Different Forms of Companies In Terms of the New Companies Act

The new Companies Act is due to be introduced on the 1st April 2011, its introduction having been delayed because of the Act having had the dubious honour of being the first piece of legislation that the writer knows of that had to be amended after it had been passed but before it come into operation.

The reality is that we have to practically deal with piece of law and the 1st April 2011 is not an April fool’s day joke but has serious consequences to those transacting with other businesses.

In terms of the different types of companies, the new Act maintains:

Private companies where the transfer of shareholding is restricted and is still called a Proprietary Limited and is denoted by the suffix (Pty) Ltd.
Public companies are companies that offer their shares for transfer to the public and are referred to as Limited and use the suffix Ltd
Incorporated companies which are registered by professionals e.g. attorneys doctors and accountants, is a company where the directors remain jointly and severally liable for debts and is denoted by the suffixed Inc.
The new Act amends the description of:

Companies Not for Gain from Section 21 companies to Non Profit Companies using the suffix NPC
State-owned companies use the suffix SOC Ltd
The complete new type of company is the ring-fenced company which is a company whose Memorandum of Incorporation (‘MoI’) contains special conditions’ or prohibits the amendment of any particular provision in the MoI. If such a special condition is contained in the MoI, it must also be identified in the company’s Notice of Incorporation. In addition, the company’s name must then carry an additional suffix, namely RF. The name will then, for example, look like this: XYZ Supplies (Pty) Ltd (RF).

For a credit provider or any other party transacting with such a company it is important to note that:

  1. The new Companies Act does away with the doctrine of constructive notice with regard to companies and outsiders dealing with a company are no longer deemed to have acquainted themselves with (have constructive knowledge of) the company’s public documents. Under the old Companies Act, the position was that all persons dealing with a company are deemed to have knowledge of the content of the company’s Memorandum of Incorporation since it is a public document.
  2.  However Ring-fenced companies are the exception. Where the company’s Notice of Incorporation draws attention to the existence of a special condition in its MoI and the company’s name has the suffix RF, then a third party is regarded as having received notice, and having knowledge thereof, whether or not they have actual knowledge thereof. The practical effect is that a third party contracting with the company will not be able to turn around later on, in an attempt to extricate themselves from the transaction, and allege that they did not know’ that the special conditions existed or applied to the transaction – they are deemed to know them.

Special conditions are not specifically defined in the New Act, but would include any restrictions placed on the capacity of the company or on the authority of any of its agents. Therefore, when dealing with a ring-fenced company, it is crucial to view the special conditions that apply to the company, before transacting with it.