MRL2601
Company Law
Summary Notes
Ø It is not a legal requirement that everyone wishing to conduct business must form or
incorporate a company
... [Show More] or close corporation but most business people prefer to
operate in a formalised business environment.
Ø Prior to incorporating a business there are a number of issues that require careful
consideration.
Ø These include the number of persons who will be involved in the business and the
extent of their involvement, the capital required to commence the business, the
sources of capital, customer and client requirements, tax issues and the strategic
objectives of those involved
Ø Once a company is incorporated
Ø Registration Certificate issued by CIPC
Ø Company acquires legal personality
Ø Can sue and be sued
Ø Members are not liable for company debts
Ø Members enjoy limited liability
Ø In certain cases the courts have disregarded the separate legal personality of a
company in order to recognize the substance or practical realities of a situation
rather than the form.
Ø Before the codification of the principle of disregard of a company’s separate
existence by the Companies Act of 2008, this matter was regulated by the common
law and referred to as “lifting” or “piercing” the corporate veil.
Ø The courts used it to place limitations on the principle of separate legal personality in
order to avoid abuse
Ø Courts have made it clear that they will not allow the use of any legal entity to justify
wrong, to protect fraud or to defend or hide crime
Ø ‘Piercing the corporate veil’ refers to those exceptional circumstances where the
court ignores the separate legal existence of the company and treats the
shareholders as if they were the owners of the assets and had conducted the
business of the company in their personal capacities OR attributes certain rights or
obligations of the shareholders to the company.
Ø Companies Act like the Close Corporations Act codifies the general principle of
piercing the corporate veil.
Ø Section 20(9) of the Companies Act 71 of 2008 provides that if a court finds that the
incorporation of a company or any act by or use of a company constitutes an
unconscionable abuse of its juristic personality, the court may declare that the
company will be deemed not to be a juristic person in respect of rights, liabilities and
obligations relating to the abuse.
Ø Wording of the section is a combination of section 65 of the Close Corporations Act
and the judgment in Botha v Van Niekerk.
Ø It ignores the view expressed in Cape Pacific Ltd v Lubner Controlling Investments
(Pty) Ltd that described the test in Botha v van Niekerk as too rigid.
Ø It remains to be seen how the courts will decide what would constitute an
unconscionable abuse and to what extent they will use the existing case law dealing
with the common-law rule of piercing the corporate veil.
Ø There are still no hard and fast rules
Ø No general discretion of the courts
Ø Each case will still have to be taken into consideration when deciding whether to
pierce the corporate veil.
Ø Companies Act provides for two types of companies ie. profit and non-profit
company
Profit Companies:
Ø Public Company
Ø Private Company [Show Less]