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Companies

‘Company’ is another confounding word in the English language, because it has several different meanings:

  • if you are with another person, you are ‘in their company’;
  • the smallest subdivision of an infantry battalion is a company;
  • a group of actors, singers or dancers is a company;
  • a commercial business can be called a company; and
  • a legal entity created by statute is also a company.

However, these all derive from the same origin, which is the Medieval French compaignon, meaning ‘one who breaks bread with another’ – and that word comes from ancient Latin: com meaning ‘together with’, and panis meaning ‘bread’.

It is the last concept that relates to the Companies Act 2008. This company is considered by the law to be a legal person – in other words, it can have a name (such as Joe Bloggs (Pty) Ltd), have debts, operate bank accounts, and enter into transactions like renting, buying and selling. Of course, a company can only be operated by human beings – and these are its directors and employees.

But the company’s business, its assets and other property, profits, losses, and so forth do not belong to the directors or employees – they belong to the separate legal entity being the company. And it is even separate from people who own the company – its shareholders.

Often, with small companies, the shareholder(s) might be the company director(s) as well, but it doesn’t have to be. The shareholder is probably the person who has put up the money to get the company started, and who then ‘shares’ in its losses and profits, whilst the director is the person who, well, directs its various operations – this is why we get financial directors, operations directors, managing directors, human resources directors, IT directors, and so on.

Then there are public companies, which have more than 20 shareholders. And if these companies want to attract more investors they ‘list’ their shares for sale on the ‘stock exchange’, which is where they can be traded amongst buyers and sellers from the public. It all gets quite complicated.

The Companies Act 2008 brought about significant changes in the way companies are incorporated, registered, managed, and organised financially – as well as rescued, in the case of business-related distress. The liability of directors for their role in the misfortune of a company has also undergone significant review.

The Act is administered under the authority of the Minister of Trade, Industry and Competition, but it’s the Commissioner of Companies and Intellectual Property (CIPC) who is in charge of day-to-day matters.

A. Financial statements

  1. Financial statements of companies must satisfy financial reporting standards, present fairly the state of affairs and business of the company, explain its transactions, show its assets and liabilities as well as its income and expenditure, and similar such information.1 Any person who is party to the preparation, approval, dissemination or publication of financial statements knowing that they are false or misleading, or that they fail to comply with the requirements above, commits a criminal offence.2

  2. Any person who holds an interest in any shares or debentures issued by a company, and any judgment creditor of the company,3 is entitled to receive a copy of the financial statements. The company commits an offence4 if it fails to accommodate any reasonable request for access to the statements, or otherwise interferes with this right of access.5

  3. Any person who is party to the falsification of any accounting records of a company is guilty of an offence.6

  4. Similarly, any person who is party to the preparation, approval, dissemination or publication of a prospectus or statement that contains a statement that is misleading in the form and context in which it is made, is guilty of a criminal offence.7

  5. If any person provides false or misleading information in satisfying an obligation to provide information or give notice in terms of the Act, he commits an offence.8

B. Company name

  1. There are stringent requirements concerning the registration, display and use of company names. The company commits a criminal offence if:
    • it does not provide its full registered name, or registration number, to any person on demand;
    • it misstates its name or registration number in a way that is likely to deceive or mislead;
    • its name is being amended, and it does not use its interim name (as certified by CIPC) in the meantime; or
    • its name and registration number does not appear legibly on all corporate stationery and documentation.9

  2. Any person who uses the name or registration number of a company in a way that (falsely) suggests he is acting on behalf of the company commits an offence.10

  3. Any person who uses a form of name which is likely to convey the false impression that it is the name of a company also commits an offence.11

C. Creditors

  1. If any person is party to conduct by a company which has any fraudulent purpose, or is likely to defraud a creditor, or an employee of the company, or a shareholder, he is guilty of an offence.12

D. CIPC officers

  1. It is an offence to hinder or obstruct an inspector or investigator exercising a power or performing a duty delegated, conferred or imposed by the Act.

  2. You commit an offence if you improperly attempt to influence, or do anything calculated to influence an inspector or investigator concerning any matter connected with an investigation.13

  3. If you anticipate any findings of an inspector or investigator in a way that is calculated to improperly influence proceedings or his findings, you commit an offence.14

  4. If you do anything in connection with an investigation that would have been contempt of court (if the proceedings had occurred in a court of law), it is a crime.15

  5. It is a crime knowingly to provide false information to an inspector or investigator.16

  6. It is a crime to frustrate or impede the execution of a warrant to enter and search, or even to attempt to do so.17

  7. Last, but not least, an officer or investigator commits an offence if he:

    • acts contrary to, or in excess of a warrant to enter and search;18
    • without authority (but claiming to have) enters or searches premises, or attaches or removes any article or document.19

E. CIPIC, the Companies Tribunal and hearings

  1. It is an offence to hinder or obstruct the Commission, the Panel or the Companies Tribunal, or a court exercising a power or performing a duty under the Act.20

  2. It is an offence to improperly attempt to influence, or do anything calculated to improperly influence:
    • the Commission or the Panel concerning any matter connected with an investigation;21 or
    • the Companies Tribunal in any matter before it, or concerning any matter concerned with an investigation.22

  3. If you anticipate any findings of the Commission, the Panel, or the Companies Tribunal in a way that is calculated to improperly influence the proceedings or findings, you commit an offence.23

  4. Similarly, if you do anything in connection with a hearing that would have been contempt of court (if the proceedings had occurred in a court of law), you commit an offence.24

  5. Any person who has been summoned to a hearing commits an offence if he:
    • refuses to attend;
    • refuses to answer any question, or produce any document;25
    • knowingly provides false information to the Commission, the Panel, or the Companies Tribunal.26

F. Offering shares27 to the public

Private companies cannot offer their shares to the public, but a public company can. However, there are several restrictions in this regard, and the following are made criminal offences.

  1. It is an offence to offer to the public the securities in an entity if it is not a company and, in the case of a foreign company, certain documentation28 has not been lodged with the Registrar at least 90 business days before the offer.29

  2. It is an offence to make an initial public offering (of the securities) unless that offer is accompanied by a prospectus of the company which has been registered with the Commission.30

  3. Except with respect to securities that are the subject of a company’s initial public offering, it is an offence to make a primary offer to the public of any listed securities (otherwise than in accordance with the requirements of the relevant exchange) or any unlisted securities unless the offer is accompanied by a registered prospectus.31

  4. Except with respect to securities that are the subject of a company’s initial public offering, it is an offence to make a secondary offer to the public of any securities of a company, unless the offer satisfies the requirements of section 101 of the Act.32

  5. It is a criminal offence to issue, distribute, deliver (or cause this) a letter of allocation unless it is accompanied by all documents that are required, and whichever have been filed (in the case of unlisted securities) or approved by the relevant exchange (in the case of listed securities).33

  6. Any person who issues, distributes or delivers (or causes this) any form of application in respect of securities of a company, commits an offence34 if the form is not accompanied by a registered prospectus (in the case of a primary offering) or a written statement that satisfies the requirements of section 101 of the Act (in the case of a secondary offering) and does not bear on the face of it the date on which the prospectus in respect of those securities was filed.35

  7. It is a crime to use a prospectus (or a document which purports to be, or can be misapprehended to be a prospectus) unless it is registered with CIPC.36

  8. A prospectus must be lodged with CIPC for registration within ten business days of its date, and it is an offence to contravene this requirement.37

  9. In regard to the above offences, if they are committed by a company, every director (and prescribed officer) of that company who knowingly was a party to the contravention, also commits the offence.38

  1. Section 29(1) read with section 29(6). ↩

  2. Section 29(6)(b). ↩

  3. If he has been informed that there appear to be insufficient assets to satisfy the judgment. ↩

  4. And, in which case, it may be fined or its directors sentenced. ↩

  5. Section 26(1) read with section 26(9). ↩

  6. Section 28(3). ↩

  7. Section 214(1)(d). ↩

  8. Section 214(1)(b). ↩

  9. Section 32. ↩

  10. Section 32. ↩

  11. Section 32. ↩

  12. Section 214(1)(c). ↩

  13. Section 215(1). ↩

  14. Section 215(2)(b). ↩

  15. Section 215(2)(c). ↩

  16. Section 215(2)(e). ↩

  17. Section 215(2)(f). ↩

  18. Section 215(2)(g). ↩

  19. Section 215(2)(h). ↩

  20. Section 215(1). ↩

  21. Section 215(2)(a). ↩

  22. Section 215(2)(a). ↩

  23. Section 215(2)(b). ↩

  24. Section 215(2)(c). ↩

  25. Section 215(2)(d). ↩

  26. Section 215(2)(e). ↩

  27. The Act refers to ‘securities’ – these are shares, debentures and the like. ↩

  28. See Section 99(1)(b) of the Act. ↩

  29. Section 99(1) read with section 214(4). ↩

  30. Section 99(2) read with section 214(4). ↩

  31. Section 99(3)(a) read with section 214(4). ↩

  32. Section 99(3)(b) read with section 214(4). ↩

  33. Section 99(4) read with section 214(4). ↩

  34. This does not apply if the form of application was issued either:

    • in connection with a genuine invitation to enter into an underwriting agreement with respect to the securities; or
    • in relation to securities that were not offered to the public. (See section 99(6) of the Act.)

    ↩

  35. Section 99(5) read with section 214(4). ↩

  36. Section 99(8) read with section 214(4). ↩

  37. Section 99(9) read with section 214(4). ↩

  38. Section 99(9) read with section 214(4)(a). ↩

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