for a determination.
• It is prudent to conduct a trade mark availability search to establish whether a proposed business
name is available for use and registration and for the trade mark to be registered, if available.
Section 19 of the Close Corporations Act was amended to the extent that the provisions of the Companies
Act relating to company names also apply to close corporations.
©LSSA 29
6.1.2. RESERVATION OF NAME
Regulation 9 of the Companies Act determines that an application to reserve a name in terms of
section 12(1) must be made on form CoR 9.1, and may include as many as four alternative names listed
in order of preference. The reservation is valid for a period of 6 months from the date of the applica-
tion for reservation and may be extended for a period of 60 business days on form CoR 9.2. A person
for whom a name has been reserved may transfer the reservation to another person by filing a signed
notice to transfer. . In practice, names are reserved through the online portal found at www.cipc.co.za.
The following steps should be followed:
• Login using your customer code and password;
• Click on Name Reservations under the Transactions tab;
• Click on “Proposed Name”;
• Capture between one and four names in order of preference. Ensure that you capture the names
accurately. If you make a mistake you will need to apply for a name change at a later stage.
• Click on “Submit Proposed Name”.
• A screen will display, indicating if the exact name test was successful or not. If the test for one
of the proposed names was not successful, it will be indicated with a cross. Click on Back and
propose another name if you want to add another name. Click on Lodge Name Reservation.
• The next screen will indicate that the proposed name(s) has been reserved, and provide you with
a reservation number.
• You will receive an SMS and email confirmation of the name reservation with the reference number
of the reservation.
6.1.3. DISPUTES REGARDING COMPANY NAMES

In terms of section 160 of the Companies Act, disputes relating to names and reserved names are to
be resolved by the Companies Tribunal, who may make an administrative order directing the CIPC to
reserve, register, or cancel a reserved name. The Tribunal may also order the company to choose a
suitable name.
6.1.4. DEFENSIVE NAMES

In terms of section 12(9) of the Companies Act, any person who can show that he as a direct and
material interest in a name may register such name as a defensive name for a period of 2 years by
using form CoR 10.1. After the two-year period, the registration can be extended for further periods
of two years at a time.
The registration of a defensive name affords protection for a specific word, and also facilitates regis-
tration of the name as a trade mark.
The registration of a defensive name can be transferred to another person by notice in the prescribed
manner and in form CoR 11.1 and on payment of the prescribed fee.
6.2. INCORPORATION AND REGISTRATION
6.2.1. INCORPORATION
The founders of the company or the incorporators are responsible for the incorporation of the company.
One or more persons can incorporate a profit company (i.e. a private or public company), while at least
three persons must incorporate a non-profit company.
Each incorporator is automatically an initial or first director of the company and continues to serve
as a director as such until directors as required by the Company’s Memorandum of Incorporation or
the Companies Act have been elected or appointed.
It is not required that an incorporator must subscribe for shares in the company.
©LSSA 30
It is not a prerequisite to reserve a name prior to the incorporation of a company as a company can be
incorporated under its registration number (see above).
Notice of the incorporation of a company for the purpose of having it registered is given to the CIPC
by the incorporators by way of the prescribed form CoR 14.1 and its accompanying annexures A, B,
C and D (insofar as applicable). An example of the CoR14.1 and its annexures are attached hereto as
annexure “Co1”).
The process of incorporation includes the following:

• filing of a Notice of Incorporation in the prescribed form (CoR 14.1);
• filing of a MOI (“MOI”) in the prescribed form (CoR 15) or in a form unique to the company;
• paying the prescribed fee;
• if a name was reserved using the CoR 9.1 form, proof of the reserved name (CoR 9.4) must also be
filed;
• if an attorney is acting on behalf of the incorporators, the power of attorney authorising the
attorney must also be filed.
The following information is required to be indicated on the Notice of Incorporation –

• The name of the company;
• The type of company being incorporated;
• The date on which the incorporation of the company is to take effect;
• The company’s financial year end;
• The company’s registered address;
• The number of initial or first directors of the company and their full details.
Annexure A to the Notice of Incorporation sets out the full details of the initial or first directors of the
company, which are the following:
• Full names and surname;
• Identity number;
• Nationality;
• Passport number, if not a South African citizen;
• Date of appointment as director;
• Designation in the company;
• Residential address;
• Business address;
• Postal address;
• Occupation; and
• Whether a South African resident or not.
Annexure B to the Notice of Incorporation must be completed if the incorporators elected the third
option under point 6 on the CoR 14.1.
Annexure C to the Notice of Incorporation must be completed if the Memorandum of Incorporation
of the company contains any restrictive conditions applicable to the company and any additional
procedural requirements that impedes the amendment of any particular provision of the MOI, or any
provisions restricting or prohibiting the amendment of any particular provision of the MOI (See the
discussion of “Ring Fencing” provisions below).
Annexure D to the Notice of Incorporation sets out company appointments such as the initial company
secretary, auditor, or members of the audit committee (if applicable).
Finally, a copy of the Memorandum of Incorporation of the company must be attached to the Notice
of Incorporation.
The Notice of Incorporation must be rejected by the CIPC on the following grounds:
©LSSA 31
Where the number of initial directors of the company is less than the minimum number of directors
prescribed by section 66(2) of the Companies Act; or
Where the CIPC has grounds to reasonably believe that any of the initial or first directors are disqual-
ified in terms of section 69(8) of the Companies Act from being appointed as a director and as a result
of that disqualification, the remaining number of directors is less than prescribed by section 66(2) of
the Companies Act.
The Notice of Incorporation may be rejected by the CIPC when the Notice of Incorporation itself or the
MOI of the company is incomplete or improperly completed. However, it may not be rejected on the
basis of deviations from the prescribed form CoR 14.1, provided that all the substantive requirements
of CoR 14.1 are met.
6.2.2. POWER OF ATTORNEY

If an attorney acts on behalf of the incorporators, each subscriber to the MOI of a company must sign
a power of attorney in favour of such attorney to act on their behalf.
Amendments to the incorporation documents may only be effected by the attorney if he or she is
authorised to do so in terms of the power of attorney, failing which the amendments must be made
by the applicant himself or herself. The attorney or the applicant, as the case may be, should initial
all the alterations.
6.2.3. REGISTRATION
A company is registered by the CIPC by:
• Assigning a unique registration number to the company;
• Entering the prescribed information regarding the company in the companies’ register;
• Endorsing the Notice of Incorporation and the Memorandum of Incorporation; and
• Issuing and delivering the registration certificate in the prescribed form CoR 14.3) to the company.
A registration certificate is conclusive evidence that all the requirements for incorporation have been
satisfied and that the company is incorporated, and comes into existence as a separate juristic person
(and it exists continuously until its name is removed from the companies register) with effect from the
date stated ion the registration certificate.
A company has all the legal powers and capacity of an individual except to the extent that a juristic
person in incapable of exercising such power or the company’s MOI provides otherwise
A company can commence business as soon as it has been registered.
6.2.4. ONLINE INCORPORATION AND REGISTRATION OF COMPANIES

Private companies and non-profit companies that may be make use of the standard Memoranda of
Incorporation may be registered online on the CIPC website – www.cipc.co.za. The online registration
process is fairly simple and can be explained as follows:
• Register as a customer on the CIPC website and gain access with a username and password;
• Make a deposit of the required amount, currently R50.00 for each name reservation and R125.00
for each company registration;
• Obtain all the information referred to in 6.2 above, together with ID copies of all directors and
incorporators, as well as a certified copy of the agent (only an attorney may be an agent);
• Select ONLINE TRANSACTING from the CIPC website homepage and then select COMPANY REGIS-
TRATIONS;
• Log into your CIPC account by entering the required information;
• Once you are logged in, select TRANSACT on the top right-hand corner and then select COMPANY
REGISTRATION;
• Next you will select the type of company that you wish to incorporate;
• Enter all the required information for each director/incorporator;
©LSSA 32
• Once you have completed all the information the system will generate an email with the company
registration document;
• All the incorporators must sign the registration document;
• The signed registration document, together with the CoR 9.2 (if applicable) and certified copies if
the identity documents of all directors and incorporators as well as a certified copy of the agent’s
identity document can then be emailed to eServicesCoReg@cipc.co.za ;
• Upon company registration the Cor 14.3 will be email to the agent and the directors will also
receive emails confirming the registration of the company;
• The MOI and other relevant documents may then be downloaded from the agent’s online portal, by
using the company registration number.
6.2.5. ADDITIONAL REQUIREMENTS

A notice giving the company’s registered office - CoR 21.1 is completed online and submitted via the
online portal.
The following details concerning the auditors of the company must be lodged with the CIPC:
• Name;
• Date of appointment;
• Nature of change.
6.3. THE MEMORANDUM OF INCORPORATION, GOVERNING RULES AND

SHAREHOLDER AGREEMENTS
6.3.1. THE MEMORANDUM OF INCORPORATION

The Memorandum of Incorporation (MOI) is the sole governing document of a company.
The Companies Act replaced the founding documents of companies, namely the Memorandum and
Articles of Association, with a single regulating document, namely the Memorandum of Incorporation
(MOI).
The Companies Act defines a MOI in section 1, as a document, as amended from time to time, that sets
out the rights, duties and responsibilities of shareholders, directors and others within and in relation
to a company, and other matters contemplated in section 15 and by which the company was incorpo-
rated or a pre-existing company was structured and governed.
The prescribed forms for the MOI appear in the Regulations to the Companies Act and can be found
on the CIPC website. Alternatively, a company’s MOI can be in a form that is unique to the company.
The Companies Act makes provision for certain unalterable and alterable provisions in a company’s
MOI. The effect of the unalterable provisions of the Companies Act may not be altered in the MOI of a
company, whereas alterable provisions may be customised according to the company’s requirements.
All the provisions of the MOI must be consistent with the Companies Act. Any provisions that are not
consistent with the Companies Act, is void to the extent that it contravenes or is inconsistent with the
Companies Act. The MOI may include any provision that -
• imposes a higher standard, greater restriction, longer period of time or any similarly more onerous
requirement, than what would otherwise apply to the company in terms of an unalterable provi-
sion of the Companies Act. The unalterable provisions are provisions of the Companies Act that
may not be abolished by the provisions of the MOI and may only be altered by a provision of the
MOI to the extent that it is made more onerous (i.e. by imposing a higher standard, greater restric-
tion, longer period of time or any similarly more onerous requirement, than what would otherwise
have applied in terms of the unalterable provision);
• alters the effect of an alterable provision of the Companies Act. Alterable provisions are provisions
of the Companies Act that may be changed or altered by the provisions of the MOI. They are default
provisions that apply to a company, unless the provisions of the company’s MOI “opts” out of them
by changing or altering them;
©LSSA 33
• contain any restrictive conditions applicable to the company, and any requirement for the amend-
ment of any such condition (in addition to the requirements set out in section 16 of the Companies
Act;
• prohibits the amendment of any particular provision of the MOI.; and/or
• deals with any matter that the Companies Act is silent on and does not address.
Matters that the MOI can deal with:

The MOI can deal with various issues, including (but not necessarily limited to) -
• objects and powers of the company;
• types of shares and the number of such shares authorised;
• any restrictions or limitations on the powers of the company;
• the composition of the board of directors;
• the election and removal of directors;
• alternate directors;
• frequency of board meetings;
• committees of the board;
• personal liability of directors;
• indemnification of directors;
• powers of directors and shareholders and any restriction thereof;
• rights of shareholders, including voting rights;
• types of shareholders’ resolutions;
• specially protected matters that would require an increased majority shareholder approval;
• shareholders’ meetings and procedures;
• pre-emptive rights of shareholders on the issue of shares by the company and/or the disposal of
shares by other shareholders;
• financing/capitalisation of the company;
• specific audit requirements;
• loan accounts of shareholders;
• valuation of shares and loan accounts.
The following alterable provisions are contained in the Companies Act:

S 15(2) Governance Rules
S 16(2) Amending the MOI
S 19(1)(b) Powers and Capacity of Company
S 19(2) Liability of Incorporation
S 34(2) Accountability Requirements for private company, incorporated, or non-profit
company
S 35(6)(a) Shares of pre-existing companies
S 35(6)(b) Amendment to share capital and classes
S 36(1) Shares – Classes
S 36 (2) Number of Shares
S 36 (3) Amendment to share capital
S 37(1) Preference Rights
S 37(5) Voting Rights
S 38 Issuing Shares
S 39(2) Pre-emptive Right
S 39(4) Subscription of shares
S 43 (2 & 3) Debt Instruments
S 44(2) Financial Assistance for subscription or purchase of securities
S 45(2) Loans/Financial Assistance to Directors and other related parties
S 47(1) Capitalisation of shares
S 56(1) Beneficial Interest in Securities
©LSSA 34
S 57(2)(a) Voting: Profit Company with one shareholder

S 57(3)(a) Sole Director Profit Company
S 57(4)(a) Shareholders also Directors
S 58(3) Appointment of Proxies
S 58(7) Voting right of proxy
S 59(3) Record Date
S 61(4) Shareholder’s Meeting
S 61(9) Location of Shareholders meetings
S 62(2) Notice of Shareholders meetings
S 63(2) Shareholders’ meeting – electronic communication
S 64(2) Shareholders’ meeting – quorums
S 64(6) Postponement of meetings
S 64(9) Quorums
S 64(13) Adjournment of meetings
S 65(8) Ordinary Resolutions
S 65(10) Special Resolutions
S 66(1) Board’s managerial responsibility and authority
S 66(4) Appointment of directors
S 66(3) Number of directors
S 65(5) Ex officio directors
S 66(8) Directors remuneration
S 68(1), (2) Election of Directors
S 68(3) Board Vacancies
S 71 Removal of directors
S 73(2) Board Meetings
S 73(3) Board-Meeting electronic communications
S 73(5) Board meetings – conduct
S 74(1) Decisions other than at a board meeting
S 78(4), (5) Indemnification
S 78(7) Insurance
Sch 1 Item 1(8) Non-profit companies
Sch 5 item 7(1) Directors, Officers of pre-existing company
The following unalterable provisions are contained in the Companies Act:

S 15(1) Compliance with the Act
S 26(2) Access to company records
S 34(1) Additional accountability requirements of public and state owned company
S 37(3)(4)(5) Voting rights of shares
S 39(2) Subscription for other shares – pre-emptive rights
S 44(3) Financial Assistance for subscription of company securities
S 45(4) Prohibition of loans to directors
S 66(2) Minimum number of Directors
S 75 Directors financial interests
S 76 Directors conduct
S 77 Liability of directors and prescribed officers
S 78 Indemnification and directors’ insurance
S 159 May not limit protection for whistle-blowers.
Ring-fencing provisions
Previously, the doctrine of constructive notice applied to all companies. Persons dealing with the
company were deemed to have knowledge of the content of all the registered documents of the
company. This meant that all persons who dealt with a company were assumed to be acquainted with
the restrictions that were placed on the company by the memorandum and articles of association.
The doctrine of constructive notice placed an onerous burden on persons dealing with companies
and protected the company in its dealings.an onerous burden on persons dealing with companies and
protected the company in its dealings.
©LSSA 35
Currently, the doctrine of constructive notice only applies to personal liability companies and those
companies whose names end with RF, indicating that they are ring-fenced companies.
All companies that are not personal liability companies that have restrictions on their powers are
required to show in their name, by adding the abbreviation RF, that they have restricted powers.
This alerts persons dealing with the company that the company has certain restrictions in power
and the person can then consult the company’s MOI to see what these restrictions are. The notice of
incorporation of a ring-fenced company must clearly indicate where in the MOI a person can find the
restrictive powers of the company.
6.3.2. GOVERNANCE RULES

The Board of a (non-listed) company can make necessary and incidental rules relating to the govern-
ance of the company, except to the extent that the MOI or the Companies Act provides otherwise. The
rules must be published to the shareholders in the manner prescribed and a copy thereof must be filed
with the CIPC (Form CoR 16.1).
Rules will come into effect either 10 business days after filing, or on a later date specified by the rules.
The rules will be binding on an interim basis, and will only become finally binding if they are ratified
by the shareholders at the next general meeting of shareholders.
In terms of section 15(6), the MOI and the rules of a company are binding between –
• The company and each shareholder;
• or among the shareholders;
• between the company and each director or prescribed officer; and
• between the company and any other member of a board or audit committee in the exercise of their
respective functions within the company.
6.3.3. SHAREHOLDER AGREEMENTS

Shareholders may enter into a shareholder agreement, which may not conflict with the Companies
Act or the company’s MOI. A shareholder agreement is a confidential document between shareholders.
The provisions of the MOI of a company and the Companies Act take precedence over the provisions
of a shareholders’ agreement and any provision of a shareholders’ agreement that conflicts with a
provision of the MOI and/or with the Companies Act will be void to the extent of its inconsistency.
6.4. APPOINTMENT OF AUDITORS

Public companies, state-owned companies and private companies who are required to have their
annual financial statements audited, must appoint an auditor annually at the company’s annual
general meeting (Note that in terms of the Companies Act, a private company may elect not to be
required to convene an annual general meeting any more. In such case, the auditor must nevertheless
be appointed annually at a meeting of the shareholders of the company).
The function of the auditor is to ensure that the financial information relating to the company’s
affairs, as prepared by the directors, fairly and accurately reflect the company’s financial position. The
purpose of an audit is firstly to protect the company itself from consequences of undetected errors or
wrongdoing and secondly, to provide shareholders with reliable intelligence to enable them to scruti-
nise the conduct of the company’s affairs.
The auditor is not a functionary of the company and when he or she carries out their duties, they act
not on behalf of the company or in its name, but independently.
Auditors are appointed on the online web portal of the CIPC found at www.cipc.co.za.
©LSSA 36
6.4.1. APPOINTMENT AS AUDITOR

To be appointed as an auditor of a company, a person or firm –
• must be a registered auditor; AND
• must not be –
* a director or prescribed officer of the company;
* an employee or consultant of the company who was or has been engaged for more than one
year in the maintenance of any of the company’s financial records or the preparation of any of
its financial statements;
* a director, officer or employee of a person appointed as company secretary;
* a person who, alone or with a partner or employees, habitually or regularly performs the duties
of accountant or bookkeeper, or performs related secretarial work, for the company;
* a person who, at any time during the five financial years immediately preceding the date of
appointment, was a person as mentioned above; or
* a person related to a person mentioned above; and
• must be acceptable to the company’s audit committee as being independent of the company.
If the annual general meeting of the company does not appoint or re-appoint an auditor, the directors
must fill the vacancy in the office within forty business days after the date of the meeting.
The same individual (note that this does not refer to the same firm, but to an individual within a
firm) may not serve as the auditor of a company for more than five consecutive financial years. The
purpose of this requirement is to ensure that the auditor of a company remains independent of the
board of directors and able to express an objective opinion on the company’s financial position and
annual financial statements.
6.4.2. RIGHTS AND RESTRICTED FUNCTIONS OF AN AUDITOR

The auditor of a company has the following rights and restricted functions -
• the right of access at all times to the accounting records and all books and documents of the
company, and is entitled to require from the directors or prescribed officers of the company any
information and explanations necessary for the performance of the auditor’s duties;
• in the case of the auditor of a holding company, has the right of access to all current and former
financial statements of any subsidiary of that holding company and is entitled to require from the
directors or officers of the holding company or subsidiary any information and explanations in
connection with any such statements and in connection with the accounting records, books and
documents of the subsidiary as necessary for the performance of the auditor’s duties; and
• is entitled to –
* attend any general shareholders meeting;
* receive all notices of and other communications relating to any general shareholders meeting;
and
* be heard at any general shareholders meeting contemplated in this paragraph on any part of
the business of the meeting that concerns the auditor’s duties or functions.
* may apply to a court for an appropriate order to enforce his/her/its rights as auditor;
* may not perform any services for a company that has appointed the auditor, that would place
the auditor in a conflict of interest as prescribed or determined by the Independent Regulatory
Board for Auditors (IRBA), or as may be determined by the company’s audit committee in terms
of sectio n 94(7)(d) of the Companies Act.
6.5. DIRECTORS
Section 66(1) of the Companies Act provides that the business and affairs of a company must be
managed by, or under the direction of, its board of directors. The board of directors has the authority
to exercise all the powers, and perform any the functions of the company, except to the extent that the
Companies Act of the company’s MOI provides otherwise.
©LSSA 37
A director is defined as a member of the board of the company, or an alternate director of a company, and
includes any person occupying the position of director or alternate director, by whatever name designated.
Notwithstanding any provision in a company’s MOI, the provisions of the Companies Act pertaining
to the duties, conduct and liability of directors apply to every director from the effective date of the
Companies Act.
By accepting their appointment to the position, a director implies that they will perform their duties to
a certain standard, and it is a reasonable assumption of the shareholders that every individual director
will apply his or her particular skills, experience and intelligence to the advantage of the company.
The Companies Act partially codifies the standard of directors’ conduct in section 76. The codified
standard applies to all directors, prescribed officers or any other person who is a member of a board
committee irrespective of whether or not that the person is also a member of the company’s board.
Also, it should be noted that no distinction is made between executive, non-executive or independent
non-executive directors. The standard, and consequent liability where the standard is not met, applies
equally to all directors and prescribed officers
In terms of this standard a director (or other person to whom section 76 applies), must exercise his or
her powers and perform his or her functions:
• in good faith and for a proper purpose
• in the best interest of the company, and
• with the degree of care, skill and diligence that may reasonably be expected of a person carrying
out the same functions and having the general knowledge, skill and experience of that director.
The Companies Act prohibits a director from using the position of director, or any information obtained
while acting in the capacity of a director to gain an advantage for himself or herself, or for any other
person (other than the company or a wholly-owned subsidiary of the company), or to knowingly cause
harm to the company or a subsidiary of the company.
It should be noted that the duties imposed under section 76 are in addition to, and not in substitution
for, any duties of the director of company under the common law.
Auditors are appointed on the online web portal of the CIPC found at www.cipc.co.za.
6.5.1. LIABILITY OF DIRECTORS

Directors of a company may be held jointly and severally liable for any loss, damage or costs sustained
by the company as a result of a breach of the director’s fiduciary duty or the duty to act with care,
skill and diligence.
The Companies Act sets out a range of actions for which directors may be held liable for any loss,
damage or costs sustained by the company.
These actions include:

• Acting in the name of the company without the necessary authority
• Being part of an act or omission while knowing that the intention was to defraud shareholders,
employees or creditors
• Signing financial statements that was false or misleading in a material respect, or
• Issuing a prospectus that contained an untrue statement.
6.5.2. TYPES OF DIRECTORS

The Companies Act requires private companies and personal liability companies to appoint at least one
director, whereas public companies, state owned companies and non-profit companies are required to
appoint at least three directors. This prescribed number of directors is in addition to the number of
directors appointed to the audit committee and/or the social and ethics committee.
Section 66 of the Companies Act recognises the following types of directors:
©LSSA 38
Type of directors Characteristics

1. A director • An director is a person who holds office as a director of a company solely as a
result of that person holding another office or title or status.
• directors are not appointed by the shareholders.
• An director of a company has all the powers and functions of any other director,
except to the extent that the company’s Memorandum of Incorporation restricts
such powers and functions.
• Such a director has all of the duties and is subject to the liabilities of any such
director
2. A director appointed in terms • A director may be appointed by any person named in, or determined in terms
of the MOI of, the MOI;
• In the case of a profit company, the MOI of a company must provide that at
least 50% of the directors and 50% of the alternate directors be elected by the
shareholders.
• The company could therefore require that the remaining 50% of the directors
and alternate directors be appointed by parties other than the shareholders, i.e.
the board of directors, other stakeholders or outsiders.
3. An alternate director • The definition of ‘director’ specifically includes an alternate director of the
company.
• An alternate director may be appointed or elected depending on contents of
the MOI.
• An ‘alternate director’ is defined as a person elected or appointed to serve, as
occasion requires, as a member of the board of a company in substitution for
a particular elected or appointed director of that company. Section 66(4)(a)(iii)
provides that a MOI can provide for the appointment or election of one or more
persons as alternate directors.
• In the case of a profit company at least 50% of alternate directors must be
elected by shareholders.
4. A director elected by the • In the case of a profit company at least 50% of directors must be elected by
shareholders shareholders.
5. A temporary director who is • A MOI can provide for the appointment of a temporary director.
appointed in order to fill a • Unless the MOI provides otherwise, the directors may appoint a temporary
vacancy director.
The Companies Act does not distinguish between executive, non-executive and independent directors,
but an important distinction is made between these directors in practice and in the King III report on
governance and it codes.
6.5.3. KEY ISSUES RELATING TO DIRECTORS

Davis et al Companies and other Business Structures in South Africa, summarises the key issues of
directors and the provisions relating thereto in a company’s MOI in the table below:
The Companies Act The MOI

Number of direc- • A private company and personal liability • The MOI can specify a higher number than
tors company must have at least one director. the minimum number of directors required in
• A public and a non-profit company must terms of the Companies Act.
have at least three directors. • It is not possible for a MOI to lower the
• Where the company does not have the required number of directors as prescribed
prescribed minimum number of directors, by the Companies Act.
any act done by the board will remain valid. • A MOI cannot invalidate the acts of a board
where it acts without the required number of
directors.
Appointment of Section 66(4)(b) provides that the MOI of a The MOI can provide that any person will have
directors profit company must provide that the share- the power to appoint and remove one or more
holders will be entitled to elect at least 50% of of the directors, but there must still be the min-
the directors and 50% of and alternate direc- imum number of elected directors for a profit
tors. company.
©LSSA 39
Removal of direc- Section 71 provides as follows: A MOI cannot entrench the position of any
tors director and cannot override the will of ordi-
• despite a MOI or rules; and nary shareholders as expressed in an ordinary
• despite any agreement between the resolution.
company and a director; and
• despite any agreement between any share-
holders and a director,
a director may be removed by an ordinary reso-
lution adopted at a shareholders’ meeting.
Ex officio directors Section 66(4)(a)(ii) provides that a MOI may The MOI can provide that a person will be
provide for a person to be an director. The regarded as an director.
Companies Act does not insist on the appoint-
ment of such a director.
Alternate directors The Companies Act does not insist on the The Companies Act states that a MOI can
appointment of an alternate director. provide for the appointment or election of one
or more persons as alternate directors of the
company.
Remuneration of • A director does not have an automatic right The MOI can provide for payment of remunera-
directors to remuneration in terms of the Companies tion to directors.
Act.
• Section 66(9) provides that a company
may pay remuneration to a director, unless
prohibited in a MOI.
• Remuneration payable, otherwise then
in terms of a MOI, must be approved by a
special resolution within the previous two
years
Term of office Each director of a company must be elected by The MOI can provide for the term of office of a
the persons entitled to exercise voting rights in director.
such an election to serve either for an indefinite
term or for a fixed term as set out in the MOI.
Ineligibility and Set out in section 69 of the Act The MOI can provide for additional
disqualification grounds of ineligibly or disqualification of direc-
• Being a juristic person tors, but a MOI cannot override the provisions
• Unemancipated minor of the Companies Act.
• Person not satisfying qualifications set out
in MOI
• Prohibited by court of law
• Declared to be delinquent by court
• Unrehabilitated insolvent etc
Qualifications and Set out in section 76 of the Act The MOI can prescribe minimum qualifications
Standards of Direc- to be met by directors of that company.
tors Conduct
6.6 SHARES
The Companies Act defines “securities” in section 1 thereof as any shares, debentures or other instru-
ments, irrespective of their form or title, issued or to be issued, by a profit company.
The business operations and activities of a company are essentially financed by either debt (for
example by issuing debt instruments, obtaining loans and/or overdraft facilities from banks or credit
from suppliers) or equity financed (the issue of shares or retained income) through the issue by the
company of securities in the company.
A distinction is drawn in the Companies Act between “authorised” and “issued” shares (securities)
of a company. The authorised shares are the shares which the company is entitled by its MOI to issue,
but which have not yet been issued.
Section 36 of the Companies Act provides that a company’s MOI –

• must set out the classes of shares, and the number of shares of each class, that the company is
authorised to issue;
• must set out, with respect to each class of shares,
* a distinguishing designation for that class, and
* the preferences, rights, limitations and other terms associated with that class;
©LSSA 40
• may authorise a stated number of unclassified shares, which are subject to calcification by the
board of the company and which must not be issued until the board of the company has deter-
mined the associated preferences, rights, limitations or other terms associated with that class.
The authorisation and classification of shares, the number of authorised shares of each class, and the
preferences, rights, limitations and other terms associated with each class of shares, as set out in the
MOI, may be changed only by –
• an amendment of the MOI by special resolution of the shareholders of the company; or
• the board of directors of the company, as set out below, except to the extent that the MOI provides
otherwise.
The board of directors of the company may –

• increase or decrease the number of authorised shares of any class of shares;
• reclassify any classified shares that have been authorised but not issued;
• classify any unclassified shares that have been authorised but not issued;
• determine the preferences, rights, limitations or other terms of shares in a class.
Take note that the above-listed changes that the board of the company may effect to the authorisa-
tion and classification of shares, the number of authorised shares of each class, and the preferences,
rights, limitations and other terms associated with each class of shares, is subject to the MOI of the
company not providing “otherwise”, i.e. that these changes may only be effected by way of a special
resolution of the shareholders of the company. If the board of a company acts in any of these ways, the
company must file a Notice of Amendment of its MOI, setting out the changes effected by the board.
6.6.1. ONLINE SHARE CHANGES

The CIPC recently introduced an online function to effect changes to a company’s share capital. Briefly,
the process may be described as follows:
• Log onto the CIPC E-services website www.cipc.co.za/Online Transacting/E-services and logon
using your customer code and password. Select Authorised Share Changes, type in the company
registration number and view the displayed authorised share information.
• If the displayed share information does not correspond to the records of the company, a ticket must
be logged in order for the historical authorised share information to be reviewed and corrected.
• The following actions are allowed –
* Conversion of authorised shares from par value to no par value;
* Increase of authorised shares with no par value;
* Decrease of authorised shares with par value and no par value;
* Reclassification of classes of shares with par value and no par value; and
* Adding of new class of shares.
• The processing changes of authorised shares is immediate and no further documents needs to be
submitted to the CIPC to finalise the transaction. However all documents related to the change
must be kept for future use. Also note that effective date is the date when the transaction is final-
ised/registered.
• Filing changes to authorised shares has a prescribed fee, currently R250.00. An online payment
option via debit/credit card is available as part of the filing process.
• There is no service delivery turnaround time for submitting changes to authorised share changes
since such is instantaneous once payment is made.
6.6.2. AUTHORITY TO ISSUE SHARES

The board of directors of a company is authorised to issue shares by section 38 of the Companies Act.
In terms of section 36 the board of a company may resolve to issue shares in the company at any time,
but only within the classes, and to the extent, that the share have been authorised by or in terms of
the company’s MOI.
©LSSA 41
If a company issues shares which have not been authorised in accordance with section 36, or in
excess of the number of authorised shares of any particular class, the issuance of those shares may
be retroactively authorised in accordance with section 36 within 60 business days after the date on
which the shares were issued.
It is important to note that if the resolution that seeks to retroactively authorise the issue of the
shares is not adopted, the share issue is a nullity to the extent that it exceeds any authorisation and
the company must return the fair value of any consideration received by it to the subscriber, plus
interest in accordance with the Prescribed Rate of Interest Act (Act no. 55 of 1975). The share certif-
icates issued in respect of shares exceeding the authorisation will also be nullified and any entry in
the company’s securities register void. Any director that was present at a meeting when the board
of the company approved the issue of unauthorised shares, or participated in the making of such
decision or did not vote against the issue of the shares as such, will be liable to the extent set out in
section 77(3)(e)(i) of the Companies Act.
Although the general position is that the board has the authority to issue shares and does not need
to seek shareholder’s approval therefore, section 41 of the Companies Act sets out the circumstances
where shareholders’ approval by special resolution is required for the issue of shares and securities.
Shareholder approval is required where shares are issued to –

• A director, future director, prescribed officer or future prescribed officer of the company (or his/her
nominee); or
• A person related or interrelated to the company, or to a director or prescribed officer of the company
(or his/her nominee).
• Shareholder approval for the issue of shares is further required in terms of section 41(3) where the
issue of shares is in a transaction, or a series of integrated transactions, if the voting power of the
class of shares that are issued as a result of the transaction (or series of integrated transactions)
will be equal or exceed 30% of the voting power of all the shares of that class held by shareholders
immediately before the transaction (or series of transactions).
A company cannot issue shares to itself.
Section 40 of the Companies Act prescribes that the board of directors of the company may issue
shares, inter alia, only for adequate consideration to the company, as determined by the board.
6.6.3. CERTIFICATED AND UNCERTIFICATED SHARES

Shares (and all other instruments that are defined as “securities”) can either be “certificated” or
“uncertificated” in terms of the Companies Act. “Certificated” securities are evidenced by a certifi-
cate, while “uncertificated” securities are defined in section 1 of the Companies Act as “securities that
are not evidenced by a certificate or written instrument and that are transferable by entry without a
written instrument” (i.e. held and transferred electronically). The “entry” includes electronic record-
ings.
Only uncertificated securities can be traded on the Johannesburg Stock Exchange (“the JSE”).
Except to the extent that the Companies act provides otherwise, the rights and obligations of
security holders are the same, regardless of whether the securities are certificated or uncertificated
6.6.4. TRANSFER OF SHARES

Section 24(4) of the Companies Act prescribes that every company must maintain a securities register
or its equivalent, as required by section 50 of the Companies Act, in the case of a profit company, or a
register of members in the case of a non-profit company. The register reflects that names of all current
shareholders and/or the holders of any other securities
In terms of section 51 of the Companies Act transfers of all securities must be noted in the securi-
ties register together with certain prescribed information. A company may only make an entry in its
securities register if the transfer is evidenced by a proper instrument of transfer that has been deliv-
ered to the company or if the transfer was affected by operation of law.
The Companies Act does not prescribe the time limit within which a certificate evidencing the
securities must be issued.
©LSSA 42
6.7 SHAREHOLDERS AND MEETINGS
6.7.1. GENERAL
A company acts mainly through its shareholders and directors (and then its employees). To a large
extent the Companies Act and a company’s MOI determine who (i.e. the shareholders or the directors)
will act in respect of a particular matter.
The unalterable provisions of the Companies Act include provisions that grant the power in respect
of certain decisions and transactions exclusively to shareholders (for example, the power to remove a
director in terms of section 71(1) of the Companies Act.
A company’s MOI can also restrict the powers of directors, by altering the alterable default provi-
sions of the Companies Act to provide that certain powers may only be exercised by the shareholders
(for example, section 46 of the Companies Act empowers the directors to authorise a distribution to be
made by the company, but this can be altered in the MOI to provide that certain distribution, such as
dividends for example, must be authorised by the shareholders.
Section 1 of the Companies Act defines a shareholder as “the holder of a share issued by a company
and who is entered as such in the certificated or uncertificated securities register, as the case may be”.
For the purposes of Part F of Chapter 2 (Governance of Companies) of the Companies Act, however, a
shareholder means “a person who is entitled to exercise any voting rights in relation to a company,
irrespective of the form, title or nature of the securities to which those voting rights are attached”.
As indicated previously, shares form part of the securities of a company (together with debentures
or other instruments, irrespective of their form or title, that are issued or to be issued by a profit
company). As such, when the Companies Act refers to “securities” it refers to shares and debt instru-
ments (for example debentures). For purposes of Part F, Chapter 2 of the Companies Act, therefore, the
term “shareholder” can also include the holder of a debt instrument who has been granted special
privileges in the form of voting rights, in terms of the rights attaching to the debt instrument.
The terms “shareholder” and “member” of a company have always been used interchangeably. The
Companies Acct does not refer to a shareholder as a “member” of a profit company and reserve the
reference to “member” for persons who hold membership in, and has specified rights in respect of, a
non-profit company;
The terms “shareholder” and “member” of a company have always been used interchangeably. The
Companies Acct does not refer to a shareholder as a “member” of a profit company and reserve the
reference to “member” for persons who hold membership in, and has specified rights in respect of, a
non-profit company;
In terms of section 56(1) of the Companies Act, except to the extent that a company’s MOI provides
otherwise, a company’s issued securities may be held by and registered in the name of a person for
the beneficial interest of another person. The beneficial shareholder is entitled to the rights attached
to the shares while the registered shareholder (also called the “nominee”) is the person whose name
the shares are registered.
6.7.2. CALLING OF SHAREHOLDER MEETINGS

The Companies Act distinguishes between a shareholders’ meeting and an annual general meeting
(“AGM”). Both meetings are meetings of the shareholders of a company, but the AGM is held annually
and specific business is required to be conducted at the AGM. The minimum business that must be
conducted at the AGM is stipulated in the Companies Act as follows –
• presentation of the director’ report, audited financial statements for the immediately preceding
year and an audit committee report (if applicable);
• the election of directors, to the extent that is required by the Companies Act or the company’s MOI;
• the appointment of an auditor for the ensuing financial year and the appointment of the audit
committee (if applicable); and
• any matters raised by the shareholders of the company.
©LSSA 43
6.7.3. DEMAND TO CONVENE A SHAREHOLDERS MEETING
The board of a company, or any other person specified in the company’s MOI or rules, may call a share-
holders’ meeting at any time. A shareholders’ meeting must be convened at any time that the board is
required to convene a meeting by the Companies Act or the MOI of the company, for example to elect
a director. A meeting of shareholders must be convened if one or more written and signed demands
for such a meeting are delivered to the company.
The following points are relevant when a demand is made:

• A demand to convene a meeting must specify the specific purpose for which the meeting is proposed.
• A demand to convene a meeting must be signed by the holders of at least 10 % of the voting rights
entitled to be exercised in reaction to the matter proposed to be considered at the meeting.
• The MOI of a company may specify a lower percentage than 10 %.
• A company, or any shareholder of the company, may apply to a court for an order setting aside
a demand for a meeting on the grounds that the demand is frivolous, or because it calls for a
meeting for no other purpose than to re-consider a matter that has already been decided by the
shareholders, or is vexatious.
A shareholder who submitted a demand for a meeting may withdraw the demand before the start of
the meeting. Where the demand for the meeting is withdrawn, the company must cancel the meeting
if, as a result of one or more demands being withdrawn, the voting rights of any remaining share-
holders continuing to demand the meeting, in aggregate, fall below the minimum percentage of voting
rights required to call a meeting.
6.7.4. RECORD DATE

It is important for a company to be able to establish who is entitled to receive notice of a shareholders’
meeting and to vote on resolutions, particularly when the shares (securities) of the company are
constantly traded. The Companies Act makes provision in section 59 thereof for the board of directors
to set a record date for determining which shareholders are entitled to receive notice of a meeting and
to participate in and vote at a meeting.
The record date is also set in order to determine which shareholders are to vote on any matter in
writing or electronic communication, to exercise pre-emptive rights, to receive a distribution or to be
allotted or exercise any other rights.
The record date is set close to the date of the shareholders meeting (in terms of section 59(2)(a)(ii)
of the Companies Act, not more than 10 business days before the shareholders meeting).
The record date may not be retrospective.
If the board of directors of the company do not set a record date, the record date will be (unless the
company’s MOI or rules provide otherwise) –
• in the case of a meeting, the latest date by which the company is required to give its shareholders
notice of the shareholders meeting; or
• the date of the shareholders meeting.
6.7.5. NOTICE OF MEETINGS

The provisions dealing with the notice of shareholder meeting are set out in section 62 of the Compa-
nies Act. The first step in convening a meeting is to send out a notice convening the meeting.
The following issues relate to the giving of proper notice:
• A notice of convening a shareholders’ meeting must be in writing.
• The notice must include the date, time and place for the meeting.
• Where the company set a record date for the meeting the notice convening the meeting must
include the record date.
• The notice should explain the general purpose of the meeting and any other specific purposes.
• In a public company and a non-profit company that has voting members, notice of a shareholder
meeting should be given 15 business days before the date of the meeting. In any other company
©LSSA 44
the notice concerning the meeting must be sent 10 business days before the date of the meeting.
The provisions of the MOI may prescribe longer minimum notice.
• A copy of any proposed resolution received by the company which is to be considered at the
meeting must accompany the notice convening the meeting.
• The notice should further indicate the percentage of voting rights required for the resolution to be
adopted.
• A notice convening the annual general meeting of a company must contain a summary of the
financial statements that will be tabled at the meeting. The notice should also explain the proce-
dure that a shareholder can follow to obtain a complete copy of the annual financial statements
for the preceding financial year.
• A notice convening a meeting must contain a prominent statement that a shareholder is entitled to
appoint a proxy to attend, participate in, and vote at the meeting in the place of the shareholder.
• The notice should indicate that meeting participants will be required to provide satisfactory proof
of identity at the meeting.
Where the company has failed to give notice of a meeting or there has been a defect in the giving of
the notice, the meeting may proceed if the persons who are entitled to vote in respect of each item
on the agenda are present at the meeting, and acknowledge actual receipt of the notice, and agree to
waive notice of the meeting or in the case of a material defect, ratify the defective notice.
If a material defect in the notice relates only to one or more particular matters on the agenda for the
meeting any such matter may be taken off the agenda and the notice will remain valid with respect to
any remaining matters on the agenda. Where the meeting ratifies the defective notice in respect to a
matter taken off the agenda, the meeting may proceed to consider the matter. An immaterial defect
or an accidental or inadvertent failure in the delivery of the notice to any particular shareholder does
not invalidate any action taken at the meeting.
6.7.6. PROXIES
Shareholders are not obliged to personally attend shareholders’ meetings and vote on resolutions.
The Companies Act allows a shareholder to appoint any individual as a proxy, who is authorised to
exercise the shareholder’s voting rights.
Any individual can be appointed as a proxy. A person does not have to be a shareholder in the
company to be a proxy. Except to the extent that the company’s A MOI provide otherwise, there is
no limit to the number of proxies that may be appointed and a shareholder may appoint two or more
persons as proxies.
The proxy appointment must be in writing and dated and signed by the shareholder who appointed
the proxy. A copy of the instrument appointing a proxy must be delivered (under section 6(11)(b)(i) of
the Companies Act this includes electronic delivery) to the company before the proxy exercises any
rights of the shareholder at the particular shareholders’ meeting.
A proxy appointment remains valid for 1 year after the date on which it was signed or for any
longer period if such period is specifically stated in the instrument appointing the proxy.
A proxy appointment can be revoked unless the instrument of appointing the proxy states other-
wise. A revocable proxy can be cancelled by either in writing, or by making a later inconsistent
appointment of a proxy (i.e. appointing a different person as proxy). The revocation instrument must
be delivered to the company and to the originally appointed proxy.
A proxy appointment can also be suspended at any time to the extent that the shareholder elects to
act in person to exercise any of his/her rights (for example where the shareholder attends the share-
holders’ meeting and vote at the meeting). In essence every proxy appointment is subject thereto that
it should only be used where the shareholder is unable to attend the shareholders meeting.
6.7.7. CONDUCT OF MEETINGS

Before any person may attend or participate in a shareholders meeting that person must present
reasonably satisfactory identification; and the person presiding at the meeting must be reasonably
satisfied that the right of that person to participate and vote, either as a shareholder, or as a proxy for
a shareholder, has been reasonably verified.
©LSSA 45
Unless prohibited by its Memorandum of Incorporation, a company may provide for a shareholders
meeting to be conducted entirely by electronic communication; or one or more shareholders (or proxies
for shareholders) to participate by electronic communication in all or part of a shareholders meeting
that is being held in person. The electronic communication employed should ordinarily enable all
persons participating in that meeting to communicate concurrently with each other without an inter-
mediary, and to participate reasonably effectively in the meeting.
If a company provides for participation in a meeting by electronic communication, the notice of
that meeting must inform shareholders of the availability of that form of participation, and provide
any necessary information to enable shareholders or their proxies to access the available medium or
means of electronic communication. Access to the medium or means of electronic communication is at
the expense of the shareholder or proxy, except to the extent that the company determines otherwise.
At a meeting of shareholders, voting may either be by show of hands, or by polling. If voting is by
show of hands, any person who is present at the meeting, whether as a shareholder or as proxy for a
shareholder and entitled to exercise voting rights has one vote, irrespective of the number of voting
rights that person would otherwise be entitled to exercise.
If voting on a matter is by polling, any person who is present at the meeting, whether as a share-
holder or as proxy for a shareholder, has the number of votes determined in accordance with the
voting rights associated with the securities held by that shareholder.
6.7.8. QUORUMS
A quorum for a shareholders’ meeting is the minimum number of shareholders who must be present
at the meeting before business of the company can be validly transacted at the meeting.
The Companies Act requires two different quorums: the one quorum must be satisfied in order for
the shareholders’ meeting to begin, and the other quorum for a matter at the meeting to be considered.
In terms of section 64(1)(a) and (b), a shareholders’ meeting may not begin, or a matter to be decided
at the meeting may not begin to be considered, unless sufficient persons are present at the meeting
to exercise (in aggregate) at least 25% of the all the voting rights that are entitled to be exercised –
• in respect of at least one matter to be decided at the meeting (in respect of the quorum for the
meeting to begin); or
• on that particular matter at the time that the matter is called on the agenda.
Except to the extent that a company’s MOI provides otherwise, once a quorum has been established
for a shareholders meeting to begin or for a matter to be considered have been satisfied, should one or
more of the shareholders leave the meeting and the remaining number of shareholders present at the
meeting fall to below the quorum, the meeting may nevertheless continue and a matter considered,
provided at least one shareholder with voting rights entitled to be exercised, is still present at the
meeting,
Over and above the provisions set out above, the Companies Act specifically requires that where a
company has more than two shareholders, a shareholders’ meeting may not begin or a matter consid-
ered, unless at least three shareholders are present at the meeting, provided that the quorum require-
ments for a meeting to begin or for a matter to be considered as specified in the Companies Act or the
company’s MOI (if it is different) are satisfied.
6.7.9. RESOLUTIONS AT SHAREHOLDER MEETINGS

The Companies Act provides for two types of resolutions that can be taken by the members at a share-
holders meeting, namely an ordinary resolution or a special resolution.
An ordinary resolution means a decision taken at a shareholders meeting with the support of more
than 50% of the voting rights exercised on the resolution. The MOI of a company may require a higher
percentage of voting rights to approve an ordinary resolution. The Companies Act however provides
that there must at all times be a margin of at least ten percentage points between the requirements
for adoption of an ordinary resolution, and that of a special resolution.
A resolution will be regarded as a special resolution if it is adopted at a shareholder’s meeting
by at least 75% of the voting rights exercised at the meeting. A company’s MOI may permit a lower
percentage of voting rights to approve a special resolution provided that there must at all times be
a margin of at least ten percentage points between the requirements for the adoption of an ordinary
©LSSA 46
resolution and a special resolution on any matter.

A special resolution is required to pass the most important decisions relating to the company’s
affairs. Section 65(11) of the Companies Act sets out the matter for which special resolutions are
required. These are:
• Amendment of the MOI
• Ratification of a consolidated revision of a company’s MOI
• Ratification of actions
• Issue of shares to directors
• Issue of shares equal to or exceeding 30% of the voting power of all the shares of that class held by
shareholders immediately prior to the share subscription transaction or series of share subscrip-
tion transactions
• Financial assistance and issue of securities
• Loans and financial assistance to directors and to related companies
• Share buy backs from directors or prescribed officers
• Share buy backs that involve the acquisition by the company of more than 5% of the issued shares
of any particular class of shares
• Remuneration to directors
• Voluntary winding-up of the company
• Winding up by court order
• Deregistration of a company
• Fundamental transactions
• Dissenting shareholders’ appraisal rights
• Any other matters stipulated in a company’s MOI
It is possible to take decisions without convening a meeting by submitting a proposed resolution to
every person that is entitled to vote in such resolution, a so called written resolution. The share-
holders are then entitled to exercise their vote in writing within 20 days from receiving the proposed
resolution and returning the written vote to the company. The resolution must be expressed with
sufficient clarity and specificity and accompanied by sufficient information or explanatory material
to enable the shareholder who is entitled to vote on the resolution to determine whether to participate
in the meeting and to seek to influence the outcome of the vote on the resolution.
6.8. PRE-INCORPORATION CONTRACTS

It is often necessary that before a promoter incurs the cost of registering a company he should have
certainty that the company will be in a position to acquire a particular asset or business.
Section 21(1) and Regulation 35 of the Companies Act states that “a person may enter into a
written agreement in the name of, or on behalf of an entity that is contemplated to be incorporated in
terms of the Companies Act, but does not yet exist at the time”.
The only legal formalities for a valid pre-incorporation contract under the Companies Act are thus
that the contract must be in writing and must be entered into in the name of or on behalf of the
company still to be formed. There are no further requirements such as mentioning the contract or
action in the MOI or filing the contract with the CIPC.
Section 21(4) and (5) of the Companies Act makes it clear how much time the law allows for the
envisaged company to ratify the pre-incorporation contract made on its behalf, and lays down a
default rule to cover the eventuality that the company neither ratifies nor rejects the contract:
• Within three months after the date on which a company was incorporated the board of that
company may completely, partially or conditionally ratify or reject any pre-incorporation contract
or other action purported to have been made or done in its name or on its behalf…
• If, within three months after the date on which a company was incorporated, the board has neither
ratified nor rejected a particular pre-incorporation contract, or other action purported to have been
made or done in the name of the company, or on its behalf, the company will be regarded to have
ratified that agreement or action.
©LSSA 47
The Companies Act goes on to state in section 21(3) and section 21(6)(b) that if the company, after
it comes into existence, ratifies the pre-incorporation contract made on its behalf (or if the company
enters into another agreement either on the same terms or in substitution for the pre-incorpora-
tion agreement) then the individual who represented the company is thereby released from all legal
liability, even if the company thereafter is unable or unwilling to carry out its obligations under the
contract.
The agreement will accordingly be enforceable against the company as if it was a party to the
agreement when it was made, to the extent that the company has ratified, or is regarded as having
ratified, the contract or action.
The Companies Act provides in section 21(2) that anyone who enters into a contract on behalf of
a company not yet formed is jointly and severally liable with any other such person for liabilities
created as provided for in the pre-incorporation contract while so acting, if the contemplated entity is
not subsequently incorporated, or after being incorporated, the company rejects any part of such an
agreement or action.
The Companies Act thus imposes personal liability on the individuals who entered into the pre-in-
corporation contract on the company’s behalf if the company thereafter rejects the contract in whole
or in part.
Contracting out of liability in the eventuality that the company does not ratify the pre-
incorporation contract.
In this regard, it is not possible for the pre-incorporation contract to state that the personal liability
provisions in section 21(2) of the Companies Act in regard to pre-incorporation contracts will not
apply. This is because these provisions of the Companies Act are not alterable provisions, that is to
say, they are not provisions that the Companies Act allows the parties to alter by mutual agreement.
However, the language of section 21(2) (in particular the words “as provided for in the pre-incor-
poration contract”) may be interpreted to allow the pre-incorporation contract itself to be expressed
in such a way as to make clear that no personal legal liability will attach to the company’s represent-
ative in the eventuality that the company is not formed, or is formed and then rejects the contract.
In terms of the regulation 35, a person may give notice to a company of a pre-incorporation contract
by filing, and delivering to the company, a notice in form CoR 35.1.
6.9. COMPANY SECRETARIAL WORK

Certain administrative duties are prescribed by the Companies Act for each company. The official
who normally sees to it that these duties are fulfilled is usually the company secretary. The company
secretary is the chief administrative official of the company. A juristic person or partnership may be
the secretary of a company and often auditors attend to the administrative and secretarial work of
private companies.
It is mandatory for a public company or state-owned company to appoint a company secretary in
terms of the Companies Act. The MOI of a private company, personal liability company and non-profit
company may prescribe if it is compulsory for that specific company to appoint a company secretary.
Every company secretary must –

• have the requisite knowledge of, or experience in, relevant laws; and
• be a permanent resident of the Republic, and remain so while serving in that capacity.
A company secretary is accountable to the company’s board. A company secretary’s duties include,
but are not restricted to:
• providing the directors of the company collectively and individually with guidance as to their
duties, responsibilities and powers;
• making the directors aware of any law relevant to or affecting the company;
• reporting to the company’s board any failure on the part of the company or a director to comply
with the MOI or rules of the company or the Companies Act;
• ensuring that minutes of all shareholders’ meetings, board meetings and the meetings of any
©LSSA 48
committees of the directors, or of the company’s audit committee, are properly recorded in accord-
ance with the Companies Act;
• certifying in the company’s annual financial statements whether the company has filed required
returns and notices in terms of the Companies Act, and whether all such returns and notices
appear to be true, correct and up to date;
• ensuring that a copy of the company’s annual financial statements is sent, in accordance with the
Companies Act, to every person who is entitled to it; and
• carrying out the functions of a director, employee or other person who is responsible for the compa-
ny’s compliance with the requirements of the Companies Act.
6.10. REGISTERS, DOCUMENTS AND RECORDS

The Companies Act contains specific requirements with respect to company records and registers in
sections 24, 25 and 26 thereof. Companies need to be aware of these requirements and institute the
necessary systems and procedures to ensure compliance. All documents must be kept in written form
(or a form that can be converted into written form within a reasonable time). As a general rule all
documents must be kept for a period of seven years.
The Companies Act requires the following records to be kept:

• A copy of its MOI;
• Record of its directors;
• Copies of all reports presented at an annual general meeting of the company;
• Copies of the Annual financial statements and accounting records for the current financial year
and for the previous seven completed financial years of the company
• Copies of all notices and minutes of all shareholders meetings, including all resolutions adopted,
and any document that was made available by the company to the holders of securities in relation
to each such resolution;
• Copies of all notices and minutes of all shareholders’ meetings, including all resolutions adopted,
and any document that was made available by the company to the holders of securities in relation
to each such resolution;
• Minutes of all meetings and resolutions of directors, or directors’ committees, or the audit committee.
In addition, if applicable, companies are also required to keep certain registers, namely –
• A Register of Directors
• A Securities Register
• A Register of Company Secretary and Auditors
• It is also recommended that a register of the various intellectual property rights owned by the
company is maintained.
7. PUBLIC INTEREST SCORE

Every company and close corporation must calculate its Public Interest Score (PIS) for every finan-
cial year. A company’s or close corporation’s Public Interest Score will determine whether or not the
annual financial statements of the company or close corporation should be audited. Companies may
also be subject to an independent review.
A company’s Public Interest Score is calculated as the sum of the following:

• Number of points equal to the average number of employees of the company during the financial
year.
• One point for every R1 Million (or portion thereof) in third party liability of the company at finan-
cial year end
©LSSA 49
• One point for every R1 Million (or portion thereof) in turnover during the financial year end
• One point for every individual who at the end of the financial year is known by the company:
• In a profit company: to directly or indirectly have a beneficial interest in the company’s issued
securities.
• In a non-profit company: any person known to be a member, or a member of an association that
is a member of the NPC.
A company’s or close corporations’ annual financial statements should be audited in the following
instances:
• If the Memorandum of Incorporation prescribes that the AFS should be audited;
• If the company or close corporation held assets in a fiduciary capacity greater than R5 million for
an unrelated party at any stage during the year.
• If the company is a public or state-owned company;
• If a company’s Public Interest Score is greater than 350;
• If a company’s Public Interest Score is greater than 100 and the financial statements are not
prepared by an independent accounting professional;
Some companies may be subject to an independent review. It is very important to note that independent
review is not applicable to close corporations.
An independent review is an alternative assurance engagement where the independent reviewer
provides limited assurance on a set of annual financial statements when compared to that of the
reasonable assurance provided by the external auditor. Assurance is the degree or level of trust the
users can place on the credibility of the information contained in the annual financial statements.
The procedures performed by the external accountant during a review will be limited to inquiries
and analytical review. This means the accountant will ask many questions of management and the
finance staff. If the answers to the questions indicate the accounting is appropriate, then no additional
follow-up would be needed. Analytical review means the accountant will look at the relationships
between numbers to make sure they make sense. Normally, there will not be any testing of infor-
mation in the financial statements beyond inquiry and analytical review. The accountant will not
obtain an understanding of the internal control system and will not discuss how the organisation is
addressing the risk of fraud in the financial statements.
A company’s annual financial statements should be reviewed if it does not meet the requirements for
an audit and if any of the following applies:
• The Public Interest Score of the company is less than 350, but more than 100 and the financial
statements are prepared by an accounting professional;
• The Public Interest Score of the company is less than 100 and the company is not owner managed.
If a company or close corporation has a Public Interest Score of less than 100 and it is owner managed,
its statements do not need to be audited or reviewed.
8. CONVERSIONS
8.1. CONVERSIONS TO ANOTHER TYPE OF COMPANY
The process to convert from one type of company to another is not provided for in terms of the Compa-
nies Act. The CIPC has issued a circular in terms of which it is stated that the following is required:
• The company must amend its Memorandum of Incorporation to either introduce, delete or amend
the criteria for a specific type of company in such a manner that it meets the criteria of the cate-
gory of company required; and
• The company’s name must be amended as provided for in terms of the Companies Act.
Section 16 of the Companies Act provides that a company’s MOI may be amended at any time if a
special resolution to amend it is –
©LSSA 50
• proposed by the board of the company; or

• proposed by the shareholders entitled to exercise at least 10 percent of the voting rights that may
be exercised on such a resolution, and
• is adopted at a shareholders meeting or in accordance with section 60 of the Companies Act.
A company must file a Notice of Amendment (CoR 15.2) and pay the prescribed fee.
The amendment of the company’s MOI will take effect on the date on which the Notice of Amendment
is filed with the CIPC, or on the date set out in such notice, whichever is the latter.
With regard to the amendment of the name of the company, the suffix of the name must be altered to
reflect the category of company which the company will now fall under. This is done by reserving the
proposed name using a CoR 9.1 form and then lodging the reserved name with the CoR 15.2 Notice of
Amendment.
8.2. CONVERSION OF CLOSE CORPORATIONS INTO COMPANIES

Schedule 2 and Regulation 18 of the Companies Act determine that close corporations can be
converted to companies. This can be done by filing the following documents with the CIPC, together
with payment of the prescribed fee:
• Notice of Conversion (Form CoR 18.1);
• Certified copy of a special resolution (written statement of consent signed by at least 75% of the
members’ interest) approving the conversion;
• Completed CoR 39 to identify the initial directors;
• Memorandum of Incorporation;
• Certified copies of the members’ identity documents; and
• A written statement in the form of a letter, on the company’s letterhead, confirming that -
* the close corporation is not in liquidation or subject to an application for liquidation;
* the close corporation is not engaged in any business rescue proceedings and is not subject to an
approved plan or court order, which is comparable to a business rescue plan;
* the close corporation is not subject to a compromise or similar arrangement with any of its
creditors; and
* immediately following the conversion of the close corporation, the company will satisfy the
solvency and liquidity test set out in section 4 of the Companies Act (this means that immedi-
ately after the conversion of the close corporation –
* the assets of the new company, fairly valued, will equal or exceed the liabilities of the company,
fairly valued; and
* it appears that the company will be able to pay its debts as they become due in the ordinary
course of business for a period of 12 (twelve) months following the conversion).
If the CIPC issues a Certificate of Registration (CoR 18.3), it will cancel the registration of the close
corporation, give notice in the Government Gazette, and enable the Registrar of Deeds to effect the
necessary changes resulting from the conversion and name change. Alternatively the CIPC can issue
a Notice Requiring Further Information should it not be satisfied that the requirements of Schedule 2
have been complied with.
The consequences of a conversion are as follows:

• Every member of the close corporation is entitled to become a member of the company. The shares
held by the shareholders do not need to be in proportion to their members’ interests as contained
in the founding statement of the close corporation.
• The company is deemed to be the same juristic person as the close corporation and all the assets,
liabilities, rights and obligations of the close corporation will vest in the company.
• All legal proceedings instituted by or against the close corporation may be continued. Enforcement
©LSSA 51
actions in respect of conduct before the conversion may be brought in terms of the Close Corpora-
tions Act as if no conversion had occurred.
• Any existing liability of a member for debts of the close corporation will survive the conversion.
9. FINANCIAL DIFFICULTIES
9.1. REQUIREMENTS FOR BUSINESS RESCUE

Chapter 6 and Regulation 6 of the Companies Act provides for business rescue.
The objective of business rescue is to develop and implement a plan to rescue the company by
restructuring its affairs, business, property, debt and other liabilities and equity in a manner that
maximises the likelihood of the company continuing to exist on a solvent basis; or, if it is not possible
for the business to continue in existence, to implement a plan whereby better results are achieved for
the company’s creditors or shareholders than would result from liquidation.
The purpose of business rescue is to facilitate the rehabilitation of a financially distressed company.
In terms of section 128(1)(f), a company is regarded as financially distressed if it appears reasonably
unlikely that the company will be able to pay all of its debts as they fall due and payable within the
immediately ensuing six months or if it appears to be reasonably likely that the company will become
insolvent within the immediately ensuing six months.
The type of ‘rescue proceedings’ may vary, depending on the specific circumstances of the given
company. It could, for example, constitute proceedings to provide for the temporary supervision of the
company or the management of the company’s affairs, business and property; or, it could involve only
placing a temporary moratorium on rights of creditors against the company or its property; or, it may
require the development and implementation of a restructuring plan.
9.2. COMMENCEMENT OF BUSINESS RESCUE PROCEEDINGS

Business rescue proceedings are initiated in one of two ways - can be commenced either
• voluntary, by way of a through a resolution of the boar dof directors of the company’s board; or
• by applying for a court order to place the company under supervision and commence business
rescue proceedings.
9.2.1. Commencement of Proceedings by Board Resolution

In terms of section 129 of the Companies Act, the board may resolve on voluntary business rescue and
place the company under supervision if there are reasonable grounds to believe that the company is
financially distressed and that there is a reasonable prospect of rescuing the company. The resolution
must be filed with the Commissioner of the Companies and Intellectual Property Commission (CIPC)
within three days, to be valid. Note that the Board cannot pass a resolution to this effect if steps to
liquidate the company have already been taken (i.e. by a creditor who filed an application in Court for
the liquidation of the company).
When the board has passed the resolution, but before a business rescue plan has been adopted, an
‘affected’ person (which includes shareholders, creditors as well as any registered trade union repre-
senting the company’s employees and all non-unionised employees) may apply to court for an order
setting aside the resolution and/or the appointment of the practitioner, or requiring the practitioner to
provide security to secure the interests of the company and any affected persons.
The board must publish a notice of a business rescue resolution and its effective date to each
affected person within five business days of the adoption and filing of the resolution. The notice must
include a sworn statement of the facts relevant to the grounds for the resolution. Within this same
period of five business days the company must also appoint a business rescue practitioner who satis-
fies the requirements for appointment and who has given written consent to being appointed.
Within two business days after appointment of a practitioner the company must file a notice of
the appointment. A copy of this notice must be published to each affected person within five business
days of the filing of the notice. A practitioner has to inform the relevant regulators of the business
rescue proceedings and his or her appointment in terms of section 140(1A).
©LSSA 52
Affected persons are shareholders, creditors; a registered trade union representing the company’s
employees, as well as any employees not represented by a registered trade union or the representatives
of such employees.
An affected person may object to a business rescue resolution, or the appointment of a business rescue
practitioner, at any time after the resolution, but before the adoption of a business rescue plan, on any
of the grounds set out in section 130(1) of the Companies Act. These ground are as follows:
• There is no reasonable basis for believing the company is financially distressed;
• There is no prospect of rescuing the company;
• The company has failed to satisfy the procedural requirements set out in section 29.
The procedure to be followed in objecting to the resolution or the practitioner is set out in section
130(3). According to this section the applicant must serve a copy of the application on the company
and the Commission and must notify each affected person of the application in the prescribed manner.
When considering an application to set aside a business rescue resolution, a court may –
• set aside the resolution;
• afford the practitioner time to prepare a report indicating whether the company appears to be
financially distressed or whether there is a reasonable prospect of rescuing the company;
• make any further necessary and appropriate order.
When considering an application to set aside the appointment of a business rescue practitioner, a
court may set aside the appointment of the practitioner and appoint an alternate practitioner.
9.2.2. Commencement of Business Rescue by Court Application

An affected party (i.e., shareholders, creditors as well as any registered trade union representing the
company’s employees and all non-unionised employees) may apply to Court for an order commencing
business rescue proceedings.
Business Rescue proceedings commenced via application to Court (and not merely by Board resolu-
tion) may be made even if liquidation proceedings have already been initiated. Liquidation proceed-
ings will then be suspended until the court has decided not to grant business rescue, or if the court
grants a business rescue order, until the end of the business rescue proceedings.
The procedure to be followed to commence business rescue by court application is set out in section
131 of the Companies Act.
After considering an application to place a company under supervision and to commence business
rescue proceedings, the court may:
• Make an order placing the company under supervision and commencing business rescue proceeding
(and appoint an interim business rescue practitioner);
• Dismiss the application, together with any further necessary and appropriate order.
A company that has been placed under supervision by the court may not adopt a resolution placing
itself in liquidation until the business rescue proceedings have ended. When the court has placed a
company under supervision, the company must notify each affected person of the order within five
business days thereafter.
The duration of business rescue proceedings is set out in section 132 of the Companies Act. Briefly
this section states the following:
Business rescue proceedings begin when the company files a resolution to place itself under supervi-
sion or applies to the court for consent to file a resolution or when a person applies to the court for an order
placing the company under supervision or if during the course of liquidation proceedings, or proceedings
to enforce a security interest, a court makes an order placing the company under supervision.
Business rescue proceedings end when the court sets aside the resolution or order that began
those proceedings; or has converted the proceedings to liquidation proceedings; or if the practi-
tioner has filed with the Commission a notice of the termination of business rescue proceedings;
or a business rescue plan has been proposed and rejected and no affected person has acted to
©LSSA 53
extend the proceedings in any manner contemplated in section 153; or the business rescue plan
was adopted and the practitioner has subsequently filed a notice of substantial implementation of
that plan.
9.3. EFFECT OF BUSINESS RESCUE

The commencement of Business Rescue (after a valid board resolution or Court order) places a
moratorium on most legal proceedings against the company. During business rescue proceedings, no
legal proceeding, including enforcement action, against the company, or in relation to any property
belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any
forum, except:
• with the written consent of the practitioner;
• with the leave of the court and in accordance with any terms the court considers suitable;
• as a set-off against any claim made by the company in any legal proceedings, irrespective whether
those proceedings commenced before or after the business rescue proceedings began;
• criminal proceedings against the company or any of its directors or officers; or
• proceedings concerning any property or right over which the company exercises the powers of a
trustee.
During business rescue proceedings, a guarantee or surety by a company in favour of any other
person may not be enforced by any person against the company except with leave of the court and in
accordance with any terms the court considers just and equitable in the circumstances.
If any right to commence proceedings or otherwise assert a claim against a company is subject to
a time limit, the measurement of that time must be suspended during the company’s business rescue
proceedings.
This will predictably impact substantially on banks, since during the moratorium rights under
suretyships and guarantees cannot be enforced against the company.
The Companies Act further determines that no creditor may exercise any rights in respect of
property belonging to the company or lawfully in the possession of the company even if the company
does not own the property. For example, if a financier of motor vehicles gave vehicles to the company
under the terms of a financing agreement and the company defaults on its payment obligations, the
financier will not be able to take possession of the vehicles during the time that the company is under
Business Rescue. Section 134 regulates the disposal of property by a company during business rescue
proceedings.
Once the business practitioner has been appointed, he or she may choose to suspend any obligation
of the company in terms of an agreement, except agreements relating to employment or agreements to
which sections 35A or 35B of the Insolvency Act would have applied had the company been liquidated.
The business rescue practitioner may also apply urgently to a court to cancel the agreement or a part
thereof to make the Business Rescue Plan work. This will again negatively influence any creditor to
which the company is indebted.
9.4. POST-COMMENCEMENT FINANCE

In order to facilitate the rescue of a financially distressed company, the Companies Act provides for
special treatment in respect of money relating to employment and financing secured by the company
after it has entered business rescue proceedings. In terms of section 135(1) all monies relating to
employment that is due to employees are considered post-commencement financing.
The order of preference of post-commencement financing and secured financing is set out in section
135(3) of the Companies Act. After payment of the practitioner’s remuneration and expenses and other
claims arising out of the costs of the business rescue proceedings, all amounts due to employees will
be treated equally, but will have preference over all claims with regard to any other post commence-
ment finance, irrespective whether or not they are secured; and all unsecured claims against the
company.
The secured claims for other post commencement finance will have preference in the order in which
they were incurred, over all unsecured claims against the company.
©LSSA 54
The preference prescribed in section 135 will remain in force even if business rescue proceedings
are superseded by a liquidation order, however the costs of liquidation are excluded here from.
The Companies Act further sets out the consequences of Business Rescue on employment contracts
and contracts (s136), shareholders and director (s137). Directors will find themselves in a difficult
situation during the business rescue process as they are required to continue exercising their functions
as directors, but subject to the authority of the practitioner.
9.5. THE BUSINESS RESCUE PRACTITIONER

In terms of section 138 a person may be appointed as a business rescue practitioner of a company
only if -
• he or she is a member of good standing as set out in section 138(1)(a);
• he or she not subject to an order of probation as director;
• he or she would not be disqualified from acting as a director of a company;
• he or she does not have any relationship with the company as set out in section 138(1)(d);
• he or she is not related to a person who has a relationship contemplated in section 138(1)(d).
The appointment is made by the company that adopted a business rescue resolution or by the court
granting a business rescue application.
A practitioner may be removed only by a court order or as provided for in section 139. In terms of
section 139 upon request of an affected person, or on its own motion, the court may remove a practi-
tioner from office on any of the following grounds:
• Incompetence or failure to perform duties;
• failure to exercise the proper degree of care in the performance of the practitioner’s functions;
• engaging in illegal acts or conduct;
• if the practitioner no longer satisfies the requirements set out in section 138(1);
• conflict of interest or lack of independence; or
• if the practitioner is incapacitated and unable to perform the functions of that office, and is unlikely
to regain that capacity within a reasonable time.
The company, or the creditor who nominated the practitioner, as the case may be, must appoint a new
practitioner if a practitioner dies, resigns or is removed from office, subject to the right of an affected
person to bring a fresh application in terms of section 130(1)to set aside that new appointment.
9.5.1. Powers and Duties of Business Rescue Practitioners

The practitioner has full management control of the company in substitution for the incumbent board
and management. The practitioner may delegate powers and functions to directors, may remove from
office or appoint members of the management of the company. The practitioner is responsible to
develop and oversee the implementation of a business rescue plan.
The business rescue practitioner must, as soon as practicable after appointment, investigate the
affairs of the company and consider whether there is a reasonable prospect of rescuing the company.
If the practitioner concludes that there is no prospect of rescue, he must inform the court, the company
and all affected persons and apply to the court for an order discontinuing the business rescue and
placing the company in liquidation.
If the practitioner concludes that the company is no longer financially distressed, the practitioner
has to approach the court for a termination order, if the business rescue was initiated or confirmed by
a court order, or otherwise file a notice of termination of the business rescue proceedings.
If the practitioner concludes that there is evidence of voidable transactions, failure by the company
or director to comply with a material obligation, reckless trading, fraud or other contravention the
practitioner must forward the evidence to the appropriate authority for further investigation and
possible prosecution and direct the management to take the necessary steps to rectify the matter,
which includes the recovery of any misappropriated assets of the company.
©LSSA 55
9.6. THE BUSINESS RESCUE PLAN
The business rescue plan sets out the manner in which the practitioner intends rescuing the company.
In terms of section 150(1) of the Companies Act the practitioner must consult with creditors, other
affected persons and with the company’s management in order to prepare the business rescue plan.
The business rescue plan must contain all information which will reasonably be required to assist
the affected persons to decide on whether or not to accept the plan. In terms of section 150(2) the
plan must comprise of three parts, namely Part A which sets out the background, Part B containing
the practitioners’ proposals and Part C which pertains to assumptions and conditions relating to the
plan. The practitioner must certify at the end of the plan that actual information provided appears to
be accurate, complete and up to date and that projections are made in good faith based on the factual
information and assumptions set out in the statement.
The plan must be published by the company within 25 business days after the practitioner’s
appointment, unless a longer time is allowed by the court or the creditors with majority voting rights.
A meeting of creditors and other holders of voting interests must be held with 10 business days
after publishing the business rescue plan to consider the future of the company. A notice of such
meeting must be delivered to all affected persons at least 5 business days before the meeting.
Amongst other tasks, the practitioner must call for a vote for preliminary approval of the plan or
amended plan at the meeting, unless the meeting has been adjourned to enable the practitioner to
develop a new plan.
The plan will be approved on a preliminary basis if it is supported by –

• creditors holding more than 75% of the creditors’ voting interest; and
• the votes in favour of the plan included at least 50% of independent creditors’ voting interests.
If the plan is not approved by the creditors on a preliminary basis, it is rejected and may only be
further considered in terms of section 153 of the Companies Act.
A business rescue plan which has been adopted binds the company and each of its creditors and
securities holders.
The company, under the discretion of the practitioner, must implement the plan. When the plan has
been substantially implemented, the practitioner must file a notice of substantial implementation of
the plan, which would bring the proceedings to an end.
If the creditors and securities holders fail to adopt a plan, the meeting may vote that the practitioner
should prepare a revised plan. If the plan is rejected the practitioner or an affected person may apply
to court to set aside the result of the vote as inappropriate.
9.7. COMPROMISE WITH CREDITORS

In terms of section 155(1) of the Companies Act, a company which is not engaged in business rescue
proceedings, irrespective of being financially distressed or not, may enter into a compromise with its
creditors or a class of creditors. This method can be used regardless of whether the company is in
liquidation or is financially distressed.
The board of a company or the liquidator of a company, if the company is being wound up, may
propose a compromise of the company’s financial affairs.
A copy of the proposal and notice of the meeting at which it will be considered must be delivered to
the creditors of the company, every member of the relevant class of creditors and the CIPC.
The proposal must contain all information reasonably required to assist creditors in their decision
whether to accept or reject the proposal. In order to achieve this, section 155(3) states that the proposal
must be divided into three parts, namely:
• Part A containing the background information;
• Part B containing the proposals; and
• Part C setting out the assumptions and conditions;
• Additional requirements are that a project balance sheet must be included in the proposal and the
proposal must be concluded with a certificate by an authorised director or officer regarding the
©LSSA 56
accuracy of factual information and the declaring that the projections and estimates were made in
good faith and on reasonable grounds.
A compromise must be approved by a majority in number, representing 75% or more in value of the
creditors or class of creditors present and voting in person or proxy at the meeting.
A company may apply to the High Court for an order approving (sanctioning) the proposal if it has
been adopted by the creditors in accordance with section 155(6). The court may sanction the compro-
mise it considers it just and equitable to do so.
A copy of the court order sanctioning a compromise must be filed by the company within five
business days and must thereafter be attached to each copy of the company’s MOI.
Once a compromise has been sanctioned by the court, it is binding on all the company’s creditors or
all members of the relevant class of creditors, as from the date on which the copy of the order is filed.
It should be noted that a compromise sanctioned in terms of section 155 does not affect the liability
of any person who is a surety of the company.
9.8. DEREGISTRATION
A company loses its juristic personality and its incorporated status on deregistration. Deregistration
should be distinguished from the dissolution of a company. In the case of dissolution, the continued
existence of the company is ended for all purposes. In the event of deregistration, the members may
continue the business of the company as an association without juristic personality and in such event
the members of the deregistered company will be personally liable for the debts of the “company”.
Where a company wishes to cease all trade and also obliterate its existence, it will have to first
proceed to dissolve itself, and as a final step, ensure that it is deregistered as such.
A company may apply for deregistration if the application and the transfer have been approved by
a special resolution of the shareholders and it has satisfied the prescribed requirements.
The process to be followed for the deregistration of a company by its shareholders, is a fairly easy
process and differs from the voluntary winding up of a company.
It requires that all the directors of the company sign a statement stating the following:
• that the company is dormant and/or that it has ceased trading;
• that the company has no assets and liabilities; and
• furnishing the tax number of the company.
If the company is deregistered by the CIPC, any assets of the company, irrespective of the person
holding those assets at the time, become trust property, held for the joint benefit of the deregistered
company, any person having an interest in its assets and the State, for 5 years after the date of dereg-
istration. Thereafter the assets will be forfeited to the State.
The removal of a company’s name from the companies’ register does not affect the liability of any
former director or shareholder of the company or any other person in respect of any act or omission
that took place before the company was removed from the register.
Any interested person may apply to the CIPC in the prescribed manner within the 5 year period to
re-instate the registration of the company. Such person may also apply to court for an order transfer-
ring any assets held in trust to the company.
Lastly, the CIPC may deregister a company if –

• The company did not file an annual return for 2 or more years;
• The company appears to have been inactive for at least 7 years;
• It has received a request to that effect, indicating that the company has ceased to carry on business
and that it has no assets and that there is no reasonable probability of the company being liquidated.
9.9. WINDING-UP
Before a company can be dissolved, for whatever reason, the winding down of its business, the settle-
ment of its debts and the distribution of its assets must take place in an organised manner. This
process of the winding-up of the assets and payment of debts and liabilities is attended to by a liqui-
©LSSA 57
dator under the control of the Master of the Supreme Court.
The winding-up of solvent companies is addressed in the Companies Act. As an interim measure
the winding up of insolvent companies will continue to be regulated under Chapter 14 of the 1973 Act,
incorporating provisions of the Insolvency Act, in view of the proposed Bankruptcy Act. The applicant
in a liquidation application would therefore have to prove whether the company is solvent or insolvent
in order to establish which procedures to follow.
9.9.1. WINDING-UP OF SOLVENT COMPANIES

With regard to solvent companies, section 81 makes a distinction between voluntary winding-up and
winding-up by the court.
A voluntary winding-up can either be conducted by the company itself (like members’ voluntary
winding-up) or by the company’s creditors. The process for voluntary winding-up will be initiated by
a special resolution of the company. The resolution must indicate whether it is by the company or by
its creditors and be filed with the CIPC with the prescribed notice (CoR 40.1) and filing fee.
In the case of a voluntary winding-up by the company, the consent of the Master of the High Court is
required.
Section 80(3) of the Companies Act states the following:
“if a resolution contemplated in this section provides for winding-up by the company, before the
resolution and notice are filed the company must –
(a) arrange for security, satisfactory to the Master, for the payment of the company’s debts within
no more than 12 months after the start of the winding-up of the company; or
(b) obtain the consent of the Master to dispense with security, which the Master may do only if the
company has submitted to the Master –
(i) a sworn statement by a director authorised by the board of the company, stating that the
company has no debts; and
(ii) a certificate by the company’s auditor, …, stating that to the best of the auditor’s knowl-
edge and belief and according to the financial records of the company, the company
appears to have no debts.”
The effect of voluntary winding-up is that the company remains a juristic person retaining its powers,
but must stop carrying on business, except to wind up its affairs. The powers of the directors cease,
except as authorised by the liquidator or shareholders (in the case of a voluntary winding-up by the
company) or by the liquidator and creditors (in the case of a voluntary winding-up by creditors).
A winding-up by the court is initiated by an application to the court by the company on the grounds
set out in section 81(1)(a) or by a practitioner in terms of section 81(1)(b). In all other cases the
winding-up begins when the court has granted the order.
A company may apply for winding-up on the following grounds:

• that the company has resolved by special resolution to be wound up by the court, or
• wants to have its voluntary winding-up continued by the court.
The creditors may apply for winding-up on the following grounds:

• the company’s business rescue proceedings have ended through the practitioner filing a termina-
tion notice or if a plan was rejected and no further action taken, or
• it is otherwise just and equitable.
The company, a director or a shareholder may apply on the following grounds:

• the directors are deadlocked in the management of the company and the shareholders are unable
to break the deadlock; and
• the deadlock causes or may cause irreparable injury to the company; or
• as a result of the deadlock the company’s business cannot be carried on to the advantage of share-
holders generally;
©LSSA 58
• the shareholders are deadlocked in voting power and have failed for at least two consecutive years
to elect successors to directors whose terms have expired;
• it is otherwise just and equitable for the company to be wound up.
Shareholders may, with leave of the court, apply for an order to wind up the company, if:
• the directors, prescribed officers or other persons in control of the company are acting in a manner
that is fraudulent or otherwise illegal; or
• the company’s assets are being misapplied or wasted.
Shareholders may only apply if:

• they have been shareholders continuously for at least six months prior to the application; or
• if they became shareholders as a result of “acquiring another shareholder” or through the distri-
bution of the estate of a former shareholder who together with him satisfy the time requirement.
The CIPC or the Panel may apply to wind up the company on the ground that:
• the company, its directors or prescribed officers or other persons in control are acting or have acted
in a manner that is fraudulent or otherwise illegal and that the CIPC or Panel has issued a compli-
ance notice in respect of the conduct with which the company has failed to comply; AND
• within the previous five years enforcement procedures under the Companies Act or the Close Corpo-
rations Act were taken against the company, its directors, prescribed officers or other controllers
for substantially the same conduct, resulting in an administrative fine or a conviction.
However, if the director or directors implicated in the above conduct have resigned or have been
removed and the remaining directors were not materially implicated, or if one or more shareholders
have applied for an order of delinquency against the director or director responsible for the misconduct
and the court is satisfied that their removal would bring an end to the misconduct, the court may not
grant a winding-up order.
9.9.2. WINDING-UP OF INSOLVENT COMPANIES

The winding-up of insolvent companies will continue to be regulated by Chapter 14 of the 1973 Act.
9.10. DEREGISTRATION AND WINDING-UP OF CLOSE CORPORATIONS

9.10.1. WINDING-UP
In line with the new position for companies, the amendments introduce a distinction between the
winding-up of solvent and insolvent close corporations. The process for the voluntary winding-up of
close corporations is amended by incorporating Part G of Chapter 2 of the Companies Act, dealing with
winding-up of solvent companies and dissolution.
In regard to insolvent close corporations, the provisions of the 1973 Companies Act, with the neces-
sary adjustments, will apply to close corporations for any matter not specifically provided for in the
Close Corporations Act. Section 344 of the 1973 Companies Act sets out the grounds for winding up of
companies and will apply to insolvent close corporations. The Close Corporations Act will no longer
provide its own grounds following the repeal of section 68.
9.10.2. DISSOLUTION OR DEREGISTRATION

A close corporation can also be removed from the register on administrative grounds. Applications for
the reinstatement of registration are also possible. The effect of a removal from the register is that the
company is dissolved. Section 83(2) provides for the continued liability of directors or shareholders in
respect of acts or omissions prior to deregistration, but close corporation members will no longer be
liable for outstanding debts upon deregistration.
©LSSA 59
10. TRUSTS
10.1. DIFFERENT TYPES OF TRUSTS

It is often stated that there are various types of trusts. This is not entirely true. Trusts such as the
business, family or charitable trusts only differ in that they have different aims, but they are in
essence not different types of trusts. For the purposes of these notes we distinguish between how
trusts are created and between the two different types of trust as set out in the Trust Property Control
Act.
Trusts can be created during the lifetime of a person (the trust) or upon the death of a person (the
testamentary or trust). or testamentary trusts are contained in the will of a deceased person, while
an trust is one created between living persons.
The Trust Property Control Act distinguishes between trusts whereby the beneficiary already has
a vested right, but where the property is administered on behalf of such beneficiary (e.g. where the
property is awarded to the beneficiary but he or she has not yet reached a certain age, say 25). Such
a trust is known as a “bewind trust”.
The other type of trust which the Trust Property Control Act distinguishes is where the property is
awarded to the trustees to be held in trust but where the beneficiaries are only determined at a later
stage, for example when the trust capitalises (terminates and pays out). In this case the ownership of
the trust property vests in the trustees and not in the beneficiaries, hence it is being referred to as an
“ownership trust”.
The administration of both and inter are controlled by the provisions of the Trust Property Control
Act 57 of 1988, which came into operation on 31 March 1989. The reason most people register trusts
is that it provides flexibility in the administration of their property, be it before or after death. Trusts
can be used to make provision for one’s children and surviving spouse, or it may be created in order to
benefit some or other charitable institution. The advantage is that the property is placed in the hands
of a person or persons chosen by the founder of the trust, with instructions as to how that property
is to be applied. This places a measure of control over the property in the hands of the founder, even
after death. There is also no doubt that certain tax benefits (e.g. estate duty) can be obtained by
creating an inter vivos trust.
10.2. MAIN PARTIES TO A TRUST

The main parties to a trust will normally be the founder (note that in the case of an trust the founder
may also act as trustee), the trustee(s), the income beneficiary or beneficiaries and the ultimate
(capital) beneficiary or beneficiaries. It is of course possible for the income beneficiaries and the
ultimate or capital beneficiaries, to be the same. The difference lies in when they are able to lay claim
to the income or capital, as the case may be.
The founder of the trust is the person creating such trust, whether it is a or an trust. In the case of
a trust the founder is the testator or testatrix.
10.3. DEFINITION OF A TRUST

According to Section 1 of the Trust Property Control Act 57 of 1988 a trust means an arrangement
through which the ownership in property of one person is by way of a trust instrument made over or
bequeathed –
• to another person, the trustee, in whole or in part, to be administered or disposed of according to
the provisions of the trust instrument for the benefit of the person or class of persons designated
in the trust instrument or for the achievement of the object stated in the trust instrument; or
• to the beneficiaries designated in the trust instrument, which property is placed under the control
of another person, the trustee, to be administered or disposed of according to the provisions of the
trust instrument for the benefit of the person or class of persons designated in the trust instru-
ment or for the achievement of the object stated in the trust instrument,
but does not include the case where the property of another is to be administered by any person as
executor, tutor or curator in terms of the provisions of the Administration of Estates Act.
©LSSA 60
10.4. WHAT IS TRUST PROPERTY?

According to the definition of “trust property” in section 1 of the Act, trust property means movable
or immovable property, as well as contingent interests in property, which must be administered by the
trustee(s) in terms of the trust instrument.
10.5. REGISTRATION REQUIREMENTS
10.5.1. LODGEMENT OF TRUST INSTRUMENT

Before a trustee can assume control over trust property in terms of an inter vivos trust, the trust
instrument must first be lodged with the Master of the High Court for registration. The trust deed
must be accompanied by the payment of the prescribed fee, which is currently R100.00. No fee is
required when the trust deed is varied.
Where the trust is a testamentary trust, the will must be lodged with the Master in terms of the
Administration of Estates Act.
10.5.2. SECURITY
The Master of the High Court may not grant letters of authority unless security has been furnished or,
if the trustee has been exempted from furnishing security, the Master is satisfied that such security
need not be furnished. The Master of the High Court still has a discretion to insist on security being
lodged.
10.5.3. NOTIFICATION OF ADDRESS

In terms of section 5 of the Act, the trustee(s) must notify the Master of the High Court of his or her or
their address/es for the purpose of serving notices, etc on him or her or them. If such address changes,
the trustee(s) must notify the Master within 14 days.
10.5.4. LETTERS OF AUTHORITY

In terms of section 6(1) a person who has been appointed as trustee in terms of a trust instrument,
may not act in that capacity unless he or she has been authorised to do so, in writing, by the Master
of the High Court. The Master of the High Court will issue his letters of authority on a prescribed form.
10.6. VARIATION OF TRUST DEEDS

Generally trust deeds can be varied i) by the court and ii) by the parties to the trust deed. Any varia-
tion of a trust deed must be done in accordance with the provisions of the relevant trust deed.
10.7. POWERS OF TRUSTEE(S)

Generally the trustee(s) will obtain their powers from the trust deed itself.
10.8. CONTENTS OF TRUST DEEDS

It is impossible to set out the contents of every possible type of trust deed. Just about every trust deed
will differ in some or other way, the contents depending on what the founder wishes to achieve. In the
same way the powers granted to the trustee(s) will differ in every trust deed. Depending on what the
founder wishes to achieve by means of the trust, the trustee(s) will be given greater or lesser powers.
©LSSA 61
11. REGULATORY AGENCIES
The Companies Act and Chapter 8 of the Regulations provide for the following regulatory agencies,
namely, the Companies and Intellectual Property Commission (CIPC) (in terms of section 185), the
Companies Tribunal (in terms of section 193), the Takeover Regulation Panel (in terms of section 196)
and the Financial Reporting Standards Council (in terms of section 203).
11.1. COMPANIES AND INTELLECTUAL PROPERTY COMMISSION (CIPC)

The Commission is established in terms of section 185 of the Companies Act, 2008 (Act 71 of 2008),
as a juristic person to function as an organ of state within the public administration but outside
the public service. As such it is mandated to undertake and enhance the functions of the Office of
Companies and Intellectual Property Enforcement (OCIPE) as well as those previously falling under
CIPRO’s mandate. The functions of the CIPC are set out in section 187 of the Companies Act. The main
functions of the CIPC include the following –
• Registration of Companies, Co-operatives and Intellectual Property Rights (trademarks, patents,
designs and copyright) and maintenance thereof;
• Disclosure of Information on its business registers;
• Promotion of education and awareness of Company and Intellectual Property Law;
• Promotion of compliance with relevant legislation;
• Efficient and effective enforcement of relevant legislation;
• Monitoring compliance with and contraventions of financial reporting standards, and making
recommendations thereto to Financial Reporting Standards Council (FRSC);
• Licensing of Business rescue practitioners;
• Report, research and advise Minister on matters of national policy relating to company and intel-
lectual property law.
11.2. COMPANIES TRIBUNAL

The Companies Tribunal is established in terms of section 193 of the Companies Act. In terms of
section 195, the Tribunal, or any of its members, may –
• adjudicate on matters which may be brought before it by way of application in terms of the Compa-
nies Act;
• assist in alternative dispute resolution;
• perform any other functions assigned to it by the Companies Act or any other act mentioned
therein.
11.3. TAKEOVER REGULATION PANEL

The Takeover Regulations Panel is established in terms of section 196 of the Companies Act. The
functions of the Panel are set out in section 201, which functions include the following –
• regulate affected transactions and offers;
• investigate complaints regarding affected transactions and offers;
• apply for the winding-up of non-compliant companies;
• consult with the Minister regarding amendments to the Takeover Regulations.
11.4. TAKEOVER SPECIAL COMMITTEE

Provision is made for the establishment of a Takeover Special Committee in section 202 of the Compa-
nies Act. The Takeover Special Committee may –
• hear and decide on any matter referred to it by the Panel, the Executive Director or the deputy
Executive Director; and
• review compliance notices issued by the Executive Director or the deputy Executive Director.
©LSSA 62
11.5. FINANCIAL REPORTING STANDARDS COUNCIL

The Financial Reporting Standards Council is established in terms of section 203 of the Companies
Act. Section 204 of the Companies Act sets out the functions of the Council as follows –
• receive and consider relevant information relating to the reliability of and compliance with finan-
cial reporting standards;
• advise the Minister on matters relating to financial reporting standards;
• consult with the Minister on the making of regulations establishing financial reporting standards.
12. INTERRELATION WITH OTHER AREAS OF LAW

It stands to reason that entrepreneurial law interrelates with many aspects of other areas of law. In
the following paragraphs aspects of this interrelation are briefly discussed.
12.1. CIVIL PROCEDURE

Civil procedure is a branch of adjective law and comprises the body of law concerning the claiming
of relief in civil proceedings in a court of law. Civil proceedings are conducted in the various high
courts and the lower courts in the Republic. Substantive law determines what facts have to be proved
for a person to claim relief in civil proceedings, while the manners in which such facts are proved are
determined by the law of evidence.
An entrepreneur using one of the enterprises enumerated above will be able to institute or defend
civil proceedings which have been instituted in any of these courts. A partnership may sue or be sued
in its own name and a “firm” (meaning a business (including a business carried on by a body corpo-
rate) carried on by the sole proprietor under a name other than his own) may sue or be sued in its own
name. A trust is cited by citing “the trustees for the time being” or all of the trustees N.O.
12.2. CONTRACTS
The general principles of the law of contract naturally apply to any transaction purported to be entered
by any enterprise enumerated above.
12.2.1. SOLE PROPRIETORS

A sole proprietor only binds himself by contracting with another person and will in fact bind his estate
if all the requirements for a valid contract have been complied with. He may also authorise an agent
to contract on his behalf.
12.2.2. PARTNERSHIPS
A partnership will generally be bound by a contract which was concluded on behalf of the partnership:
• if the partner/agent had the necessary actual prior authority; or
• if a partner entered into the transaction on the strength of his mutual mandate; or
• through the operation of the doctrine of estoppel; or
• because the partnership ratified the transaction.
According to the general rules of agency a partnership will be liable in terms of a contract which a
person concludes on behalf of the partnership if that person had the necessary authority to conclude
that agreement on behalf of the partnership.
Authority is essentially the power to perform binding legal acts on behalf of another. Authority
can, inter alia, be given expressly, for instance orally or in writing, or even tacitly, for example by
conduct. The partnership can confer such authority on partners and non-partners, such as employees.
In terms of the principle of mutual mandate () each partner has the power to bind the partnership
in transactions which fall within the scope of the partnership business. If a third party wishes to hold
the partnership liable in terms of a contract concluded by a partner, it is sufficient for him to prove
©LSSA 63
that the contract fell within the scope of the partnership business.
The mutual mandate of partners is restricted by the scope of the partnership business. A partner
has this power to represent the partnership only in respect of those transactions which fall within the
ordinary scope of the business which the partnership carries on. Whether a specific act or transaction
falls within the scope of the partnership’s business is a factual question. The answer depends on the
nature and purpose of the partnership concerned and the rules of general commercial usage.
If, for example, the partnership is carrying on a property development business, the purchase of
land will normally fall within the scope of its business, but not the purchase of racehorses or yachts.
None of the partners in that partnership will, therefore, be able to buy racehorses or yachts on behalf
of their partnership in terms of their mutual mandate.
A third party who wishes to hold the partnership liable for a contract which was concluded by a
partner does not need to prove that the partner had the necessary power to conclude the agreement
on behalf of the partnership. The third party must simply prove that the specific contract fell within
the usual scope of the partnership business. The partnership will be liable in terms of the contract
provided the contract fell within the scope of the partnership business.
Such a contract will be binding on the partnership, irrespective of whether the partner in fact had
the necessary authority or not. Any limitation on a partner’s authority contained in the partnership
agreement will not bind the 3rd party since there is no doctrine of constructive notice of the contents
of a partnership agreement. A third party who wants to rely on this principle must be bona fide, that
is to say he must not have been aware that the partner was acting without the necessary power of
representation.
The doctrine of estoppel affords a remedy to a bona fide person who was injured through deceit.
By means of the defence of estoppel the deceived person can prevent (“estopped”) the deceiver from
relying on the true state of affairs, to the prejudice of the deceived party; in other words, his deception
is deemed to be the true state of affairs. In order to succeed with the defence of estoppel the deceived
person must prove that there was a misrepresentation by the deceiver on which the deceived person
relied on to his detriment.
If a partner concluded an agreement without the necessary authority and the agreement is accept-
able to his co-partners, the partnership can ratify the agreement. Ratification confers legal validity
on the act of the partner with retroactive effect. The contract therefore acquires legal force as if the
partner had the necessary authority when the agreement was concluded.
12.2.3. CLOSE CORPORATIONS

The power of a member to bind a close corporation is set out in section 54 of the Close Corporations
Act. Stated briefly the effect is that each member is an agent of the corporation for the purposes of
the corporation’s business.
If a member’s power to represent the corporation in carrying on its business is restricted or excluded,
he will still bind the corporation in respect of an outsider, unless the outsider has, or ought reason-
ably to have, knowledge of the restriction. Outsiders are entitled to assume that each member has the
necessary authority to act on behalf of the corporation in transactions falling within the scope of the
corporation’s business. The bona fide outsider who does not know of internal restrictions of power is
in principle not affected by it. The close corporation is, however, not bound to contracts not apparently
falling within its scope of business unless they were authorised or ratified by the corporation.
Section 54 deals only with the power of a member to bind the corporation in relation to a person
who is not a member of the corporation and is dealing with the corporation.
It follows that section 54 does not apply, for example -

• in the event of a non-member acting as agent of the corporation; or
• where the person dealing with the corporation is not an outsider but a member; or
• where the outsider does not know of the existence of the corporation at the time of the conclusion
of the contract; or
• where the outsider knows of the existence of the corporation but deals with the member in his
personal capacity and not as agent of the corporation.
©LSSA 64
Section 54 should not be interpreted so as to exclude the operation of the doctrine of estoppel.
A contract between a member and a close corporation falls outside the scope of section 54. Again the
general principles of representation should apply, but it should be kept in mind that a member will
normally be fully conversant with internal limitations on and requirements for authority. In any event
the contract will be voidable at the option of the corporation by reason of a breach of the member’s
fiduciary duties, if the member failed to disclose his interest in the contract at the earliest opportunity
[Section 42(3)(b)]. In addition, without the prior written consent of all the members, loans and the
provisions of security by a close corporation to its members or to juristic persons controlled by them
are prohibited and invalid [section 52].
12.2.4. COMPANIES
An agent purporting to conclude a contract on behalf of a company must either have express, implied,
usual or ostensible authority to bind his principle. These different types of authority are very technical
and involve many doctrines peculiar to company law, namely the doctrine of disclosure, constructive
notice, ultra vires, estoppel and the Turquand-rule.
12.2.5. TRUSTS
As a trust is not a legal person, it cannot conclude a contract on its own. Contracts of the trust are
concluded by the trustees acting as the representatives of the trust. The trustees acquire authorisa-
tion to contract on behalf of the trust from the trust document. They may, therefore, only act within
the limits laid down by the document. If there is more than one trustee, the general rule is that they
should act jointly.
12.3. CRIMINAL LAW

Criminal law is that branch of national law which defines certain forms of human conduct as crimes
and provides for the punishment of those persons with criminal capacity who unlawfully and with a
guilty mind commits a crime.
Theft, fraud and so forth, committable by entrepreneurs against society, namely a company, share-
holders, creditors and so forth is punishable in accordance with the ordinary principles of criminal law.
Section 332 of the Criminal Procedure Act 51 of 1977 of the first place renders legal persons crimi-
nally liable for both statutory and common law offences and further provides for certain matters of
evidence and procedure. In addition it contains the drastic provision that directors and servants of
the company are deemed to be guilty of offences for which the corporate body may be prosecuted
unless they can prove on a balance of probabilities that they did not take part in the commission of
the offence and could not have prevented it. The import of this is that if an offence is committed by
the company, its directors and servants may also be charged with that offence.
As to the main provision of section 332, subsection (1) provides that any act or omission by or on
instructions given by a director or servant of the corporate body in the exercise of his power or in the
performance of his duties or in the furthering of the interests of the corporate body, is deemed to be
an act or omission of that corporate body. Due to this provision a company may be found guilty of
any offence, whether intent be an element of the particular offence or not, though the only punish-
ment which may be imposed on the company is a fine. At the trial the company is represented by one
of its directors or servants. For the purposes of section 332 a director is defined as somebody who
controls or governs the corporate body or, where there is no such body of group, who is a member of
the corporate body.
12.4. LABOUR LAW

Any business enterprise will necessarily have a certain number of employees. A basic knowledge of
labour law will therefore be essential.
It is important to realise that the common-law contract of employment has to a large extent been
displaced or modified by statute. This process of statutory intrusion was initiated by a general reali-
sation that the common law had lagged behind conditions in modern commerce and industry.
©LSSA 65
The common-law contract of employment remains the basis of the employment relationship in the
sense that the legal relationship between the employer and the employee is created by it. It would,
however, be fruitless to discuss the common law without taking into account the extensive statutory
enactments which have in this sphere impinged upon it. Each of these statutes has in one way or
another limited the parties’ freedom of contract in the employment realm, and conferred new rights or
imposed new obligations out of which the parties cannot contract.
While freedom of contract might be a hallowed principle of our law, there can be little quibble
with the argument that in the employment realm it may encourage exploitation. Although market
forces and competition may in certain circumstances help ensure that employees receive a fair return
for their labour, in most instances it can be safely said that the employee needs work more than the
employer needs the services of a particular individual. This is especially true of those who enter the
labour market without special skills, and particularly in times of high unemployment. The inequality
of the pre-contractual bargaining relationship between aspirant employee and employer can lead the
unscrupulous employer to take people into service under onerous conditions and at exploitive wages.
To redress this inequality, the South African Parliament has favoured two methods. The first is to
impose minimum general conditions of employment on employers and employees generally or on
particular classes; the second is to promote the concept of collective bargaining.
The two principal Acts which impose minimum conditions of employment on all employers are
the Basic Conditions of Employment Act 75 of 1997 and the Machinery and Occupational Safety Act
6 of 1983. These statutes, and the regulations made under them, may be described as ‘paternalistic’
because they are instruments by which the State intervenes in the private employment relationship
and compels employers to adhere to minimum standards in their treatment of employees. They apply,
to all employees other than those excluded from the definition of ‘employee’ in the Acts or who are
governed by alternative, more restrictive, legislation.
In addition to these two Acts described above, there are a great many others which regulate the
conditions of employment of employees in a wide range of specific sectors.
Only the more prominent of these specific Acts are mentioned here, namely:
• The Explosives Act 26 of 1956 and the Mines and Works Act 27 of 1956;
• The Public Service Act 111 of 1984;
• Manpower Training Act 56 of 1981;
• Wage Act 5 of 1957.
The Labour Relations Act (Act 66 of 1995) provides, amongst other things, for a right to strike (subject
to compliance with certain procedures); protection against discrimination in employment (including
protection against discrimination for job applicants) and worker participation. The Act also provides
for a system for the resolution of employment disputes. All disputes, whether they involve “interest”
disputes (e.g. a demand for a wage increase) or a “dispute of right” (e.g. a claim for unfair dismissal)
must first be conciliated in an attempt to find an agreed solution to the dispute. Should concilia-
tion be unsuccessful, disputes of interest can be resolved through industrial action (i.e. a strike by
employees or lock-out by employers) whereas dispute of right must either be resolved through arbitra-
tion or by the labour court.
Most disputes of right will be resolved through arbitration, as the labour court’s jurisdiction is
limited to certain disputes only, e.g. disputes involving alleged discrimination or victimisation of
employees on account of their union membership. No legal representation is permitted during the
conciliation phase, but is permitted in the labour court and at arbitration, except where the dispute
involves the dismissal of an employee for misconduct or poor performance. In the latter instances,
legal representation is only permitted under very limited circumstances.
Conciliation and arbitration will be conducted either by bargaining councils or by the Commission
for Conciliation, Mediation and Arbitration (CCMA).
Employers and trade unions are, however, permitted to “contract out” of the statutory dispute
resolution machinery by agreeing to refer their disputes to private arbitration in terms of the Arbitra-
tion Act. The main difference between the statutory and private dispute resolution mechanisms is
that bargaining councils and the CCMA will render their conciliation and arbitration services free of
charge, but not allow a choice of conciliator or arbitrator, whereas private conciliation and arbitration,
although paid for by the parties, are dealt with by independent persons of the parties’ choice.
The Basic Conditions of Employment Act (Act 75 of 1997) introduced many far-reaching changes
©LSSA 66
regarding the working conditions of employees. Any prospective employer should note that this act
applies to all employers and employees (except members of the National Defence Force, Intelligence
Agency and Secret Service and unpaid volunteers working for charitable purposes), and that the provi-
sions of the act take precedence over any agreement between the employer and employee.
The Basic Conditions of Employment Act regulates, :

• Hours of work;
• Maximum overtime work;
• Meal intervals and weekly rest periods;
• Pay for work on Sundays and public holidays;
• Annual leave;
• Sick leave;
• Maternity leave, family responsibility leave;
• Termination of employment;
• Severance pay.
All prospective employers should acquaint themselves with the provisions of the Basic Conditions of
Employment Act before hiring any employees. Of particular note is the requirement that employers
furnish employees with certain written particulars of employment (section 29). A rudimentary written
contract of employment setting out the information listed in section 29 of the Act is therefore required
in respect of each employee.
Prospective employers should also note the provisions of Chapter III of the Employment Equity Act,
Act 55 of 1998 which apply where an employer employs 50 or more employees, or where, although
fewer than 50 employees are employed, the business has an annual turnover which exceeds the
maximum turnovers listed in Schedule 4 to the Employment Equity Act. Chapter III contains certain
affirmative action measures designed to achieve employment equity in the workplace. These measures
include, inter alia, paying attention to recruiting persons from previously disadvantaged groups for
all occupational levels and positions, narrowing inequitable wage differentials in respect of different
positions and drawing up employment equity plans on how the business intends to achieve its equity
objectives. For further information in this regard, consult Labour Law reference sources.
12.5. INCOME TAX, CAPITAL GAINS TAX (CGT) AND VALUE-ADDED TAX (VAT)
A basic knowledge of the fiscal rules which affect the different business enterprises is a sine qua non
for a practising lawyer when advising a client which type of enterprise should be formed. A constant
reappraisal of this complex and dynamic branch of the law is essential.
12.5.1. INCOME TAX

Two kinds of taxes are imposed by the tax authorities in South Africa, namely direct taxes which
are levied directly on the income and wealth of individuals and companies, and indirect taxes which
are levied on certain commodities and transactions. The central government levies both direct and
indirect taxes, whereas regional and local authorities, subject to what is said below on the regional
levies, impose only indirect taxes.
The most important source of direct taxation is normal tax levied in terms of the provisions of the
Income Tax Act 58 of 1962 (as amended). Donations tax is also levied in terms of the provisions of the
Income Tax Act, whereas estate duty is levied in terms of the provisions of the Estate Duty Act 45 of 1955.
The special court for the hearing of income tax appeals is a creation of the Income Tax Act (section
83) and has no jurisdiction except that which is conferred on it by the Act. Unlike the High Court it
has no inherent jurisdiction, and consequently the special court is competent only to decide the issue
between the parties and its judgments before have no further binding force. Nor is the special court
bound by its own judgments. These do, however, have persuasive value. Furthermore the doctrine of
res iudicata is also not applicable to the decisions of the special court.
©LSSA 67
12.5.2. INDIVIDUALS
Normal tax or income tax is a levy imposed on all persons who have taxable income. The tax is
calculated by applying predetermined rates, which change from time to time, to the taxable income
of such persons. In the case of companies and close corporations (which are considered to be persons
for tax purposes) the rate of tax since April 2008 is a flat rate of 28%. If an association of persons fall
outside the definition of a “company”, it would not be liable to be assessed at the rates applicable to
a company but at the rates applicable to persons other than companies.
Normal tax is calculated on an annual basis and covers the so-called year of assessment. In
the case of individuals the year of assessment is the year ending on the last day of February. Some
farmers have a 30 June year end.
Standard Income Tax on Employees (SITE) and Pay as You Earn (PAYE) are merely advance deduc-
tions (made by an employer) of normal tax from an employee’s earnings. Where the employee is only
liable for SITE and no other normal tax, the SITE deducted from his or her earnings is the only normal
tax payable by him or her for the year. Provisional tax payments are advance payments of normal
tax made by taxpayers who have income other than remuneration. These advance payments as well
as any SITE and PAYE are credited against the tax as finally assessed. Any employer is obliged to
be registered as such with the South African Revenue Services (SARS) and to deduct SITE/PAYE from
employees’ salaries and to pay it over to SARS.
12.5.3. EFFECTS OF SEQUESTRATION

The insolvency of a person has the effect of terminating his existence as a taxpayer at the date of
sequestration.
Note that the representative taxpayer of a Company or close corporation still remains liable, in terms
of Section 95 of the Income Tax Act, to assess all the income of the entity, and be subject to all the
duties imposed by the Act until date of liquidation. After date of liquidation the liquidator assumes
the responsibility of representative taxpayer in terms of the Act.
Subsequent to the date of sequestration a new taxable person emerges, namely, the insolvent. At the
same time there comes into existence a third entity, namely the insolvent estate.
The insolvent is a taxpaying person from the commencement of the year of assessment to the date of
sequestration and the estate will be subject to tax for this period. If the period is less than a full year
the primary and other rebates will have to be apportioned accordingly.
From the date of sequestration the insolvent becomes a new taxpaying entity and should any income
accrue to him personally he will be assessed for tax on such income. Once again the period of assess-
ment may be partial.
Prior to 1976, it was the practice of the Department to regard the insolvent estate as a taxable entity
and to treat the trustee as a representative taxpayer.
12.5.4. DIVIDEND TAX

When a shareholder receives a dividend, he is obliged to pay 20% thereof to SARS as a dividend tax.
However, there is an obligation on the company declaring such a dividend to withhold the dividend
tax and pay it over to SARS on behalf of the recipient shareholder.
12.5.5. PARTNERSHIPS
A partnership is not defined in the Income Tax Act, and for tax purposes it is not regarded as a
taxpaying entity.
There are, however, certain sections in the Act which deal with partnerships:
Section 66(15) requires that the partnership make a joint tax return. Each partner is separately and
individually liable for this, but the Department of Inland Revenue usually accepts a copy of the
partnership’s financial statements from any one partner.
Section 77(7) states that the partners are liable for tax in their individual capacities. The Commis-
sioner, therefore, apportions the taxable income from the partnership amongst the partners in their
©LSSA 68
profit-sharing ratio, and each partner is taxed on his share of the profits. The partnership per se is
not liable for tax.
Section 24H, first introduced in 1988, and is aimed at (a) regulating the tax treatment of limited
partners and (b) clarifying the question of accruals to individual partners in general. In terms of s
24H(2) each partner is deemed to be carrying on the trade or business of the partnership whether or
not it is a limited partnership.
In terms of s 24H(5) any income which has been received by or accrued to the partners in common (i.e.
to the partnership) is deemed to accrue to the partners in their profit-sharing ratio on the same date
on which it is received by or accrues to the partnership. Expenses and allowances relating to such
amounts are also deemed to be those of the individual partners.
The purpose of this provision is to override a legal principle which arose in the case Sacks v CIR, 1946
AD where it was held that the partner’s share of profits only accrued to him at the end of the partner-
ship’s financial year, when the profits were brought to account.
The practical difficulties which this provision creates may, to an extent, be overcome by making the
partnership’s year end the same as that of the partners.
There is no legal reasons whatsoever why family members may not form business partnerships. All
the normal rules for a partnership apply.
A family partnership is also acceptable for tax purposes. All you have to prove is that a normal and
bona fide partnership relationship exists. Then each partner will be taxed separately on his share of
the partnership income.
But SARS will carefully scrutinise a partnership between family members. It will not accept a mere
partnership agreement. You will have to prove that a genuine arm’s length partnership relationship
exists. You will be able to do so only if all the features of a normal partnership are present.
Here are some steps that will help to prove that your family partnership is normal:
• Put the partnership agreement in writing: it should specify clearly what each partner will contribute
to the partnership.
• Open and operate a separate bank account for the partnership.
• Describe and list the assets that will belong to the partnership. If these include fixed property,
transfer it formally by registration in the name of the partners, although this may not be practical
in the case of agricultural land because of legal limitations on subdivision of joint ownership and
the high cost of transfer duty.
• Advise creditors and customers that the partnership has come into being.
• Appoint someone to keep proper books of account, in accordance with the provisions of the part-
nership agreement.
12.5.6. CLOSE CORPORATIONS

Close corporations also pay tax at a flat rate of 28%.
The distribution of profits to members is in principle not subject to normal tax. Salaries paid to
members will be tax deductible for the close corporation and taxable in the hands of such members.
However, this is only true if the salaries paid are not excessive – if they are, the members might just
find that they are liable to tax on the salaries received, but the close corporation is not entitled to a
deduction. Assessed losses of a close corporation may be carried forward as for other tax entities.
On conversion of a company to a close corporation, the undistributed reserves and unappropriated
profits of the company at the end of the previous year of assessment will not be subject to a conversion
tax. It is clear from the above that there may be various reasons why you would prefer conducting
your business by way of a close corporation rather than a company or even a partnership or as a sole
proprietor.
©LSSA 69
12.5.7. SMALL BUSINESS CORPORATIONS
Special rates of tax were introduced for small business corporations in 2000. A small business corpo-
ration is defined in the Income Tax Act as follows:
A close corporation or private company which is not an employment company (an employment
company is a labour broker not holding an exemption certificate, or a personal service company),
employment companies with at least 4 full-time employees for core operations the entire shareholding
or membership of which is held by natural persons, the gross income for the year of assessment of
which does not exceed R3 million of which none of the shareholders or members, at any time during
the year of assessment, holds shares in any other company (other than listed companies), of which
not more than 20% of the gross income consists collectively of investment income and the rendering
of personal services by the members or shareholders (personal service being defined as any service in
the field of accounting, actuarial science, architecture, auctioneering, auditing, broadcasting, broking,
commercial arts, consulting, draughtsmanship, education, engineering, entertainment, health, infor-
mation technology, journalism, law, management, performing arts, real estate, research, secretarial
services, sport, surveying, translation, valuation or veterinary science, which is performed personally
by any person who holds an interest in the company or close corporation referred to in the definition
of “small business corporation”).
The Income Tax Act also allows the small business corporation a deduction of 100% of the cost
of plant and machinery brought into use by a small business corporation. The allowance applies to
plant and machinery brought into use for the first time by the taxpayer on or after 1 April 2001 for
the purpose of the taxpayer’s trade (other than mining or farming) used by the taxpayer directly in
a process of manufacture (or similar process) carried on by the taxpayer. The deduction is 100% of
the cost of the asset in the year that the asset is brought into use. Cost is the lesser of the cost to the
taxpayer or an arm’s length cash cost. The cost will include the cost of moving the asset, installation
or erection. Costs incurred before commencement of trade (start-up expenses) are deductible from the
first year that trading commences. All other depreciable assets will be written off on a 50:30:20 basis
over a period of three years.
Please refer to the Reference material folder in your course for the latest tax rates applicable to
small business corporations.
12.5.8. TRUSTS
A Trust is defined as a person for income tax purposes. A trust is defined in section 1 of the Income
Tax Act as “any trust fund consisting of cash or other assets which are administered and controlled
by a person acting in a fiduciary capacity, where such person is appointed under a deed of trust or by
agreement or under the will of a deceased person”. The inclusion of a trust in the definition of person
was introduced in the 1991 Amending Act and was backdated to 1 March 1986. A trust is taxable at
a flat rate of 40% on its taxable income. Therefore, where the taxable income of a trust is R100, the
trust will be liable to pay tax of R40.
The decision as to who will be taxed will depend on a number of factors such as:
• the terms of the Trust deed;
• whether or not the income is distributed;
• whether the beneficiaries are majors or minors;
• and will to a large extent be regulated by the provisions of sections 7(3), 7(5), 7(6), 7(7) and 25B
of the Income Tax Act.
Generally, the beneficiaries are taxed on any (previously untaxed) distributions received by them from
the trust (unless section 7(3), (4) or (6) apply). The trust is usually taxed on any income not distributed
by the trustees (unless sections 7(5) or (7) apply).
The use of a testamentary trust or an inter vivos trust may save considerable amounts in tax.
Careful planning is needed and specialised knowledge is required.
In conclusion it is important to note that the Income Tax Act contains specific anti-avoidance
sections, notably sections 7, 8A en 8E, 9 and 9A, 23B and 103. The First Schedule of the Act also
contains special provisions relating to farming activities.
©LSSA 70
FORMS OF BUSINESS ENTERPRISE
12.5.9. CAPITAL GAINS TAX

Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when
you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost.
The relevant legislation is contained in the Eighth Schedule to the Income Tax Act, 1962. Capital
gains are taxed at a lower effective tax rate than ordinary income. Pre-CGT capital gains and losses are
not taken into account. Not all assets attract CGT and many capital gains and losses are disregarded.
A withholding tax applies to non-resident sellers of immovable property (section 35A). The amount
withheld by the buyer serves as an advance payment towards the seller’s final income tax liability.
Section 26A determines that taxable capital gain is included in a taxpayer’s taxable income.
Taxable capital gain (which is to be included in the taxable income) or the taxable capital loss
(which is to be included in the following year of assessment, as in example 2 hereunder) is triggered
when a CGT event occurs by the disposal of an asset. An asset is defined to include movable, immov-
able, tangible, as well as intangible assets and any interest therein. CGT is levied on all assets where
the taxpayer on or after 1 October 2001 (the valuation date) disposes of an asset, whether the asset
was obtained before, on or after 1 October 2001. It is important to note that only the gain in value
as from 1 October 2001 is subjected to Capital Gains Tax. Various methods exist to calculate and
minimise the gain accrued on/or after the valuation date.
The term disposal includes any happening, act, concession or action in terms of law which has
the effect that the asset is sold, given away, scrapped, exchanged, lost and/or destroyed. This also
includes certain events (CGT events) which are deemed disposals of assets.
The base costs (required to calculate the capital gain and/or capital loss) includes VAT as well as the
cost directly incurred such as:
• acquisition costs;
• improvement/enhancement costs;
• incidental costs on acquisition of the asset;
The capital gain occurs when the proceeds of the transaction are larger than the base costs and
conversely a capital loss occurs when the base costs are larger than the proceeds of the disposal.
Certain capital gains and/or losses are rolled over or deferred and/or limited when calculating the
capital gains and/or losses.
The Act makes provision for the roll-over/deferral of CGT where the liability of the tax payer is then
deferred to the happening of future CGT events. Included herein are the capital gains arising from the
donation of property, transfers of assets between spouses and transfer of property from a deceased
estate to the relevant heir where payment of the CGT is deferred to the happening of some future
events.
It is important to understand that Capital gains and/or losses are calculated on the disposal of every
asset, during the year of assessment. In calculating the total capital gain and/or loss for a particular
year the following occurs:
Firstly all the capital gains and/or losses of the tax payer are calculated;
• The total amount of the capital gain and/or loss is then sometimes reduced within the annual
exclusion in the event of natural person. The annual exclusions appear below:
©LSSA 71
• Taxable Capital Gain is calculated by multiplying the net Capital Gain with the applicable rate of
the specific taxpayer and with the applicable tax rate.
The Capital Gain Tax rates according to current legislation are as follows:
INDIVIDUALS AND SPECIAL TRUSTS – 18%
COMPANIES (including Close Corporations) – 22.4%
OTHER TRUSTS – 36%
When the taxable Capital Gain of a person has been calculated, that capital gain is then included in
the taxable income in terms of Section 26A of the Income Tax Act.
The normal tax rate, applicable to the taxable income of a taxpayer (which includes the CGT compo-
nent) is used to calculate the normal tax liability of the taxpayer during the year.
If an assessed capital loss is incurred during a particular tax year that loss cannot be set off against
the normal income of the tax payer.
An assessed capital loss does not reduce a person’s taxable income nor does it increase a person’s
assessed loss of income.
The capital loss is thus capped as such and can only be taken into account when Capital Gains are
made in future years of assessments.
Note: The first R2 million of the gain on disposal of the primary residence of a taxpayer (provided
that tax payer is a natural person) is excluded from CGT. For more information visit the SARS website:
http://www.sars.gov.za/TaxTypes/CGT/Pages/default.aspx
12.5.10. VAT
Value-Added Tax (VAT for short) is an indirect system of taxation. It was announced on 5 February
1988, and implemented on 30 September 1991. The Value-Added Tax Act (89 of 1991) replaced the
Sales Tax Act.
VAT is not charged unless the supply is from a registered vendor who supplies the goods and services
in the course or furtherance of an enterprise.
In a VAT system, business throughout the production and distribution chain, up to and including
retailers, will charge VAT on supplies made and will be charged VAT on purchases. The fact that
vendors within the chain are both VAT chargers and VAT payers gives rise to the concept of input and
output taxes.
Input Tax = The VAT paid by a vendor within the chain, on goods and services acquired by him or her.
Output Tax = The VAT charged by a vendor on supplies of goods and services made by him or her.
In order to avoid the effect of double taxation within the chain, any person within the chain claims his
or her input taxes as a credit against his or her output tax. This system of credits and debits continues
throughout the chain until the end is reached.
Value-Added Tax is levied whenever there is:

• a supply of goods or services in the Republic by a registered vendor in the course or furtherance
of carrying on an enterprise, or
• goods or services are imported into the Republic by any person (whether or not a vendor).
Note: that, in the case of imported goods and services, it is not a requirement that the supplier be a
registered vendor. It is the act of importing which gives rise to the tax and the nature or location of
the supplier is irrelevant. In the case of supplies made within the Republic, on the other hand, VAT will
only be charged if the supply is made by a registered vendor and such supply is made in the course of
carrying on or furtherance of an enterprise.
Supplies by persons who are not registered or who are not carrying on an enterprise are free of VAT.
Because VAT is only charged by registered vendors, being suppliers of goods and services in the
©LSSA 72
course of carrying on a business venture, compliance with the registration provisions of the Act is of
utmost importance. The registration provisions are contained in section 23 which makes provisions
for the exemption from registration of certain vendors who have an annual turnover of less than or
equal to R1 million per annum. Such persons may register voluntarily, however. The consequences
of non-registration are that VAT will not be charged on any supplies made and, more importantly, no
input tax deduction will be granted as a credit in respect of expenses or purchases. A person who is
not required to register in terms of section 23 but, who is eligible for voluntary registration would, in
making a decision, have to decide whether the input deduction that he will become entitled to, will
be sufficient to warrant the charging of output tax. For example, a person who carries on a small
hairdressing business which has an annual turnover of less than the limit would not be subject to
compulsory registration. Because of the nature of his or her business, his or her input tax credits are
unlikely to be significant and he or she would, therefore, probably be in a better position if he or she
does not register and, as a consequence, is not liable to charge VAT on his or her service.
The VAT Act makes provision for two types of supply:

• Taxable supply
• Exempt supply
Taxable supplies are those supplies of goods or services made by a registered vendor in the course or
furtherance of carrying on a business venture, which are not exempt supplies.
Taxable supplies are subject to tax at one of two rates:

• A Standard rate, which is 14% (10% prior to 7 April 1993)
• A Zero rate, which is 0%.
A zero rated supply will have the effect that no VAT may be charged by the vendor but he will enjoy
the benefit of deducting all expenses and purchases as input tax.
Section 23 of the VAT Act deals with the registration of vendors. A person (including juristic
persons, such as companies, and close corporations as well as trusts and partnerships) has to register
as a vendor if that person carries on an enterprise; and the total value of the taxable supplies made
in a 12-month period by that person will exceed R1 million (excluding VAT). In calculating the R1
million limits, certain “abnormal” supplies must be ignored (i.e. replacing capital assets, permanently
reducing the size of an enterprise, abnormal circumstances of a temporary nature).
Natural persons may be registered on an invoice or payments basis. Only smaller businesses
operated by individuals are allowed to be registered on a payments basis. All juristic persons must
be registered on an invoice basis. This means that the VAT must be paid over to SARS in the period
in which the invoice is generated, regardless of whether it has been paid or not. In the case of the
payments basis, the VAT is only paid over to SARS when the invoice has been paid and the VAT
collected from the payer.
There are also special transactions (sales in execution, Credit and Rental Agreements, sale of a
going concern etc.) which need to be considered when a vendor calculates his or her VAT liability.
Once a person is a vendor as defined, he has to -

• keep a record of all the input VAT incurred by him or her on his or her purchases and payments, as
well as the source documentation relating to this VAT;
• charge VAT on all the taxable supplies of goods and services he or she makes, and create and issue
the necessary tax invoices in this regard if requested to by his or her customer;
• submit a VAT return to SARS within 25 days of the end of his or her tax period, with his or her
payment if applicable;
• maintain the necessary accounting and other records in respect of his VAT transactions;
• advise SARS of any change in his registration status.
A group of companies cannot register as a single vendor. This means that transactions between
companies within a group may be subject to VAT.
©LSSA 73
A vendor who carries on separate enterprises or who carries on an enterprise in separate branches or
divisions may apply to have the separate entities, branches or divisions registered separately identi-
fied by reference to the nature of their activities or their location.
It is important to note that the levying of tax is a specialised field and that great care should be taken
to consult a specialist. Registration for VAT purposes can also play an important part to save transfer
duty in the case of immovable property.
12.6. INSOLVENCY LAW

The Insolvency Act 24 of 1936 provides that in the case of the factual insolvency of certain debtors,
the estate of such a debtor is sequestrated, for the purpose of ensuring parity between creditors as
well as the protection of the interests of the debtor. The same process can also be followed in the case
where the debtor commits an act of insolvency in terms of section 8 of the Insolvency Act, although
the debtor may not be factually insolvent. In this way commercial insolvency is also recognised.
In this context it is important to distinguish between the terms “insolvency” and “winding-up”.
The insolvency law generally and the Insolvency Act dealing with sequestration in particular, apply in
the case of the insolvency of a “debtor” as defined in Section 2 of the Insolvency Act. In terms of this
definition a debtor is a person or partnership or the estate of a person or partnership, and excludes
a body corporate, company or association of persons which may be placed in liquidation (wound-up)
in terms of the Companies Act. Where natural persons or partnerships consisting of natural persons
are therefore sequestrated in terms of the Insolvency Act, companies are wound up in terms of the
winding-up provisions of the Companies Act. The winding-up of solvent companies is addressed in
the Companies Act. As an interim measure the winding up of insolvent companies will continue
to be regulated under Chapter 14 of the 1973 Act, incorporating provisions of the Insolvency Act,
in view of the proposed Bankruptcy Act. The applicant in a liquidation application would therefore
have to prove whether the company is solvent or insolvent in order to establish which procedures to
follow. Although close corporations fall outside the description of “body corporate” in the definition
of “debtor”, it follows that because the Close Corporations Act 69 of 1984 has specific winding-up
provisions, close corporations will also be wound-up.
However, if all the members of a partnership are corporate bodies, the partnership cannot be
sequestrated [P d V Reklame (Edms) Bpk v Gesamentlike Onderneming van SA Numismatiese Buro
(Edms) Bpk en Vitaware (Edms) Bpk 1985 4 SA 876 (C)].
A trust, which may include the modern business trust, is not a body corporate as described in
the definition of “debtor” in section 2 of the Insolvency Act, and must accordingly be sequestrated
[Magnum Financial Holdings (Pty) Ltd (In Liquidation) v Summerly NNO 1984 1 SA 160 (W).
The sequestration of a person’s estate influences his or her status and the court having the power
to grant a sequestration order is the relevant high court. The jurisdiction of the relevant court is
determined by the fact that the debtor, at the date of the application, owns or is entitled to property
situated within the jurisdiction of the court or that he or she was resident or carried on business
within the jurisdiction of the court during the preceding 12 months [section 149].
The sequestration of the insolvent has certain consequences in respect of his or her contractual
capacity. The insolvent is not allowed to hold certain offices, serve on certain statutory bodies and
cannot be a director of a company save with the permission of the court or take part in the manage-
ment of a close corporation. He or she must also obtain the written consent of his or her curator to
carry on a business as trader or manufacturer or to be in the employ of such a person, but he or she
may follow a profession or an occupation [section 23(3)]. Any contract concluded without the written
consent of the trustee which adversely affects his or her estate will be voidable [section 23(2)].
If the estate of a partnership is sequestrated, the estates of each partner, excluding a comman-
ditarian partner and certain special partners must be sequestrated simultaneously [section 13]. If
a particular partner undertakes to pay the debts of the partnership within a period determined by
the court and security for such payment is given to the satisfaction of the registrar of the court, the
separate estate of the partner will not be sequestrated merely because the estate of the partnership is
sequestrated [section 13]. The partnership estate is also liable for costs if the estate of the individual
partner is insufficient to cover the sequestration costs [section 13(2)]. The same principle however
does not apply as between the estates of the individual partners. Sequestration of the personal estate
©LSSA 74
of a partner will only terminate the partnership by virtue of the withdrawal of such partner’s share in
the partnership and does not necessarily result in the partnership or the estates of the other partners
also being sequestrated.
12.7. LAW OF PROPERTY

This branch of the law will obviously play an important part in the formation and existence of a
particular business enterprise. The expression “law of property” has a wide meaning and can be
defined as that branch of the law which is concerned with real rights in general. It includes concepts
such as delivery, registration, rei vindicatio, ownership – its transfer and protection, joint ownership,
sectional titles, mortgage, pledge, lien and so forth.
Although freedom of property is said to be a basic right, certain restrictions of the freedom of
property are nowadays taken for granted. Building regulations, anti-pollution enactments, factory
regulations, sanctuary regulations and limitations by private law in the interest of neighbours are all
examples of restrictions which may be imposed. It is therefore important to note that no right, even
the right to ownership, is absolute. In must always be borne in mind that the law of property does
not deal with the legal relationship between persons and things alone, but with the reconciliation of
conflicting social interests in regard to things.
©LSSA 75
D. BIBLIOGRAPHY
13. GENERAL
Cilliers, Benade et al; Entrepreneurial Law (1993)
Van der Linde Getting to Grips with the New Companies Act (2011)
14. SELECTED BIBLIOGRAPHY
14.1. The Partnership

Cilliers, Benade et all Entrepreneurial Law (1993)
Bamford B Bamford on the Law of Partnership and Voluntary Association in South Africa (1982) Third
Edition
De Wet and Yeats Die Suid-Afrikaanse Kontraktereg en Handelsreg 4 ed (1978) chapter 14
Henning and Delport Partnership (1984)
Oosthuizen (ed) Suid-Afrikaanse Handelsreg Third edition Vol 2 (1988) Section XVI
Van Dorsten South African Business Entities Third Edition (1993) Chapter 4
14.2. The Close Corporation

Cilliers HS, Benade ML, Oosthuizen M J, De La Rey E M Close Corporations: A Comprehensive Guide
(1993) Chapter 2
Geach W D Guide to the Close Corporations Act and Regulations
Cilliers, Benade et all Entrepreneurial Law (1993) Chapter 25-33
Cilliers, Benade, Henning and Du Plessis and Delport Corporate Law Second Edition (1992) Chapter 43
14.3. The Company

Cilliers, Benade et all Entrepreneurial Law (1993) Chapter 7-24
Cilliers, Benade, Henning, Du Plessis and Delport Corporate Law Second Edition (1992)
Davis, Cassim and others Companies and other Business Structures in South Africa (2009)
Delport The New Companies Act Manual (2011)
14.4. The Business Trust

Honorè and Cameron, E Honorè’s South African Law of Trusts Fourth Edition (1992)
Olivier Trust Law Practice (1990)
Oosthuizen (ed) Suid-Afrikaanse Handelsreg Third edition Volume 2 (1988) Section XIX
Theron Die Besigheidstrust LLM (1990) RAU
Van Dorsten South African Business Entities – A Practical Guide Third Edition (1993) Chapter 5
Wunsh Trading and Business Trusts (1986) SALJ 561
14.5. The Share Block Company

Van der Merwe and Butler Sectional Titles Share Blocks and Time Sharing (1985) Chapters 16-22
14.6. Business Rescue

©LSSA 76
14.7. Schemes of Arrangement and Compromises

Cilliers, Benade, Henning, Du Plessis and Delport Corporate Law Second Edition (1992) Chapter 26
14.8. Deregistration and Winding-up of Companies

Cilliers, Benade et all Entrepreneurial Law (1993) Chapter 37
14.9. Criminal Law

Burchell and Milton Principles of Criminal Law (1991)
14.10. Labour Law

Rycroft and Jordaan A Guide to South African Labour Law (1992)
14.11. Income Tax and Value-Added Tax

Huxham and Haupt Notes on SA Income Tax (1994)
14.12. Insolvency Law

Boraine A Insolvensiereg in Nagel CJ (ed) Basiese Beginsels van die Suid-Afrikaanse Besigheidsreg
(1993)
Mars WH The Law of Insolvency in South Africa 8 ed (Ed EM de la Rey) (1988)
Meskin PM Insolvency Law and its Operation in Winding-up (1990)
Smith C The Law of Insolvency 3 ed (1988)
14.13. Income Tax; VAT, Capital Gains

JA Arendse, K Jordaan, MA Kolitz, ML Steyn Silke South African Income Tax; , Butterworths (2001)
Huxham K, Haupt P Notes on South African Income Tax 30th edition (2011)
14.14. Intellectual property – A practical guide to intellectual property

Spoor & Fisher Attorneys, June 2011
Dean D, Dyer A (ed) Introduction to Intellectual Property Law Oxford (2014)
Webster and Page:
South African Law of Trade Marks, Unlawful Competition, Company Names and Trading Styles
(Butter-worth, Thirteenth Edition 2009);
Burrell: South African Patent Law and Practice
(Butterworth, Third Edition 1999); and Dean: Hand-book on South African Copyright Law (Juta 1987,
updated annually).
15. INTERNET RESOURCES

http://www.doingbusiness.org/data/exploreeconomies/south-africa/starting-a-business
Date: 25 June 2013
http://www.labour.gov.za/legislation/acts/basic-guides/basic-guide-to-skills-development-levies
Date: 25 June 2013
http://saipa.wconsulting.co.za/#
Date: 11 July 2013
http://www.macarta.co.za/?Use_of_Trusts:Business_Trusts
Date: 16 July 2013
https://moneysmart.co.za/community/2012/10/capital-gains-tax-explained/
Date: 24 July 2013
©LSSA 77
http://www.sars.gov.za/TaxTypes/CGT/Pages/default.aspx
Date 24 July 2013
http://www.sars.gov.za/TaxTypes/DT/Pages/default.aspx
Date: 20 August 2013
http://www.cipc.co.za
http://www.saiipl.org.za
16. APPLICABLE STATUTORY PROVISIONS
1. THE PARTNERSHIP
Business Names Act 27 of 1960 Section 3-5
Attorneys Act 53 of 1979 Section 83
2. THE CLOSE CORPORATION

Close Corporations Act 69 of 1984
S 20 of Unit Trust Control Act 54 of 1981
3. THE COMPANY
Companies Act 71 of 2008
Companies Act 61 of 1973
Criminal Procedure Act 51 of 1977
S 1, 51 of Banks Act 94 of 1990
S 5 of Business Names Act 27 of 1960
Public Accountants’ and Auditors’ Act 80 of 1991
4. THE BUSINESS TRUST

Companies Act 61 of 1973 Section 30, 143
Unit Trusts Control Act 54 of 1981 Section 1, 37
Trust Property Control Act 57 of 1988
5. THE SHARE BLOCK COMPANY

Share Blocks Control Act 59 of 1980
6. INTELLECTUAL PROPERTY LAW

Patents Act 57 of 1978
Designs Act 195 of 1993
Trade Marks Act 194 of 1993
Copyright Act 98 of 1978
Counterfeit Goods Act 37 of 1997
Consumer Protection Act 68 of 2008
©LSSA 78

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FORMS OF

The syllabus is compiled by

Training School and Courses. views of the drafters. There

Lifelong learning towards a just society

Training Guide Topics

Alternative Dispute Resolution High Court Practice Legal Practitioners Accounting

For more information

A. AIM OF THE COURSE 2

3. CHOOSING A FORM OF BUSINESS ENTITY 12

6. FORMATION AND FUNCTIONING OF COMPANIES 28

6.3.3. SHAREHOLDER AGREEMENTS 36

7. PUBLIC INTEREST SCORE 49

11. REGULATORY AGENCIES 62

12. INTER-RELATION WITH OTHER AREAS OF LAW 63

15. INTERNET RESOURCES 77

A. AIM OF THE COURSE

1. GENERAL INTRODUCTION – FORMATION OF THE BUSINESS

2. COMPARISON OF THE MOST IMPORTANT FORMS OF BUSINESS

2.1. THE SOLE PROPRIETORSHIP

2.2. THE PARTNERSHIP

2.2.2. TYPES OF PARTNERSHIPS

2.4. THE COMPANY

2.4.2. TYPES OF COMPANIES

Non-profit State-owned External Domesticated

2.4.3. CATEGORIES OF PROFIT COMPANIES

Private companies are required to have their AFS audited if:

Personal Liability Company:

The minimum number of directors required is 1.

Personal liability companies are required to have their AFS audited if

Non-profit companies are required to have their AFS audited if

2.5. THE BUSINESS TRUST

2.6. THE SHARE BLOCK COMPANY

In principle, the objects which these schemes seek to achieve are:

3. CHOOSING A FORM OF BUSINESS ENTITY

3.1. CHOICE OF FORM

3.2. COMPULSORY REGISTRATIONS

The Skills Development Levies Act applies to all employers except–

Registration with the Department of Labour for Unemployment Insurance

3.3. TRADING LICENCES

The following categories of intellectual property rights are recognised:

4.2.1. WHAT IS A PATENT?

A patent right is restricted in a number of ways.

The control that can be exercised includes

These three criteria are:

4.2.2. PRIOR ART

4.2.3. THE PATENTING PROCESS

4.2.4. PATENT PROSECUTION

4.2.5. TO PATENT OR NOT TO PATENT?

4.2.6. CAN A CLIENT FILE HIS/HER OWN PATENT APPLICATION?

4.2.7. WHAT INFORMATION DO YOU NEED TO GIVE YOUR PATENT ATTORNEY?

4.3. REGISTERED DESIGNS

4.3.1. WHAT IS A REGISTERED DESIGN?

4.3.2. WHAT IS THE DIFFERENCE BETWEEB AN AESTETHIC DESIGN AND A

4.3.3. REQUIREMENTS FOR A DESIGN TO BE REGISTRABLE

4.3.4. DIFFERENCES BETWEEN PATENTS AND REGISTERED DESIGNS

4.3.5. HOW LONG DOES A REGISTERED DESIGN REMAIN IN FORCE?

4.3.6. FOREIGN DESIGN APPLICATIONS

4.4. TRADE MARKS

4.4.1. WHAT IS A TRADE MARK?

4.4.2. IS IT NECESSARY TO REGISTER A TRADE MARK?

4.4.3. WHAT TRADE MARKS CAN BE REGISTERED?

4.4.4. SELECTION OF A TRADE MARK

4.4.5. HOW DO I GO ABOUT DOING A TRADE MARK SEARCH?