EACG2708

LEARING UNIT 2.3

COMPANIES ACT
·
 PART 1
Introduction
Sections 1, 2, 4, 7, 8, 15, 16, 29, 30

History of the Companies Act

• The Companies Act, 2008 was published in the Government Gazette on 26 April 2011 and
came into effect on 01 May 2011
• It replaced the Companies Act of 1973 (old Act)
• Due to the change in the economic, social and political landscape, there was a need to
rethink the way companies were managed (governed).
• The purpose was to make it easier to create a new company and make it more flexible.
• The Act deals comprehensively with the election, disqualification, vacancies, removal,
meetings, resolutions (decisions) and the liability of directors.

Encourage Entrepreneurship

·
Promote Innovation within South Africa
Five Objectives Promote effective management of companies
Encourage Transparency and high standards
Compatible with international best practices

Simplification

mu
mu
Five Goals
Flexibility
Corporate Efficiency
Transparency
Predictable Regulation

(S7) Purpose of the companies act

• Promote compliance with the Bill of Rights in the application of company law.
• Promote the development of the South African economy:
-Entrepreneurship
-Flexibility and simplicity
-Transparency and high standards
• Promote innovation and investment in South Africa
• Reaffirms the concept of a company in achieving economic and social benefits
• Create and use companies to enhance economic welfare within the global economy

Why is the Companies Act important? >

-
ACT = LAW = MUST COMPLY
Purpose of the ACT?
• Deals with how companies are set up and managed (decisions)
• Ownership and ownership transfer (directors vs shareholders)
• Protect the interest of relevant stakeholders (NB)
Why incorporate a company? (Incorporated = “started”/“founded”)
• Tax? (how is a company taxed compared to a natural person)
• Personal Liability? (Exceptions?)
• Administration? (Legal and Formal)

(S1) Definitions

Share means one of the units into which the proprietary interest in a profit 55
company is divided

Memorandum of means the document, as amended from time 55 to time—

Incorporation (MOI) • a) 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 section 15; and

·

• b) by which the company was incorporated in terms of this Act, as

contemplated in section 13; or a pre-existing company was structured
and governed before the later of the effective date; or the date it was
converted to a company in terms of Schedule 2;

Shareholder Director
subject to section 57(1), means the holder of a means a member of the board of a company,
share issued by a company and who is as contemplated in section 66, or an alternate
entered as such in the certificated or director of a company and includes any
uncertificated securities register, as the case person occupying the position of a director or
may be; alternate director, by whatever name
designated;

Shareholder Meeting Board Meeting

with respect to any particular matter ‘board’’ means the board of directors of a
concerning a company, means a meeting of company;
those holders of that company’s issued
securities who are entitled to exercise voting
rights in relation to that matter;

(S2) Related Persons

An individual is related to another individual if they:

• Are you married or live together in a relationship like marriage
• Are separate by no more than two degrees of natural or adopted consanguinity or affinity.

An individual is related to a juristic person (company) if

the individual directly or indirectly controls the juristic person (company).

A juristic person (company) is related to another juristic person (company)

• either of them directly or indirectly controls the other
• either is a subsidiary of the other
For the purpose of EACG2708, you should note that the following parties are related:
• A holding company/subsidiary/co- subsidiary (Juristic)
• Spouse, children, mother, father, and siblings (individual)
• Individual controlling a company directly or indirectly (will be given)

(S4) Solvency and Liquidity Test

Many resolutions (decisions) that will have a financial impact (E.g., any distribution) will only be
valid if the Company passes the Solvency & Liquidity Test.
&
For any purpose of this Act, a company satisfies the solvency and liquidity test at a particular time
if, considering all reasonably foreseeable financial circumstances of the company at that time—
(a) the assets of the company or, if the company is a member of a group of 15
companies, the aggregate assets of the company, as fairly valued, equal or exceed the
liabilities of the company or, if the company is a member of a group of companies, the
aggregate liabilities of the company, as fairly valued;
and
(b) it appears that the company will be able to pay its debts as they become due in 20
the ordinary course of business for a period of—
• (i) 12 months after the date on which the test is considered; or
⑧

• ii) in the case of a distribution contemplated in paragraph (a) of the definition of

⑨

‘distribution’ in section 1, 12 months following that distribution.

(S8) Categories of Companies

(S15) Memorandum of Incorporation (MOI)

What is a MOI:
• Company’s own set of “rules and regulations”.
• Determines what the company/directors may/may not do

LOOK OUT...
• Certain things are prohibited/compulsory REGARDLESS of the MOI –it is Law
• Other things in the Act are allowed ONLY IF the MOI allows it (to the extent that the MOI
allows...)

MOI cannot contravene the Act:

• Must be consistent with the Act
• Can always be stricter than the Act
In terms of section 15, the following information must be included in a company’s MOI:

Alterable Provisions vs Unalterable provisions

↓ ↓
Alterable: Unalterable:
Can be changed by the MOI MOI cannot reduce or take away the
(more or less strict). requirements (only make stricter)

The MOI is binding:

• Between the company and each shareholder
• Between or among each shareholder
• Between the company, each director (member of the board)

(S16) Changing the MOI

Changing the MOI can be proposed by:

• The board; or
• Shareholder(s) (hold at least 10% of the voting rights) Can be different in the MOI (alterable
provision)

MOI can be changed (amended) by:

• Court order; or
• Special Shareholders Resolution (>75%) must APPROVE the change (unalterable)

(S28) Accounting Records

A company must keep accurate and complete accounting records

• In at least one of the official languages

Accounting records must be kept at or accessible from the company’s registered office.

If a company, with an intention to deceive or mislead any person:

• Fails to keep accurate and complete records
• Keeps records other than in the prescribed manner, or
• Falsifies or allows records to be falsified
It will be guilty of an offence!
(S29) Financial Statements
 PART 2
COMPANY SHARES
Sections 36, 37, 38, 39, 40, 41

(S35) Legal Nature of Shares

1. A share issued by a company is movable property, transferable in any manner provided for or
recognised by this Act or other legislation.
2. A share does not have a nominal or par value, subject to item 6 of Schedule 5.
3. A company may not issue shares to itself.
4. An authorised share of a company has no rights associated with it until it has been 30 issued.
5. Shares of a company that have been issued and subsequently—
• (a) acquired by that company, as contemplated in section 48; or
• (b) surrendered to that company in the exercise of appraisal rights in terms of section 164, 35
have the same status as shares that have been authorised but not issued.
6. Despite the repeal of the Companies Act, 1973 (Act No. 61 of 1973), a share issued by a pre-
existing company, and held by a shareholder immediately before the effective date, continues to
have all of the rights associated with it immediately before the effective date, irrespective of
whether those rights existed in terms of the company’s 40 Memorandum of Incorporation, or in
terms of that Act, subject only to—
• (a) amendments to that company’s Memorandum of Incorporation after the effective date
• (b) the operation of subsection (5); and
• (c) the regulations contemplated in item 6(3) of Schedule 5.

(S36) Authorisation of Shares

The Memorandum of Incorporation must set out the following:
1. Classes & Number of shares authorised (for issue) in each class:
• A company can have different type of shares. (e.g., ordinary shares or preference shares).
• Remember that shares give a shareholder ownership and certain rights and a certain number
of votes depending on the type of share.

2. Each class (type) of shares should have a distinguishing name:

• A company needs to name each type of share for it to be identified.
• Typically, companies will stick with “Ordinary shares” and “Preference shares”

3. Preferences, rights and limitations of each type of share:

• The MOI must state the preferences, rights and limitations for each type of share that has been
authorised.
• Preference shares will typically have more “benefits” than ordinary shares. (But they might cost
more to buy). E.g., Will receive more dividend, can have more voting rights (e.g., Ordinary share
= one vote, Preference share – two votes) etc.

EXAMPLE OF VOTING RIGHTS

Changes to the shares (number, rights, class etc.) may be changed by:
• A SPECIAL Shareholder’s RESOLUTION requiring amendment of MOI (section 16); OR
• The Board (UNLESS MOI states the board may NOT change the number of shares.)

The board may change the following (unless MOI prohibits the board):
• increase or decrease the number of authorised shares (in any class);
• Reclassify any classified shares; (authorised but not issued)
• Classify any unclassified shares; or
• Determine the preferences, rights, limitations or other terms of shares in a class
(S37) Preferences, rights, limitations and other share terms

All shares in the same class = same rights and/or limitations.

• The rights of one shareholder's ordinary share cannot differ from those of another shareholder
who holds the same type of share.
• The preferences, rights, limitations, and other terms linked to each type of share must be
indicated in the MOI (section 36).

Each issued share has general voting right (unless MOI states otherwise – limited, but not taken
away)
• General Voting right: Vote which can be exercised generally at a shareholders meeting.
• If a decision affects your share(s), you may vote! Even if you only have one share. (MOI cannot
change this).

(S38) Issue of Shares

• BOARD may issue shares – as long as they are authorised according to the MOI (Section 36).
• If the board issues shares that have not been authorised or which are more than the number
of authorised shares (as per the MOI), the issue can be retroactively authorised within 60
business days by a special shareholders’ resolution.

Consequences if not retroactively authorised (approved):

• If not retroactively authorised within 60 business days, the issue is null and void to the extent
that authorisation (number of shares) has been exceeded.
• Subscribers must be repaid (with interest), and all share certificates (and entry into the
shareholder register) must be nullified (not valid).
• A director who has been party to the issue of shares (voted in favour) may be held liable for
any loss suffered by the company (Section 77).
 (S39) Subscription of Shares

• If a private company [(Pty) Ltd] wants to issue shares, each existing shareholder has a right to
buy the shares before the board can offer the shares to non-shareholders.
• This preference offer to existing shareholders is only equal to their existing shareholding and
within a reasonable time.
• An MOI may limit, negate (render null or void), restrict or place conditions on this pre-emptive
right.

(S40) Consideration for Shares

The board may only issue authorised shares for:

• Adequate consideration as determined by the board; or
• In terms of existing conversion rights (converting a preference share into an ordinary share); or
• As a capitalisation issue

Cannot challenge the share price determined by the board UNLESSS they did not act in good
faith, in the best interest of the company and without a degree of skill and diligence (as can be
expected from a director)

(S41) Shareholder’s approval for issuing shares in certain cases

A special shareholder’s resolution is required to issue shares in the following circumstances:

• Issuing shares to a director or future director; or
• Issuing shares to a person related (section 2) to a director or future director; or
• Issuing shares to a person who is nominated to be a director or future director.
7
A future director is a person who becomes (or will become) a
director within six (6) months after the issue of the shares.
 EACG2708

Class 2: Examples Activities

Activity 1:
ABC Ltd has 120 000 authorised ordinary shares and 18 000 authorised preference
shares. The company has already issued 80 000 ordinary shares and 10 000 preference
shares. Determine to what extent the board may issue ordinary shares and preference
shares in terms of section 38 of the Companies Act.
Tip: Support your answer with reference to relevant legislation.

In terms of section 38, the board can issue shares to the extent that those
shares have been authorized

Ordinary shares : Preference Shares

120, 000 authorised -

80 , 000 issued 8000 authorised -

10, 000 issued

The board issue 40000 shares The board issue 8000 shares
:
can can

Activity 2:
XYZ Ltd has 180 000 authorised ordinary shares and 50 000 authorised preference
shares. The company has already issued 160 000 ordinary shares and 40 000 preference
shares. To raise funds for a new investment project, the board has proposed to issue
30 000 ordinary shares at R5.5 per share and 15 000 preference shares at R8.5 per
share.
The current shareholders complained that the consideration of R5.5 per ordinary share
and R8.5 per preference share was not a fair reflection of the value of the shares.
(a) Discuss the Companies Act requirements for the proposed issue of 30 000 ordinary
shares.
(b) Discuss whether the unhappy shareholders may legally challenge the consideration
of R5.5 per ordinary share and R8.5 per preference share.
⑨
• Tip: Support
In terms your
of section 38, answer with
the board canreference to relevant
issue shares legislation.
to the extent that those shares have been authorised.
• XYZ Ltd has 180 000 authorised ordinary shares, of which 160 000 ordinary shares have already been
issued. The board may, therefore, issue 20 000 ordinary shares.
• In order to issue the additional 10 000 (30 000 – 20 000) ordinary shares, the authorised number of shares
must be increased (by changing the MOI) to at least 190 000 ordinary shares (180 000 authorised shares +
10 000 additional shares).
• Amending (changing) the MOI can be proposed by (section 16):
- The board, or
- Shareholder(s) holding at least 10% of the voting rights (ordinary shares)
• The MOI can be amended (changed) by (section 16):
- A court order
- Special shareholder’s resolution
- Remember section 37

• In terms of section
Copy Right 36, ©the
Reserved board may
University of theincrease the2024
Free State number of shares in the MOI: 1
- If allowed by the MOI.
- If NOT allowed by the MOI, then revert to section 16 (amending the MOI).
 EACG2708

(b) Discuss whether the unhappy shareholders may legally challenge the consideration of
R5.5 per ordinary share and R8.5 per preference share.

In terms of section 40, the (adequate) consideration determined by the board can only be
challenged if it can be proved that the board:
• Did not act in good faith; and/or
• In the best interest of the company; and/or
• With the degree of skill and diligence that can be expected from a director

Activity 3:
Orange (Pty) Ltd has 300 000 authorised ordinary shares, of which 200 000 ordinary
shares have been issued. The company plans to expand its operations and needs cash
to fund the expansion. The board has proposed to issue 50 000 ordinary shares to fund
the expansion. The existing shareholders of Orange (Pty) Ltd are:
1. Mr Apple owns 120 000 shares.
2. Mr Banana owns 60 000 shares.
3. Mrs Berry owns 20 000 shares.
The MOI does not limit, negate (render null or void), restrict or place conditions on any
pre-emptive rights of shareholders as determined by the Companies Act.
Calculate how many shares should be offered (if any) to the existing shareholders.

When a private company issues shares, each of the existing shareholders has a preference
right to buy the shares (equal to their existing shareholding) within a reasonable time before
the board can offer the shares to non-shareholders (section 39).

Current Number % share- Calculation: Number Calculation:

shareholders of shares holding of shares:
Mr Apple 120 000
shares
Mr Banana 60 000
shares
Mrs Berry 20 000
shares
Total: 200 000
shares

Copy Right Reserved © University of the Free State 2024 2

 PART 3
DIRECTORS OF THE COMPANY
Sections 22, 66, 68, 69, 71, 72, 75, 77, 214

(S66) Board, directors & prescribed officers

• The business and affairs of the company must be managed by the board of directors (those
charged with governance).
• The board has the authority to exercise power and perform functions (to the extent that the
MOI provides otherwise).
• Specific requirements on the number of directors that should serve on the board (see the
next slide for details). The MOI may require a higher number of directors (but not lower).
• A company may pay directors for their service as directors (to the extent that it is allowed
by the MOI).

Composition of the board (legal requirements):

The MOI may provide for the appointment/removal of one or more directors by:
• Any person named in/determined by the MOI (E.g., chairperson)
• BUT: 50% of directors must be appointed by the SHs (Profit company)

A person who is ineligible or disqualified from being a director (section 69) may NOT be appointed
to the board.

(S68) Appointment of Directors

Each director must:

• Be elected by a person(s) entitled to exercise voting rights in the appointment of directors (as
determined by the MOI and the Companies Act).
• Serve for a term as determined by the MOI (e.g., 5 years)
• Voted on separately (individually appointed)

Each vote can only be exercised once (per candidate), and a majority vote is required.
 (S69) Ineligibility and Disqualification of a person from being a director
A person who is ineligible or disqualified from being a director may NOT be appointed to the board.

A person is ineligible if the person:

• Is a juristic person (company); or
• Minor (child under the age of 18); or
• Does not satisfy the qualifications as set out in the MOI

A person is disqualified if the person:

• Has been prohibited by the court;
• Is an un-rehabilitated insolvent;
• Has been removed from an office of trust due to misconduct or dishonesty;*
• Has been convicted and imprisoned (without the option of a fine) for theft, fraud, forgery, or
perjury.
↓
A person who has been disqualified, in terms of
the “*” will have the disqualification lifted after 5
years, unless the court deems otherwise.

(S71) Removal of Directors

Despite any arrangements (including the MOI), a director may be removed by an ordinary
shareholder’s resolution (requiring > 50%), or by a board decision.

Before a director is removed by shareholders or the board, the director must:

• Be notified (within a prescribed period – see textbook) of the meeting and the pending decision
to remove him/her, AND
• Be afforded a reasonable opportunity to present to the meeting before voting takes place.

If a shareholder or director alleges that a director has become:

• Ineligible or disqualified (section 69)
• Incapacitated to the extent that he/she cannot perform their duties, or
• Has neglected or been derelict in their duties as a director

The board must consider the allegations and may vote on removing a director.

(S72) Committees
The board may appoint any number of committees of directors and delegate any authority of the
board to the director (to the extent allowed by the MOI).

The board committees may (to the extent allowed by the MOI):
• Include any person who is not a director of the company, provided
- The person is not ineligible or disqualified (section 69)
- The person will not have any vote on any matter
• Obtain advice from any person as deemed necessary
• Has the full authority of the board in respect of any matter delegated
(S75) Directors personal financial interests
• A director of a company is responsible for looking after the interests of the company and NOT
his/her own personal interests (S66).
• When a director has a personal financial interest in a matter to be decided upon (or knows
that a related person has a personal interest in the matter) = section 75 applies!
• Purpose – to avoid conflict of interest between directors and the company

Example:
Mr A is a director on the board of Company C. The board needs to decide on a new supplier. Mr A
owns shares in the proposed supplier. He, therefore, has a personal financial interest in the matter
(conflict of interest).

Requirements:
When a director has a personal financial interest in a matter to be decided upon (or knows that a
related person has a personal interest in the matter), that director:
1. MUST disclose the interest and the general nature before the matter is considered. (E.g.,
15% shareholding in a company being considered)
2. MUST disclose to the meeting any material information has/she has relating to the matter
(E.g., fact(s) not known to his fellow directors)
3. MAY disclose any observations/insights if requested to do so by fellow directors (E.g.,
opinion on the extent of financial difficulties)
4. MUST not take part in the consideration of the matter
5. MUST leave the meeting

• Director is counted as part of the quorum (for meeting purposes).

• Not counted as present to determine whether resolution requirements are met (decision
purposes)
• Cannot vote on the matter
• Declaration must be included in the minutes & entered into register

(S22) Reckless Trading

Company MUST NOT do business:

• Recklessly (e.g., cannot pay creditors but still buys on credit)
• With gross negligence
• With intent to commit fraud

(S77) Liability of Directors

A director may be held liable for any loss, damage or cost sustained by the company as a result of:
A director may be held liable for any loss, damage or cost sustained by the company as a result of:
Being present at a meeting/voting on a matter and not voting against:
• The issue of unauthorised shares (section 38)
• Issue of authorised shares (contravening the Act) (Section 38)
• Provide financial assistance to any person (including a director) whilst knowing that the financial
assistance is against the Companies Act (Sections 44 and 45)
• Approving a distribution whilst knowing that the distribution is in contradiction to the Companies
Act requirements (for example, not satisfying the Solvency & Liquidity Test (Section 4).

(S214) False statements, reckless conduct and non-compliance

A person is guilty of an offence if he/she:

• Is a party to falsifying accounting records;
• Knowingly provides false or misleading information;
• Knowingly part of an act (or lack thereof) to defraud a creditor, employee or shareholder or
with another fraudulent purpose;
• Is a party to preparing, approving, spreading information or publishing:
- Financial Statements that do not comply with IFRS;
- Financial Statements, knowing that they are misleading;
- A prospectus that contains an untrue statement

A person guilty of any of the above can receive a hefty fine, imprisonment (not longer than 10
years), or both.
 PART 4
FINANCIAL ASSISTANCE
Sections 44, 45

(S44) Financial Assistance for the subscription of securities

• A Company may provide financial assistance to anyone to buy securities (shares) in the
company, a subsidiary or a related company:
- Financial assistance includes loans, guarantees, providing security etc.
- Approved by the board
• The requirements of this section do not apply to a company whose primary business is the
lending of money.
• The MOI cannot permit the granting of financial assistance in contravention of this section.

Requirements for providing financial assistance:

1. Any conditions/restrictions in terms of the financial assistance in the MOI must be adhered to.
2. The board is satisfied that:
• Immediately after providing the financial assistance, the company will satisfy the solvency
and liquidity test (section 4); and
• Terms are reasonable and fair.
3. A special shareholders resolution was obtained for the financial assistance within the last 2 years
• The special shareholder’s resolution can be for a specific recipient or generally for a category of
potential recipients.

(S45) Loans or other financial assistance to directors

• A company may provide financial assistance to:

- Director;
- Director of a related company; or
- A related company
• Financial assistance includes loans, guarantees, providing security etc.
• The MOI cannot permit the granting of financial assistance in contravention to this section.

Requirements for providing financial assistance:

1. Any conditions/restrictions in terms of the financial assistance contained in the MOI are
adhered to; and
2. The board is satisfied that:
• Immediately after providing the financial assistance, the company will satisfy the solvency
and liquidity test (section 4); and
• Terms are reasonable and fair.
3. A special shareholders resolution was obtained within the last two (2) years.
• The special shareholder’s resolution can be for a specific recipient or generally for a category
of potential recipients.
Additional disclosure requirements for providing financial assistance:
4. Where the board decides to provide financial assistance to a director, the company must
provide written notice of the decision to all shareholders and to any trade unions representing the
employees of the company:
• Within 10 business days after the decision was approved if the value of the financial
assistance exceeds one-tenth of 1% of the company’s net worth at the time of the resolution.
• Within 30 business days after the end of the financial year if the value of the financial
assistance does not exceed one-tenth of 1% of the company’s net worth at the time of the
resolution.

Financial assistance does NOT include:

• A company whose primary business is the lending of money.
• An accountable advance to a director to meet (only section 45):
- Legal expenses in relation to a matter concerning the company; or
- Anticipated expenses to be incurred by the director on behalf of the company.
- Money provided to pay relocation expenses

Contravening section 44 and section 45

If financial assistance is provided in contravention of section 44 or section 45 or the
Memorandum of Incorporation (MOI):
• The transaction will be void; and
• Director(s) will be liable for losses suffered by the company (s77) if:
• The director was present at the meeting when the board approved the decision or
participated in such a decision; and
• Failed to vote against the decision despite knowing that the provision of financial assistance
was inconsistent with the Companies Act.
6.3 A comparison between Section 44 and Section 45:

Section 44: Financial Section 45: Loans or other

Assistance for the Subscription financial assistance to directors
of Securities
Scope: Financial assistance to any Financial assistance (direct or
person to enable them to buy indirect) to:
shares in the company itself Director of the company or
or a related company. related company;
To a related company;
To a person related to a
director or company.
Purpose: To purchase shares No specific purpose required
Requirements: Any requirements in the MOI Any requirements in the MOI
(regarding financial assistance (regarding financial assistance to
to buy shares) are adhered to. directors) are adhered to.
The board is satisfied that: The board is satisfied that:
1. After providing financial 1. After providing financial
assistance, the company will assistance, the company will
satisfy the solvency and satisfy the solvency and
liquidity test (section 4); liquidity test (section 4);
2. The terms are fair and 2. The terms are fair and
reasonable to the company; reasonable to the company;
and and
3. A special shareholder 3. A special shareholder
resolution has approved such resolution has approved such
a transaction within the past a transaction within the past
two (2) years. two (2) years.
Disclosure: None Written notice to shareholders
and relevant trade unions within:
10 business days (from when
the resolution was passed) if
the value of the financial
assistance > one-tenth (1/10)
of 1% of the company's net
worth; or
30 days (after financial year-
end) in any other case.
Exceptions: The company's primary The company's primary business
business in providing financial in providing financial assistance
assistance is lending money. is lending money.
If the financial assistance is If the financial assistance is
under an employee share under an employee share

12 | P a g e
 Section 44: Financial Section 45: Loans or other
Assistance for the Subscription financial assistance to directors
of Securities
scheme, a special resolution is scheme, a special resolution is
not required (all other not required (all other
requirements still need to be requirements still need to be
complied with). complied with).
Requirements The transaction will be void, and The transaction will be void, and
not followed: the directors will be held liable the directors will be held liable for
for any losses incurred by the any losses incurred by the
company if: company if:
- The director was present at - The director was present at the
the meeting; and meeting; and
- Failed to vote against the - Failed to vote against the
decision. decision.

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 PART 5
SHAREHOLDERS
Sections 61, 62, 63, 64, 65, 66

Two (2) types of meeting:

1. Director’s (board) meeting (which includes board committee meetings)
2. Shareholder's meeting:
• Annual General Meeting (AGM) is a Shareholders (SH) Meeting
• There can be other SH meetings that are not AGM’s

Order of events/matters:
Notice > Agenda > Meeting > Minutes of Meeting

RESOLUTIONS Decisions made at a meeting

QUORUM Number of people with voting rights that need to attend a meeting to
be a valid meeting/voting/resolution (detail in Section 64 – to follow)

Resolutions (decisions):
At Directors meeting:
• Directors Resolution - Requires > 50% of votes
• Certain directors' resolutions need to be APPROVED by Shareholders at an SH’s meeting
(depends on what it is – determined by different sections in the Act)
At Shareholders meeting:
• Ordinary Resolution - Requires > 50% of votes (more than 50%)
• Special Resolution - Requires > 75% of votes (75% or more)

If directors act outside of their powers, shareholders can RATIFY their decisions
enter

Retrospective approval (see Section 20

in the Act for interest's sake)

(S61) Shareholder (SH) Meetings

Who MAY call (propose) an SH meeting? When?

• Board
• Any person, as determined by the Memorandum of Incorporation (MOI
• At any time
When MUST an SH meeting be held?
• When SH approval is necessary (according to MOI or Act);
• To fill a board vacancy (to appoint a director);
• When required to do so by the MOI;
• For an AGM of a public company;
• When shareholders with 10% shareholding combined require (“call”) a meeting
• A public company MUST have an Annual General Meeting (AGM):
• 18 months after incorporation and thereafter every 12 months.

The Annual General Meeting should address (at minimum) the following:

(S62) Notice of Shareholder Meetings

• Public Companies and Non-profit companies = 15 business days in advance

• Other companies = 10 business days in advance
• The MOI can increase or decrease the number of days prior to the meeting

Notice MUST include:

(S63) Conduct of Shareholder Meetings

Before a person may attend and participate in a meeting:

• The person needs to identify themselves when attending; and
• Person presiding the meeting - Ensure the person in attendance (at the meeting) can
participate and has voting rights (reasonably verified)

Proxy can stand in for a shareholder at an SH meeting

Meeting may be electronic (if not prohibited by the MOI)
Voting process (methods of voting):
• By a show of hands: One person = One vote
• By polling: One share = One vote (determined by the type of share – their voting rights)

(S64) Shareholders Meeting Quorum & Adjournment

Quorum:
• Number of people with voting rights that need to attend a meeting to be a valid meeting/voting/
resolution.
• Consider both person quorum (how many people) and votes quorum (% of shareholding/voting
power).

Meeting Quorum:
A shareholder meeting may not begin until:
• Shareholders holding at least 25% of the voting rights are present (votes quorum); and
• At least three (3) shareholders are present if a company has more than two shareholders
(person quorum)

Decision Quorum:
A matter to be decided at a meeting may not be considered unless SH’s holding at least 25% of
the voting rights are present (votes quorum).

The MOI may specify a higher or lower percentage than the 25% for both types of quorums.

(S65) Shareholders Resolutions

• The board may propose any resolution to be considered by the shareholders.

• Every shareholder’s resolution is either an ordinary resolution (>50%) or a special resolution
(>75%).
• The MOI may require a higher percentage for an ordinary resolution.
• The MOI may require a higher percentage or lower percentage for a special resolution.
• There must always be a 10% difference between the highest requirement for an ordinary
resolution and the lowest requirement for a special resolution.

A special shareholders resolution is required for:

The MOI may require that a special shareholder resolution is required to approve matters other
than those listed above.
 PART 6
PUBLIC INTEREST SCORE
Regulations 26, 27, 28

What are Companies Act Regulations?

Not officially included in the Companies Act

Information added to the Act at a later stage to:

• Provide extensive requirements that are not included in the Companies Act
• Clarification of matters contained in the Companies Act that might be difficult to interpret
• Elaborates further on Companies Act requirements;
• Provides an explanation of certain matters.

(R26) Public Interest Score

Purpose of this regulation:

• This regulation is provided for companies to determine how they should calculate their Public
Interest Score (or PI Score).
• The Pl Score is designed to consider several factors that relate to the public's interest in a
company.
• The Pl Score must be calculated on an annual basis.
• In accordance with Section 28 - 31 in the Companies Act

What should you do with the Pl Score?

• Determine the Financial Reporting Framework (IFRS, IFRS for SMEs) to be applied by a
company if no specific laws or regulations dictate it
• Determine the categories of companies for audit or independent review
• Determine who can carry out the audit or independent review of companies

The PI Score in calculated on the following basis:

The sum of:
(R27) Financial Reporting Standards

Purpose of this regulation:

• States that a company's financial statements may be compiled (prepared) internally or
independently; and
• Stipulates the applicable financial reporting standards a company must comply with
(Companies Act requirement - Regulation elaborates).

To be classified as "compiled independently", the financial statements must be:

• By an independent accounting professional (see requirement on next slide)
• On the basis of financial records provided by the company
• In accordance with any relevant financial reporting framework

Independent accounting professional:

1. A registered auditor (in terms of the Auditing Professions Act), or
2. A member in good standing with a professional body accredited in terms of the Audit
Professions Act (E.g., SAICA), or
3. Qualify to be appointed as an ; AND

a) Does not have a personal financial interest in the company or a related company; and
b) Is not involved in the day-to-day management of the company and has not been so involved
during the previous three years; and
c) Is not a full-time employee of the company and has not been so involved during the previous
three years; and
d) Is not related to any person as stated above (a) to (c)
(R28) Audit of Companies

Independent Audit of Financial Statements:

• This regulation only deals with companies that must be audited in terms of the regulations.
• Companies can also be audited in terms of:
- Requirement of the MOl; or
- Voluntary decided to be audited.

In terms of regulation 28, the following companies MUST BE audited by an external auditor:
• All public companies (regardless if the company is listed or not);
• All state-owned companies (SOC);
• Any company that holds assets (> R 5 million) in a fiduciary capacity for persons who are not
related to the company (E.g., Banks).
• Other profit companies: PI Score > 350
• Other profit companies: Pl Score 100 - 349 and AFS are internally compiled

(R29) Independent Review of Annual Financial statements

Independent Review of Financial Statements:

• Companies not audited must be independently reviewed
- Exception: Private company where every SH is a director (owner-managed)
- Exception: Companies that are audited in terms of their MOl or voluntarily
• The review should be carried out in terms of the International Standard on Review
Engagements (ISRE2400)
• An independent review must NOT be carried out by a person who is involved in the
preparation of the financial statements.
• Specific requirements for who may carry out the independent review.