Formation of A Company

Formation of a registered company
The incorporation procedures and requisite documents – Section 19-24
 Private company is section 245 of the Companies Act

 Types of companies – section 19
 Essential requirements – section 19
Purchase of a shelf company
 One can register a company by themselves or choose to purchase a shelf company - persons
who sell shelf companies have a number of companies to sell to their parties. (Persons that
sell shelf companies are not prompters).
 However, with electronic registration, company formation agents can meet promoter’s
needs/ requests very quickly and directly without the use of shelf companies.
Warning to the public about limited liability or other status
 If a company is a limited company, its name must end with the prescribed warning suffix
‘Limited ‘or Ltd.
 The purpose of this requirement is to warn a person dealing with a company that it is a body
of limited liability.
Choice of a Company Name (section 29-32)

 The incorporators must decide on a suitable name. This identifies the artificial person,
describes its status as a limited public or private company, and over time it becomes the
name associated with the reputation and goodwill of the company.
 Given the importance of the company name, there are rules governing the choice of name,
their publicity, their protection from abuse and their alteration.
 Prohibition of illegal or offensive names, more important that what the name must contain
is what the name must not contain – section 32, 33
 The name that its use that its use would constitute a criminal offense must not be used
 Contain names which can only be used with the express authority of the state.
Prohibition on using a name already allocated - section 29

 The name must not be the same as any name already on the Register of names.
Use of business names other than the corporate name

 Both companies and individuals may conduct their business under their corporate or
individual names.
 They may also adopt ‘business names’ or ‘trading names’ but the choice of such names
whether companies or individuals is now subject to broadly all the same restrictions and
permissions of corporate names.
 Difficult to police the use of business names because some traders are not obliged to
register their business names. E.g. sole traders.
Passing off actions
 For most passing off actions, the name meets the Companies Act Requirements for names,
however the issue stems from whether the name is deceptively similar to existing names
with both companies carrying out the same type of business (broadly defined), so that the
newer company is in effect cashing in on the reputation of the first company and
appropriating its good will and connection.
 The newer company will be liable for delict for an interdict
 The practical effect of such an interdict is that the company should either change its name or
dissolve itself.
 The intention to pass off is irrelevant.
Company names adjudication
 A passing off action requires the claimant company to demonstrate that the new company
presents a serious threat to the claimants business
 The court processes allow the plaintiff to protect the goodwill of his name
Passing off is based on five principles (defences)

1. The defendant company must prove that they were registered before the plaintiff
conducted/ started business
2. The defendant can show that the operated under this name (sometimes before registration)
3. The name was registered in the ordinary course of company formation.
4. The defendant acted in good faith
5. The applicant has not been affected in any real way
Change of name – section 34

 A company may in general change its name.
 However, if they want to go public to become a limited company, it is not sufficient to
change its name they need to meet the necessary legal requirements.
 The registrar of companies must be notified.
Busy Five Enterprises (Pty) Ltd v Minister of Trade, Industry, Wildlife and Tourism; registrar of
companies, Riverwalsk Ltd
Pie City Botswana
Promoters
 A promoter is one who takes it upon himself to bring a company into existence.
 Failing an undertaking to the contrary, a promoter is not personally liable to the prospective
shareholders if his efforts to ‘float’ the company come to naught. Whether expenses
incurred in connection with the attempted promotion have to be borne by him depends on
the facts.
 A promoter stands in a fiduciary relationship to the company which he floats. He make
profits for himself but must disclose them to the company.
 A company is ‘floated’ by a promoter or promoters. ‘Floating’ simply means the creation of a
company.
 Decide on the type of company – is it limited by share capital/ is it a public or private
company
 Public and Private Companies fulfil different economic purposes
 Public companies raise money from the public to run a corporate enterprise, private
companies are meant to confer separate legal personality to the business of a sole trader or
partnership.
 Even in instances where parties want a public company there are rarely in a position to
immediately ‘go public’. If however they are, they need to register a company limited by
shares, the certificate of incorporation will have to state that it is a public company and that
the special requirements have been complied with – Any other type of company will be a
private company. The vast majority of companies are private companies.
Duties of promoters
Promoters are responsible for preparation of a company’s memorandum of association
(constitution), the nomination of directors, procuring of capital including the issuing of a prospectus
to the public if necessary and negotiation and acquisition of any business or property which it is
intended that the company should have upon registration.
A promoters duties comes to an end when the governing body has been formed.
Promoter have in their hands the creation and moulding of a company and the power of defining
how, and when and what shape, under what supervision, it starts its existence and begins trading as
a corporation.
 Twycross v Grant (1877) 2 CPD 469,

o a promoter is defined as ‘a person who undertakes to format a company with
reference to a given project to and to set it going and takes necessary steps to
accomplish that purpose.
o The defendants were promoters of the company from the beginning and can admit
no doubt. The framed the scheme, the not only provisionally formed the company,
but were in fact to its ends, the creators; they found the directors, and qualified
them, the prepared the prospectuses, they paid for the printing, advertising, and the
expenses incidental to bringing the undertaking before the world
o All these things were done in view of formation of the company, and so long as the
work of formation continues, those who carry on that work must, I think, retain the
character of promoters.
o Of course, if a governing body in the shape of directors is formed, the take, what
remains to be done in the way of forming the company into their own hands, the
functions of the promoter are at an end.
Now Sombrero Phosphate

 Promoters stand in a fiduciary relations to the company they promote. There are not merely
its parents, but they are its creators. They fashion it and mould it according to their will.
They endow it with powers or limits to its activities in any manner they deem fit and they
cannot complain if the law makes them (as it does) the guardians and protectors of its infant
life.
 The duties and obligation which this position of trust places upon promoters are imposed by
the dictates of common honesty as well as by well settled principles of Company Law. They
include not making a secret profit at the company’s expense, and also (if they wish to enter
into contracts with, or make payment to, themselves) to furnish it to the board of directors
who can exercise and an independent and intelligent judgment.
Remuneration of promoters
 A promoter cannot be remunerated for his service unless there is a valid contract between
the promoter and the company.
 Promoters are remunerated in various ways such as through shares ets.
Pre-Incorporation Contracts
 section 21 allows pre-incorporation contracts to be entered into on behalf of company not
yet incorporated
 section 1 describes pre-
the incorporation of a company by a person who purports to act in the name of, or on behalf
of, the company, with the intention and understanding that the company will be
incorporated, and will thereafter be bound by the agreement
 person who enters into such a contract is held jointly and severally liable with any other such
person for liabilities emanating from pre-incorporation contract if incorporation doesn’t take
place or company doesn’t ratify any part of agreement after incorporation
The Constitution of the company
Memorandum of Incorporation (MOI) is the founding document of the company
provisions may be changed from time to time

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Formation of A Company

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Formation of a registered company

The incorporation procedures and requisite documents – Section 19-24

 Private company is section 245 of the Companies Act

Purchase of a shelf company

Choice of a Company Name (section 29-32)

Prohibition on using a name already allocated - section 29

Use of business names other than the corporate name

Passing off is based on five principles (defences)

Change of name – section 34

 Twycross v Grant (1877) 2 CPD 469,

Now Sombrero Phosphate

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