THE PRIVATE COMPANY

Page 48-49 PRESCRIBED BOOK

 PRIVATE COMPANY (PTY) LTD
• A private company is a profit company whose MOI prohibits the offering of shares to the
public and restricts the transferability of its shares.
• There are no restrictions on the number of shareholders under the 2008 Act however
the 1973 Act restricted shareholders to maximum of 50.
• Smuts v Booyens, Markplaas (Edms) Bpk v Booyens 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 MOI.
• The manner in which restriction apply must be set out in the MOI, the transferability
od securities may be restricted by for example that the remaining existing
shareholders have the first right to acquire the shares which another shareholder
wishes to dispose( called Pre-emptive right).
 PRIVATE COMPANY (PTY) LTD
WHAT IS A PRE-EMPTIVE RIGHT
• A pre-emption right, right of pre-emption, or first option to buy is a contractual right to
acquire certain property newly coming into existence before it can be offered to any other
person or entity.
• It is the right of existing shareholders in a corporation to purchase newly issued stock before
it is offered to others.
• The right is meant to protect current shareholders from dilution in value or control.
• Silndler NO v Gees and six Other Cases 2006 (5) SA 501- NB page 45 textBoo
 PRIVATE COMPANY (PTY) LTD
BOARD OF DIRECTORS REFUSAL TO TRANSFER SHARES
In terms of section 15(7) of Companies Act any shareholders agreement must be consistent with
the Act and with the MOI and any inconsistency is void to the extent of the inconsistency.
• A shareholders agreement cannot impose further restrictions or alter exisiting restrictions in an
MOI.
• Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd case no. 15854/2013 (19 June 2014).
• In the Visser Sitrus case, the MOI of the target company (Goede Hoop Sitrus or GHS)
contained a clause that provided that:“no shareholder may transfer the registered or beneficial
ownership of any Ordinary Shares in the Company to any other party without first complying
with the requirements for transfer as set out in the Act and in this MOI and obtaining the
approval of the board for such transfer.
• One of the shareholders of GHS, Visser Sitrus (VS), wished to sell its shares to an entity that
was in the process of consolidating control over GHS, and the board was not pleased with this
situation. The board accordingly refused the transfer without giving reasons for its decision.
• The court held that there is no general duty on a person holding a fiduciary position to give
reasons for his actions to those to whom their duties are owed. The duty of a fiduciary to render
an account is a duty to disclose what he has done in the course of his administration, not why
he has done it.