PURPOSE OF THE COMPANIES ACT 2008

The Structure of the Companies Act 2008:

Chapter No.
•8 Regulatory agencies and administration of the Act.
•9 Offences, miscellaneous matters and general provisions.

There are five schedules as follows:

Schedule No. Content

•1 Provisions concerning non-profit companies.
•2 Conversions of CC to companies.
•3 Amendment of laws.
•4 Legislation to be enforced by commission.
•5 Transitional arrangements.
PURPOSE OF THE COMPANIES ACT 2008

Unique features of the Companies Act 2008:

•1. The Act recognizes the right of any person to form a company.
•2. There are minimal requirements imposed upon the act of incorporation.

•3. The sole document that governs the affairs of a company is the
Memorandum of Incorporation (MOI).

•4. The Act adopts the enlightened shareholder value approach.

•In terms of this approach directors should have regard, where appropriate, of the
need to ensure productive relationships with a range of interested parties, often
termed ‘stakeholders’ and have regard to the longer term, but with shareholders
interests retaining primacy.

•5. The regulatory provisions include a codification of the duties of directors.

PURPOSE OF THE COMPANIES ACT 2008
• The Companies Act 2008 and the common law:

• Although it is commonly believed that South African company law is to be found

exclusively in legislation, the Companies Act 2008 does not comprise the entire
body of South African law.

• The legislation should be seen as the superstructure which is built upon the
foundation of the common law.

• The common law consists of that entire body of law which is not to be found in
legislation. It consists of rules drawn from R-Dutch law, and to a lesser extent,
from English law, although the latter is far more influential in the case of company
law.

• Within the context of company law, the Companies Act 2008 is extremely detailed,
and thus much of the regulation of companies takes place at present through the
Act.

• However, the common law still applies and assists in the interpretation of the Act.
Where he Act is silent, the common law will then apply.
LEGAL PERSONALITY OF COMPANIES

• A company is a legal person:

• This means that it is not simply an association of persons as in a partnership,

but a company is in itself a separate legal person.

• In terms of section 14(4) a Registration Certificate is conclusive evidence that

the requirements for incorporation have been complied with and that a
company is incorporated in terms of the 2008 Act as from the date and time, if
any, as stated in the certificate.

• A legal person is regarded as an entity that can acquire rights and duties
separate from its members. In Airport Cold Storage (Pty) Ltd v Ebrahim and
Others 2008 (2) SA 303 (C), the court confirmed that one of the most
fundamental consequences of incorporation is that a company is a juristic
entity separate from its members.

• In Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530 at 550-551, the

court found that the property vests in the company and cannot be regarded as
vesting in any or all of the members of the company.
LEGAL PERSONALITY OF COMPANIES
• In Salomon v Salomon Co Ltd [1897] AC 22 (HL) the court found that once a
company is legally incorporated it must be treated like any other independent
person with its rights and liabilities appropriated to it.

• Section 19(1) of the Companies Act 2008 reinforces the common-law position as
outlined, in that it provides: “From the date and time that the incorporation of a
company is registered, … the company - (a) is a juristic person …”
• The fact that a company is a legal person has the following effects:-
• The assets of a company are the exclusive property of the company itself and not of
its members. Thus, although a company has no physical existence, it can acquire
ownership assets and is liable to pay its own liabilities.

• The company itself is owner of its profits except if a dividend is declared i.e.
resolved that they be distributed among the shareholders. Unlike partners,
shareholders/members are not co-owners of the company’s property and can only
claim a share of the profits if a dividend is declared and to share surplus assets if
one day, the company is dissolved.

• A company exists separately from its members and enjoys perpetual succession
until one day, it is liquidated: it does not dissolve when its membership changes and
its address is its registered office and not the address of the main shareholders.
LEGAL PERSONALITY OF COMPANIES
• A company can commit a criminal offence or wrongful act and can have rights of
privacy and a right in relation to its business reputation, which on infringement
can give rise to the company claiming for compensation or applying for an
interdict.

• A company, however, is a creation of law and cannot for all purposes be equated
to natural persons (it cannot marry, vote etc).

• Can rights given to a certain group of persons e.g. females, also be deemed to
have been given to companies controlled by such persons?

• In Dadoo v Krugersdorp Municipal Council the court held that old Transvaal laws
that prohibited Indians from owning land in that territory, but which did not say
anything about companies controlled by Indians as major shareholders, did not
apply to such companies.

• A company cannot act on its own, but only through duly authorized agents and
organs, although the signatures of its directors or others may in terms of ss 69
and 70 be deemed to be the signatures of the company itself, e.g. on cheques and
contracts for sale of land.
LEGAL PERSONALITY OF COMPANIES

• The contracts of sale of land must be signed by the parties or their agents
acting on their written authority – something which is impossible where a
company is a party.

• NOBODY may as a MEMBER act for the company. Its organs and agents are
designated in the articles i.e. the board of directors who may in terms of the
articles, delegate functions to other officers and employees.

• In cases of smaller private (domestic) companies where the members are in

terms of the articles, all directors taking an active part in the management and
who like partners place a high premium on good personal relationships, the
distinction between directors and members becomes less obvious in practice.

• The courts also take note of that by ordering liquidation of such companies in
appropriate cases where these relations were irreparably destroyed, e.g. if one
member is excluded from management contrary to an understanding that all
members will participate, or one commits adultery with another’s wife, etc – Lawrence
v Lawrich Motors (These will not be important issues in bigger companies).
LEGAL PERSONALITY OF COMPANIES
• The company itself is the creditor of its debtors and debtor of its creditors (it can
sue or be sued in a court of law). Members enjoy limited liability, because they
only risk their investments in shares of the company, which may not on
dissolution, be returned to them unless all creditors have been paid in full.

• Shareholders may however, also lend money to the company, or take debentures
(written acknowledgements of a company’s liability) and even the only or main
shareholder may in this way, become a secured or preferent creditor of the
company.

• In Salomon v Salomon, Salomon initially a sole entrepreneur, registered a

company in which he owned all the shares except for a few held by his wife and
children. He sold his business and the land on which the business premises were
situated to the company for the shares and 20 000 pounds’ debentures and
secured the latter with a mortgage over the land.

• The result was that Salomon was a secured creditor in relation to the debentures
and when the company went bankrupt a year later because of strikes and an
economic depression, its assets yielded only enough to pay Salomon’s secured
claim, leaving nothing for the other creditors.
LEGAL PERSONALITY OF COMPANIES
• Salomon v Salomon continued:
• Other affected creditors objected and argued that Salomon and his company were
virtually the same person, so that Salomon, instead of being a creditor, should
contribute towards paying their claims.

• The court rejected this argument on the basis that the company is a separate entity
and Salomon cannot be held liable for its debts. (Note that Salomon still lost the
amount he had invested in shares of the company).

• This does not mean that people can abuse the separate entity of a company as
they wish. The court may disregard the separate entity of a company in cases of
fraud or improper evasion of duties.

• Thus, a former employee who in terms of a restraint of trade clause, cannot start a
business in competition with his former employer, may not use a company to start
such a business (Gilford Motors v Horne), nor can a moneylender use two
companies instead of one to deal with a client for the purpose of charging the
client more than the maximum allowable interest (see R v Gillett where G used one
company to “raise the loan in return for a commission” from G’s other company
who charged interest at the maximum rate allowed: the two companies were
treated as one).
Lifting/Piercing the Corporate Veil
• Whilst incorporation can provide for the limitation of liability of those persons
behind the company, this principle cannot be abused.

• In Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995 (4) SA 790
(A) it was said that if a company has been legitimately established and is
legitimately operated, but is misused in a particular instance ‘to perpetrate a
fraud, or for a dishonest or improper purpose, there is no reason in principle or
logic why its separate personality cannot be disregarded in relation to the
transaction in question.

• In Airport Cold Storage (Pty) Ltd v Ebrahim the court held that the directors and
members of a company ordinarily enjoy extensive protection against personal
liability. However, such protection is not absolute as the court has the power in
certain exceptional circumstances – to pierce or lift or pull aside the corporate
veil and to hold the directors and others personally liable for the debts of the
company.
Lifting/Piercing the Corporate Veil
• Piercing the corporate veil refers to those exceptional circumstances where the
court would either; ignore the separate legal existence of the company and
treat its members as if they were the owners of the assets and had conducted
the business of the company in their personal capacities; or

• Where the court attributes certain rights or obligations of the shareholders to

the company.

• When the court pierces the corporate veil it ignores the legal existence of the
company only for the purposes for adjudicating the rights and liabilities of the
parties to the particular dispute before the court.

• In other words, for all other purposes, the separate legal existence of the
company continues to be recognised in law.

• The courts are seldom reluctant to pierce the corporate veil and in practice, it is
most common for a court to pierce the corporate veil where the evidence
reveals that the company is merely a façade that conceals the reality of the
situation.
Lifting/Piercing the Corporate Veil
• Lifting the Corporate Veil
• In Airport Cold Storage (Pty) Ltd v Ebrahim and Others a creditor of a CC had sold
and delivered imported meat products and frozen vegetables to a corporation on
account. The CC was some time later put into provisional liquidation at a time when
it owed the creditor R278 377. On the liquidation of the corporation, the creditor
proved a claim against it for the amount outstanding but it received no dividend in
the liquidation because the corporation had no assets. The creditor (the business)
plaintiff) then sought to hold the member and his father (who assisted in the running
of the personally liable for the debt.
• The court held that it does not have a general discretion to simply disregard the
existence of a separate corporate identity whenever it considers its just or
convenient to do so, and acknowledged that the circumstances in which a court will
disregard the distinction between a corporate and those who control it are far from
settled.

• The starting point is that veil piercing will be employed only where special
circumstances exist indicating that a co. or a cc is a mere façade concealing the
true facts. The court held that fraud will be such a special circumstance, but the
existence of fraud is not essential. In certain circumstances the corporate veil will
also be pierced where the controlling shareholders do not treat the company as a
separate entity, but instead treat it as their alter ego or instrumentality to promote
their private, extra-corporate interests.
Lifting/Piercing the Corporate Veil
• Airport Cold Storage (Pty) Ltd v Ebrahim and Others, the court concluded that
the defendants operated the business of the corporation as if it were their own,
and without due regard for, or compliance with the statutory and book-keeping
requirements associated with the conduct of the corporation’s business.

• The court held that when it suited them, the defendants chose to ignore the
separate identity of the corporation. In these circumstances, the defendants
cannot now choose to take refuge behind the corporate veil of the corporation
in order to evade liability of its debts.

• The defendants were therefore held to be jointly and severally liable to the
plaintiff for the amounts owed to the plaintiffs at the time of liquidation.
 Lifting/Piercing the Corporate Veil
• In another case involving the lifting of the corporate veil, Die Dros (Pty) (Ltd) and
Another v Telefon Beverages CC and others 2003 (4) SA 207 (C), the court held that
were fraud, dishonesty or other improper conduct is present, the need to preserve the
separate corporate personality of a company has to be balanced against policy
considerations favouring the piercing of the corporate veil.

• Die Dros (Pty) (Ltd) and Another v Telefon Beverages CC and others 2003 (4) SA 207 (C),
court held that it will permit separate personality to be disregarded, for example when a
natural person, who is subject to a restraint of trade, uses a cc or a company as a front
to engage in the activity that is prohibited by an agreement in restraint of trade.

• This is what happened in Le’Bergo Fashions CC v Lee and Another 1998 (2) SA 608 (C)
where a Mrs Lee had personally signed a restraint of trade contract and had then
proceeded to trade through a company of which she was the sole shareholder and
director. The court held that she had signed the restraint personally and the company
was not a party to that contract.

• The court held that notwithstanding the fact that the company had not been a party to
the restraint, its competition with the plaintiff in this case amounted to intentionally
assisting Mrs Lee to breach her agreement, and such assistance was regarded in law as
wrongful, and could thus be interdicted.
Lifting/Piercing the Corporate Veil
• The Companies Act 2008 has basically adopted the common law position
relating to the lifting of the corporate veil.

• Section 20(9) of the Companies Act 2008 provides that if, on application by an
interested person or in any proceedings in which a company is involved, a
court finds that the incorporation of a company, any use of the company, or any
act by or on behalf of the company, constitutes an ‘unconscionable abuse of
the juristic personality of the company as a separate entity; the court may do
the following:

• a) Declare that the company is to be deemed not to be a juristic person in

respect of any right, obligation or liability of the company or of a shareholder of
the company or, in the case of a non-profit company, a member of the
company, or of another person specified in the declaration; and

• b) Make any further order the court considers appropriate to give effect to
such declaration described in (a) above.
The Incorporation of Companies
• The Incorporation of a Company: Steps to be taken (s13):

• 1. One or more persons may incorporate a profit company whereas three or more
persons may incorporate a non-profit company.
• 2. Each person should complete and sign a MOI.

• 3. The Notice of Incorporation must be filled with the Commission together with the
prescribed fee and must be accompanied by a copy of the MOI.
• 4. A MOI can be in a form that is unique to the company or the company can use
the MOI provided for in the Act.
• 5. The Commission may reject a Notice of Incorporation if it is incomplete or
improperly completed.

• 6. Upon acceptance of the Notice of Incorporation the Commission will assign a

unique registration number to the company.
• 7. If all formalities are in order, a Registration certificate will be issued and
delivered to the company. Such a registration certificate is conclusive evidence that all
the requirements for the incorporation of the company have been complied with and
that the company is incorporated from the date stated in the certificate. The date of
incorporation on the certificate is the date upon which the company comes into
existence as a separate legal entity.
Pre-incorporation contracts

• Pre-incorporation contracts:
• Because a company, prior to incorporation, is not yet in existence and cannot
perform a juristic act, and because no one can at that stage act as its agent
because one cannot act as the agent of a non-existent principal, section 21
prevents a company from losing the opportunity to benefit from a business
opportunity that presents itself prior to incorporation of the company by
allowing pre-incorporation contracts to be entered into, provided certain
requirements are complied with.

• A pre-incorporation contract is a contract that is entered into by a person who

is acting on behalf of a company that does not exist at the time of the contract.
The person entering into the agreement has the intention that once the
company comes into existence the company will be bound by the provisions of
the pre-incorporation 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 (s21(4)).
Pre-incorporation contracts

• If 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
within three months after the date on which the company was incorporated, the
company will be regarded as having ratified the agreement or action (deemed
ratification) s21(5).

• To the extent that a pre-incorporation contract or action has been ratified, actually
or deemed, the agreement is as enforceable against the company as if the company
had been a party to the agreement when it was made (the contract is ratified
retrospectively from its conclusion) and the liability of the promoter is discharged to
the extent that it is so ratified (s21(6)).

• A promoter is jointly and severally liable with any other such person (Benade et al –
it is presumed that ‘such person’ will be the person repudiating the contract, i.e. the
company and or its directors) for liabilities in the pre-incorporation contract if the
company is not incorporated, or if, after being incorporated, the company rejects
any part of an agreement (s21(2)).

• If a promoter is liable for total or partial rejection of a contract, he/she may claim
against the company for any benefit it has received, or is entitled to receive, in
terms of the agreement.
Pre-incorporation contracts

• Legal Capacity of a Company under the Companies Act 2008:

• Section 19(1) (b) of the Act adopts the modern approach to the legal capacity of a
company in that it views it as archaic and out-dated to restrict a company to specific
business activities.

• The Companies Act 2008 accordingly provides that a company has the legal capacity
and the powers of an individual except to the extent that a juristic person is incapable
of exercising any such power (e.g. capacity to enter into a contract of marriage) or
except to the extent that the company’s MOI provides otherwise.
• It thus follows that no act of a company is void merely because the company did not
have the capacity to perform that act. More importantly, it is no longer mandatory for
a company’s MOI to have an objects clause setting out the main object of the
company.

• However, a company’s MOI may on an optional basis, impose restrictions, limitations

or qualifications on the legal capacity of a company (i.e. on the purposes, powers or
activities. Such restrictions have no effect externally on the validity of a contract
between a company and the other party to the contract subject to section 20(5). (The
section provides that a shareholder, director or prescribed officer may institute
proceedings (or apply to the High Court for an appropriate order) to restrain a
company or its directors from doing anything inconsistent with a limitation,
restriction, or qualification in the company’s MOI.
Pre-incorporation contracts

• However, a bona fide third party who had no knowledge of such limitation,
restriction or qualification has a right to claim damages for breach of contract.

• For the third party to be able to claim damages, two requirements must be satisfied:
• (i) he or she must have obtained the rights in good faith, and
• (ii) he or she must not have had actual knowledge of the limitation, qualification or
restriction (in the company’s MOI) on its purposes, powers or actual activities. A
company that prefers to avoid the complex and intricate provisions as described
above could simply resolve not to impose any restrictions on its capacity in the MOI
in which case the company would simply have full legal capacity to enter into any
legal contract).
• A contract remains valid and binding, even if the restrictions in the company have
not been complied with. Likewise, the directors lack of authority does not affect the
validity of a contract, provided their lack of authority is as a result of the limitation,
restriction or qualification - (s20(1)(a)(ii)). Section 20(2) permits shareholders to
ratify by special resolution an act of the directors or the company that is
inconsistent with restrictions in the company’s MOI. Once ratified by special
resolution, the liability of the directors for breach of fiduciary duty arguably falls
away. If, however, the act of the directors is not ratified by special resolution, the
directors will be liable in terms of s77 (2) (a) or (3) (a) for breach of fiduciary duty.
Notably, ratification of an act in contravention of the Act is not permissible.
Pre-incorporation contracts

• Section 20(6) provides that each shareholder of a company has a claim for
damages against any person who fraudulently or due to gross negligence
causes the company to do anything inconsistent with the Companies Act 2008
or anything inconsistent with a limitation, restriction or qualification in the
company’s MOI, unless it is ratified by special resolution.

• N/B – The doctrine of constructive notice:

• The general rule states that third parties contracting or dealing with a company
are deemed to be aware of the contents of the constitution of the company and
other public documents of the company. The doctrine was designed to protect
the company from the unauthorised acts of its directors or officers but made it
more hazardous or cumbersome for outside parties to contract with
companies.)

• The doctrine of constructive notice may be utilised in terms of the Companies

Act 2008 in certain circumstances. Third parties or outsiders dealing with a
company will no longer be deemed to have had notice of the contents of the
public documents of the company merely because they have been filed with the
Commission or are accessible for inspection at the office of the company.
doctrine of constructive notice

• doctrine of constructive notice under the Companies Act 2008:

• It is surprising however, that having abandoned the troublesome doctrine of

constructive notice, the Companies Act 2008 in s19(5) reintroduces a muted version
of this doctrine by providing that a person is deemed to know of any special
conditions that apply to the company provided that the company has drawn attention
to the special conditions in its notice of incorporation.

• This is reinforced by s 11(3)(b) which requires that a company with special conditions
applying to it must add immediately after its name the suffix ‘RF’ (meaning ring
fenced).

• This is intended to draw attention to the fact that there are special conditions that
apply to the company.

• The other instance where the doctrine of constructive notice applies is in the case of
a personal liability.

• Persons dealing with such a company are deemed to be aware that its directors and
former directors are jointly and severally liable for the debts and liabilities of the
company that are contracted during their periods of office – s19(5).
Types of Companies

• Types of Companies:

• The Companies Act 2008 provides for the formation and incorporation of two
types of companies, namely profit companies and non-profit companies.

• Profit company - incorporated for the purpose of financial gain for its
shareholders.
• A profit company may be incorporated by one or more persons.

• The Companies Act 2008 does not restrict the number of shareholders in a
profit company even in the case of a private company.

• There are four types of profit companies:

•  A public company;
•  A state-owned company;
•  A personal liability company; and
•  A private company.
Types of Companies
Types of Companies
• A public company is a profit company that is not a SOC, a private company or a
personal liability company. The abbreviation “Ltd” or Limited must be added to the
name (s11(3)(c)(iii). In a public company, shares may be offered to the public and are
freely transferable. A public company could be listed (on a stock exchange) or
unlisted. It must have at least three directors.

• A state owned company is a profit company that is either listed as a public entity in
schedule 2 or 3 of the Public Finance Management Act 1 of 1999 or is owned by a
municipality.
• A state owned enterprise is therefore a national government business enterprise which
is a juristic person under the ownership and control of the national executive that has
been assigned financial and operational authority to carry on a business activity.

• The principal business of a SOC is that it provides goods or services in accordance

with ordinary business principles and is fully or substantially financed from sources
other than the National Revenue Fund or by way of tax, levy or any other statutory
money.
• The abbreviation “SOC Ltd” must be added to the name (s11(3)(c)(iv). Practical
examples of state-owned enterprises are; (i) Bloem Water; (ii) Magalies Water; (iii) SA
Bureau of Standards (SABS); (iv)Rand Water; (v) Public Investment Corporation
Limited.
Types of Companies
• A private company is a profit company whose MOI prohibits the offering of its shares
to the public and restricts the transferability of its shares. There is no restriction on
the number of shareholders of a private company in terms of the 2008 Act.

• The abbreviation (Pty) Ltd or Proprietary Limited must be added to the name (s11(3)
(c)(ii). In Smuts v Booyens; Markplaas (Edms) Bpk and Another v Booyens 2001 (4)
SA 15 (A) the court stressed that the restricted transferability of a company’s shares
is an essential attribute of a private company, and a shareholder’s right to ‘transfer’
shares at all must be restricted by the company’s articles. A private company must
have at least one director.

• A personal liability company is a private (profit) company used mainly by professional

associations such as attorneys, entrepreneurs and stockbrokers who wish to exploit
some of the advantages of corporate personality such as perpetual succession.

• The directors and past directors are jointly and severally liable, together with the
company, for any debts and liabilities of the company that were contracted during
their respective terms of office. The abbreviation “Inc” or “Incorporated” must be
added to the name (s11(3)(c)(i). A personal liability company must have at least one
director.
Types of Companies
• Non-profit Companies
• An NPC is a company that is incorporated for a public benefit or other object as
required by item 1(1) of schedule 1 of the Companies Act. The abbreviation “NPC”
must be added to the name (s11(3)(c)(v). It must have at least three directors.

• External companies
• An external company is a foreign company that is carrying on business or non-
profit activities (as the case may be) within the Republic.

• Domesticated companies

• A domesticated company is a foreign company whose registration has been

transferred to the Republic in terms of section 13(5) to (9) of the Companies Act
2008. Section 13 provides that a foreign company may apply to transfer its
registration to the Republic from the foreign jurisdiction in which it is registered.

• Such a company will then exists as a company in terms of the South African
Companies Act 2008 as if it had been originally incorporated and registered in terms
of that Act. Certain requirements however, need to be first complied with – see s13.
FORMATION/REGISTRATION OF COMPANIES:

• The Notice of Incorporation and the Memorandum of Incorporation:

• The incorporation of a company involves the filing of a notice of incorporation. Notice

of incorporation is defined as the notice to be filed in terms of s13(1), by which the
incorporators of a company inform the Commission of the incorporation of that
company, for the purpose of having it registered. In terms of section 13 the Notice of
Incorporation must be filed together with the prescribed fee, and must be accompanied
by a copy of the MOI.

• In terms of the Co. Act 61 of 1973 all companies were required to submit a
memorandum and articles of association as the constitutive documents of a company
formed under the Act. In terms of the Co. Act 2008 the incorporators of a company now
submit a MOI only as a founding document of the company.

• The MOI is defined in section 1 as the document, as amended from time to time, that
sets out rights, duties and responsibilities of shareholders, directors and others within
and in relation to a company, and other matters as contemplated in s 15.
•
• The MOI is the founding document of a company and determines the nature of the
company, (that is, whether it is a public or private company or another type of company,
as well as the rights, powers and duties of stakeholders).
FORMATION/REGISTRATION OF COMPANIES:

• The Companies Act 2008 requires that each provision of a company’s MOI must be
consistent with the provisions of this Act.
• A company’s MOI will deal with any number of different issues including the following:

• The objects and powers of a company;

• Authorized share capital and types of shares;
• Any restrictions or limitations on the powers of the company;
• What happens to the assets if the company is dissolved;
• The composition of the board of directors;
• The election and removal of directors;
• Alternate directors;
• The frequency of board meetings;
• The committees of the board;
• The personal liability of directors;
• Powers of directors, powers of shareholders;
• Disposal by shareholders of their shares;
• Shareholders meetings and procedures involved;
• The amendment of the MOI;
• Legal status of the MOI and the rules developed by the board of directors.
FORMATION/REGISTRATION OF COMPANIES:

• The MOI and the rules developed by the board are binding:

•  Between the company and each shareholder, and

•  Between or among the shareholders of the company, and
•  Between the company and
• - Each director or prescribed officer of the company, or
• - Other person serving the company as a member of the audit committee or as a
member or a committee of the board in the exercise of their respective functions within
the company.

• Ring-fenced companies:

• Section 11(3)(b) provides that a company’s name must be immediately followed by the
expression (RF), meaning ring-fenced, if a company’s MOI contains:

• Any restrictions or procedural requirement that impedes the amendment of any

particular provision of the MOI; or

• If a company’s MOI contains any provision restricting or prohibiting the amendment of

any particular provision of the MOI.
FORMATION/REGISTRATION OF COMPANIES:

• Therefore, if a company’s name ends with the letters ‘RF,’ outsiders dealing with that
company are made aware that there are special provisions in that company’s MOI.

• The Companies Act 2008 specifically provides that if a company’s MOI includes any
provision contemplated in s15(2)(b) or (c), the notice of incorporation filed by the
company must include a prominent statement drawing attention to each such
provision and its location in the MOI.

• Section 20 provides that a person dealing with a company in good faith, other than a
director, prescribed officer or shareholder of the company, is entitled to presume that
the company, in making any decision in the exercise of its powers, has complied with
all the formal and procedural requirements in terms of the Act, the MOI and any rules
of the company, unless in the circumstances, the person knew or reasonably ought to
have known of any failure by the company to comply with any such requirement.

• However, a third party dealing with a RF company can be presumed to have been
made aware of certain special provisions in that company’s MOI, and therefore, ought
reasonably to know that the company has to comply with such special provisions.
FORMATION/REGISTRATION OF COMPANIES:

• Ring-fenced companies:

• Section 19(5) specifically provides that a person must be regarded as having notice
and knowledge of any provision of a company’s MOI contemplated in s15(2)(b) if the
company’s name includes the letters ‘RF’ and if the company’s Notice of
Incorporation or a Notice of Amendment has drawn attention to the provision, as
contemplated in section 13(3).

• This means that as far as RF companies are concerned, the doctrine of constructive
notice is still applicable and third parties dealing with an RF company cannot rely
on the Turquand Rule.

• Shareholders Agreements:

• The shareholders of a company may enter into any agreement with one another
concerning any matter relating to the company. However, any such agreement must
be consistent with the Act and with the company’s MOI.

• Any provision of such any agreement that is inconsistent with the Companies Act
2008 or with the company’s MOI is void to the extent of the inconsistency.
Thank you