Starting a business in South Africa: Legal requirements and the Companies Act

Starting a business takes careful planning and involves compliance with certain legal requirements. It is important to understand the relevant regulations and legal requirements to be complied with, so you can make sure you do what is best for the business you are starting. The Companies Act is the primary legislation governing a company and provides the legal framework for starting your own business.

The first important decision before starting a business is to decide on the type of business you choose and the legal structure thereof. Each structure has its own requirements and regulations. The types of business structures are private companies, personal liability companies, public companies, non-profit companies, and state-owned companies. When registering a company, you are required to submit certain documents to the Companies and Intellectual Property Commission (CIPC), which is the regulating body for companies.

Registration of a company entails that you submit a Memorandum of Incorporation (MOI) or Article of Association. This document sets out the duties and rights of the directors and/or partners, the rights of shareholders and the process of meetings, to name only a few. The MOI forms a very integral part of the company.

Some important sections in the Companies Act that have an impact on companies are as follows:

• The amendment of the MOI is regulated by sections 16, 17 or 152(6)(b);
• The authority of the Board to make rules for the Company, as contemplated in sections 15(3) to (5);
• The Company must publish a notice of any alteration of the MOI or the rules, made in terms of section 17(1) by delivering a copy thereof to each Shareholder.
• The pre-emptive rights of the Shareholders to be offered and to subscribe for additional Shares, as set out in section 39 of the Act;

Together with the MOI, it is important but not compulsory, to have a Shareholders Agreement which regulates the rights and duties of the shareholders. This ensures transparency, prevents corporate misconduct as well as fraud, and protects the minority shareholders by adding a tag-along clause.

It is always good to consult on the above with an attorney or law firm to get a full explanation of all the important regulations and processes. It is important to have a proper MOI and Shareholders Agreement drafted by a professional.

With a tag-along clause, the remaining shareholders may require the Disposer in writing to procure the sale of the remaining shareholders’ Shareholder Interest to the third party, at the same price per share and on the same terms as is obtained for the Disposer’s Shareholder Interest.

A further clause to be considered by all shareholders is a come-along clause, where a majority shareholder shall be entitled to require the remaining shareholders to dispose of their shareholders’ interest simultaneously with the disposal by the majority shareholders and on the same terms and conditions as those on which the majority shareholders will dispose of its shareholders’ interest.

WRITTEN BY MARITZA DU PREEZ

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)