In the company of companies
In the company of companies
The best known form of a Company is a Private Company, having share capital and the most important characteristic is that the risk attaching to those who have contributed to the share capital, does not extend further than the amount which they paid for their shares. The liability of Shareholders for the debt of the entity is thus limited. As the majority of Companies enjoying RMI membership are Private Companies, attention will be focused on this form of enterprise as opposed to Public Companies.
Similar to Close Corporations in this aspect, Private Companies have their own distinct legal personality, separate from its members (also called “Shareholders”) and its Directors. This means that the assets and liabilities of the Company belong to the Company itself. Shareholders have no proportionate right of ownership in the assets of the Company and only in the event of Liquidation or winding up, the Shareholders become entitled to share in the free residue of the assets of the Company. The debts of the Company are its own and cannot be recovered from Shareholders. The profits belong to the Company and Shareholders only become entitled to their portion of the profit when a dividend is declared. Shares in the Company are freely transferable, unless the existing Shareholders agree to the contrary.
Shareholders are generally not entitled to represent the Company in its business transactions. The effective control of a Company is vested in its Directors, who are appointed by the Shareholders. Unlike Close Corporations where members are entitled to be involved in the business of the CC and has equal rights to manage and represent the Corporation, Shareholders in Companies are not entitled to represent the Company. Although Shareholders are entitled to appoint Directors of their choice, Private Companies often find some or all of their Shareholders also enjoying appointment as Directors of the Company.
The Company is taxed at the current rate of taxation applicable to Companies, but the distribution of profits to members are Tax free in the hands of the recipients. However, such distributions do attract secondary Tax on Companies.
Some of the advantages are the following:
Shareholders are not liable for the debts of the Company and also enjoy the benefit of continuity;
- A single person may establish a Private Company;
- Shareholding is freely and easily transferable;
Some of the disadvantages are:
- The number of Shareholders in a Private Company is limited to fifty;
- Management is more complex as a result of the distinction between Directors and Shareholders, as well as statutory requirements;
- Audit requirements exist;
- Directors may be personally liable for debt of the Company in the event of reckless and/or negligent trading;
It has to be noted that the Companies Act is being completely overhauled and it is anticipated that the entire Companies and Close Corporations Acts will be replaced in 2009. The new Act will usher in significant changes to Companies and Close Corporations.
In the meantime, amendments to the Companies and Close Corporations Acts were promulgated by the Corporate Laws Amendment Act, number 24 of 2006 and will come into effect on a date to be proclaimed. Upon this occurrence, the most relevant aspects of this Act will be communicated to RMI 4 Law members.
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