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Companies Act Series – Part 1

Part 1: Setting up a company

Written by Dommisse Attorneys on 5th October 2015

If you are considering setting up a company, the two options that are available to you are to either incorporate a new company which is registered with the correct details from inception, or you can acquire a shelf company, transfer the shares held by the incorporator to the new shareholder(s) and then change the various company details. This article focusses on incorporating a new company from scratch.

While the process of incorporating a company may be relatively simple, there are very important considerations to take note of regarding the way in which your company should be structured – this will largely depend on your needs.

The basics

Every company is incorporated in terms of and subject to the provisions of the Companies Act, 71 of 2008 (as amended) (“the Companies Act“).
Every company must have a memorandum of incorporation (“MOI“) which is lodged with the Companies and Intellectual Property Commission (“CIPC“).
Every company must be incorporated with at least 1 (one) director and at least 1 (one) share in the company must be issued to at least 1 (one) shareholder (bearing in mind that no shareholder may hold fractional shares in the company).
All share transactions must be recorded in the securities register of the company.

What substantive documentation is required to set up a company?

Previously known as the memorandum and articles of association, this is the founding document of the company and sets out, among various other things, the share capital of the company, the shareholders’ rights in relation to share issues, restrictions on transfers of shares, voting rights of directors and shareholders, information rights and importantly, any limitations on the board of directors’ powers to deal with certain matters, for example, by being reserved for shareholder approval.
The standard MOI in terms of the Companies Act, available from the CIPC, is perfectly suitable for sole shareholder companies. However, for any company intending to have two or more shareholders, a bespoke MOI drafted according to the specific needs of the parties involved is highly advisable.
Shareholders’ agreement
A written shareholders’ agreement is also recommended for any company intending to have two or more shareholders. This agreement regulates the relationship between the shareholders and their rights and obligations towards each other and/or the company. It is a recordal of a certain position in time and contains provisions relating to, for example, the appointment of directors, shareholders’ funding obligations and circumstances in which shareholders may be forced to sell their shares. New shareholders can either sign a deed of adherence to an existing shareholders’ agreement, the shareholders’ agreement can be amended to include a new shareholder, or a new shareholders’ agreement can be concluded.
While a shareholders’ agreement is not a legal requirement for the incorporation of a company, it is certainly advisable to have such an agreement in instances where there are confidential matters that the shareholders wish to record in writing that would otherwise be contained in the MOI. The MOI is a public document (any person can apply to the CIPC to obtain a copy of a company’s MOI), so parties should carefully consider whether there are any matters that they would like to preserve the confidentiality of.
Other supporting documentation
For the purposes of issuing shares, simple subscription agreements may also be prepared to record the terms on which such shares are issued to the new shareholders.
In terms of the Companies Act, any issue of shares must be authorised by the board of directors, such shares must be evidenced by share certificates which are issued by the directors and must be recorded in the securities register of the company.

What is the process involved in registering a company?

Most recently, the CIPC has managed to drastically improve their online company registration systems and on average, it now takes between one and three weeks for your new company to be incorporated. Dommisse Attorneys’ company secretarial unit can assist you with an application to the CIPC to incorporate a company. The following documentation must be submitted for this purpose, namely:

various CoR forms;
a MOI;
certified copies of the identity documents of all initial directors / incorporators; and
a mandate letter for Dommisse Attorneys to make the application to the CIPC on your behalf.

Your company is registered, now what?

The CIPC will issue a certificate of incorporation which evidences the registration of the company. The next step will be to issue shares to the first shareholders of the company.
SARS should automatically register the company for the purposes of Income Tax and you will be able to open a bank account for the business, if required.
There are various on-going company secretarial tasks, such as creating and maintaining the securities and directors’ register of the company (a requirement in terms of the Companies Act), preparing board and shareholders’ resolutions, MOI amendments, attending to the filing of annual returns and the processing of any company changes, for example, change of registered office or financial year end.
Dommisse Attorneys’ company secretarial unit offers these services, not only to newly incorporated companies, but also to mature companies seeking our assistance for the purposes of a due diligence or general compliance. Having your company secretarial house in order is very important when considering attracting outside investment and/or for exits of existing shareholders.

Updated on: 23/05/2023

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