Different Types of Companies in South Africa and The Summary of the Companies Act
- Featured article by LAWYERS-ONLINE.CO.ZA - June 2019
In 2011, company law in South Africa was completely overhauled thanks to the introduction of the Companies Act 71 of 2008, also known colloquially as the “New Act” – a very apt name since it repeals the old Companies Act that stood in its place before its promulgation. The regulations of the companies act are overseen by the Companies and Intellectual Properties Commission. The ambit of the new act is to bring South African company law into the modern age and to ensure that we are up to par when it comes to international business practices.
The act is in charge of regulating the formation, liquidation and conduct of companies regardless of their ownership – whether it is local or foreign.
The new act is also less prescriptive, effectively allowing companies more freedom to change requirements to suit their needs, while also adapting to the fact that smaller companies may not be able to meet the responsibilities of larger companies, such as is the case with financial reporting.
It also made way for the concept of business rescue – a form of corporate restructuring that allows a business on the verge of insolvency to try and turn things around with the help of a business rescue practitioner. Gone are the days of dooming business with liquidation, instead the focus is on growth and sustainable economic development.
But with this new act in place, have the types of businesses changed? Yes and no, in some cases the act has done away certain types of business, such as Close Corporations, while in many ways the types of companies in South Africa remain the same.
The two main categories of companies in South Africa are those that are for-profit and those that are non-profit entities. A non-profit is normally created in order to serve some sort of public benefit such as a church or charity organisation. As the name states, this company does not aim to make profits and instead, any money generated gets put right back into promoting the objective of the company.
Now let’s talk about profit companies – the main focus of the act. There are numerous ways to conduct business in South Africa under the Companies Act, and factors such as taxes play a large role in which type of company someone establishes. Let’s take a look at some below:
Private Companies (Pty Ltd)
A private company is the least formal of the types of companies, and don’t require as many stakeholders. Generally it only needs one director and one shareholder, however, stakeholder membership for a private company is limited to 50. This is a very popular company type for foreign investors.
Public Companies (Ltd)
These are the companies you see on the JSE, and it is exactly what the name says – public. The funds to run the company are procured through shares that are offered to the public and the amount of members is infinite.
In terms of the Companies Act, a domesticated company a formerly foreign company that has changed its registration to be South African based and is now subject to the provisions of the act
Company law is far more complex than a short article can provide insight into and if you find yourself in need of advice regarding company law, do not hesitate to reach out to us and we will refer you to a commercial lawyer who can provide expert insight.