Company Law and Practice (CPL512S)
Unit 3 Types of Companies
Types of Companies
Introduction
If you, as an entrepreneur, wish to incorporate a company, you will have to choose between a number of
different types of companies. Each type has different characteristic features and serves a particular purpose. In
this unit we will take a look at and compare these different types of companies.
Objectives
Upon completion of this unit you should be able to:
• name the two basic types of companies
• describe a public company
• state and discuss the requirements for a private company
• explain what a company limited by guarantee is
• explain what a state-owned company is
• describe a non-profit association
• summarise the requirements for the incorporation of a non-profit association
• apply the contents of this unit to solve problems
Additional reading
Cassim, F.H.I, Cassim, M.F., Cassim, R, Jooste, R.D. (2011). Contemporary Company Law. Claremont: Juta. (Pages
63-92).
Davies, D., Cassim,F, H.I, Geach, W., Mongalo,T., Butler, D., Loubser, A., Coetzee,L., Burdette, D (2010).
Companies and Business Structures in South Africa. Cape Town: Oxford University Press. (Pages 23-27)
Delport, P. (2011). The New Companies Act Manual. Durban. LexisNexis (Pages 13-18)
1 Formal Classification of Companies
In terms of section 20(1) the Companies Act 28 of 2004, two basic types of companies can be formed, namely a
company having a share capital and a company not having a share capital and having the liability of its members
limited by the memorandum of association. This later company is also called as a company limited by guarantee.
2 Companies Having a Share Capital
The most important and commonly encountered of the two types of companies which we referred to above, is
the company having a share capital. This type of company obtains its capital by issuing shares, and normally its
members stand to lose no more than the amount paid by them for their shares.
A company with a share capital may be either a public company or a private company.
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Company Law and Practice (CPL512S)
Unit 3 Types of Companies
2.1 The public company
At least 7 persons are required for the formation and incorporation of a public company, and its articles do not
normally contain provisions restricting the number of its members. Its name ends with the word "Limited" and it
can raise capital from the general public.
The company is "public" in the sense that members of the public may purchase shares and become substantially
interested in the company. The shares are freely transferable, which enables its members to dispose of their
investments without such investments being withdrawn from the company.
The Companies Act contains comprehensive provisions regarding the compulsory disclosure of information
concerning the company to the public, for example the publication of annual financial statements, interim
reports, and provisional financial statements.
Shares and debentures of a public company may be listed and dealt with on a stock exchange if permission for
this is obtained from the committee of the stock exchange. A listed public company can mobilise substantial
amounts of capital from investors, which it can put at the disposal of specialists who employ it in economic
ventures for the benefit of the investor.
2.2 The private company
Only a company with a share capital can qualify to be a private company, because in terms of the Companies Act
all companies limited by guarantee are deemed to be public companies.
The name of a private company ends with the words "(Proprietary) Limited".
At least two people are required for the formation and incorporation of a private company, unless the company
to be formed is to be a private company with a single member, in which instance only one person is required.
A private company is excluded from some of the strict disclosure requirements expected of public companies.
For example, a private company is not required to file financial statements with the Registrar of Companies.
2.2.1 Requirements
A private company must comply with the requirements set out in the Companies Act by including in its articles:
▪ a restriction on the right for the free transferability of its shares;
▪ a limitation on the number of its members; and
▪ a prohibition on offers to the public to for the subscription of its shares or debentures.
A private company may not alter its articles in such a manner that they no longer include all these requirements
unless it is at the same time converted into a public company. If a private company, without altering its articles,
nonetheless fails to comply with any of these requirements, it ceases to be exempt from filing annual financial
statements with the Registrar and from issuing interim reports and provisional annual financial statements.
Restriction on free transferability of shares
The restriction on the free transferability of shares can take any form, provided that it is exercised bona fide and
in the interests of the company at all times. Examples of the possible restrictions are that the shares may only be
transferred subject to the approval of the board of directors, or only to existing members of the company, or only
if they have first been offered to the other members, or only to persons approved of by all the members or by a
particular person.
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Company Law and Practice (CPL512S)
Unit 3 Types of Companies
Limitation of membership
The number of persons who may be members of a private company is generally limited to 50, subject to an
exception in favour of employees and former employees who were members while employed by the company
and who have continued to be members. Joint holders of a share or shares are treated as a single member.
3 Section 60(b) of the Companies Act
Section 60(b) of the Companies Act makes specific provision for a private company wishing to hold its directors
jointly and severally liable for the contractual debts and liabilities of the company.
This type of company was created to cater for the needs of professions such as attorneys, accountants etc, which
are permitted to practice with limited liability. Firms have a choice to practice as partnerships or as section 60(b)
companies.
The name of such a company must end in "Incorporated" or “Inc” instead of ‘(Pty) Ltd’
This provision in the Companies Act permits a private company to include a provision in its memorandum that
directors and former directors shall be jointly and severally liable for the debts and liabilities of the company
which are or were contracted during their periods of office.
The provision regarding joint and several liability of directors may be included in the memorandum of the
company at the time of registration or may be inserted at any time by way of special resolution and with the
written consent of the directors concerned. It may, however, only be amended or removed by special resolution
if the court is satisfied that this is just and equitable.
It was held in the matter of Fundtrust (Pty) Ltd (In Liquidation) v Van Deventer (1997 1 SA 710 (A) that this liability
of a director is limited to a company's contractual debts and liabilities and does not include delictual liability or
statutory liability. Also, a director who had paid the debts will have a right of recourse against his or her fellow
directors for their proportionate share (Sonnenberg McCloughlin Inc v Spiro 2004 (1) SA 90 (C)).
4 The Company Limited by Guarantee
At least seven persons are required for the formation and incorporation of a company limited by guarantee. A
company limited by guarantee does not have a share capital but the liability of its members is limited by the
memorandum to the amount (not being less than N$1 per member) which the members undertake to
contribute in the event of the company being wound up.
It is deemed to be a public company and is therefore obliged to lodge annual financial statements with the
Registrar. The last word in its name must be "Limited" and the statement "(Limited by Guarantee)" must be
subjoined to its name to distinguish it from the ordinary public company.
5 Non-Profit Association
The Companies Act makes provision, in Section 21, for the incorporation of a special kind of company which is
not intended for profit-making. This type of company is a company limited by guarantee, and is used for an
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Company Law and Practice (CPL512S)
Unit 3 Types of Companies
association with the main object of promoting religion, arts, sciences, education, charity, recreation, or any other
cultural or social activity or communal or group interests.
As this type of company is a company limited by guarantee it is subject to all the duties imposed by the Act on a
public company.
Any other form of company may be converted into a non-profit association, but the Act prohibits the conversion
of a non-profit association into a company with a share capital.
The name of such a company must incorporate the words “Non-profit association incorporated under section
21”. Non-profit companies incorporated prior to the commencement of the Companies Act, Act 28 of 2004 may,
however, continue to subjoin to its name the statement "Incorporated association not for gain"
Requirements
The requirements, with which an association wishing to incorporate as a company limited by guarantee in terms
of Section 21 of the Act must comply, are as follows:
▪ it must be formed for a lawful purpose
▪ it must have as its main object the promotion of religion, arts, sciences, education, charity, recreation, or
any other cultural or social activity or communal or group interests
▪ it must intend to apply its profits (if any) or other income in promoting that main object
▪ it must prohibit the payment of any dividend to its members
▪ its memorandum must provide that:
o the income and property of the association however derived shall be applied solely towards
the promotion of its main object and no portion thereof shall be paid or transferred, directly or
indirectly, to the members of the association or to its holding company or subsidiary; and
o upon its winding-up, deregistration or dissolution, the remaining assets of the association shall
be transferred to some other association or institution having objects similar to its main object,
to be determined by the members of the association or, if they fail to do so, by the court.
6 State Owned Companies
State owned companies are companies in which the State is the sole or the majority shareholder and are listed
under schedule 1 of the State-Owned Enterprises Governance Act 2 of 2006. The said Act makes provision for the
efficient governance of State-Owned Enterprises and for the monitoring of their performances and their
restructuring.
There are several State-owned companies such as NBC, NUST, UNAM, NAMPOWER, NAMWATER etc.
7 External Companies
The term "external company" refers to a company or other association which has incorporated status in another
country. The existence of an external company becomes relevant for purposes of Namibian company law only
when such a company establishes a place of business in Namibia or engages in a transaction in Namibia.
It must also at all times have a person or persons resident in Namibia authorised to accept service of process and
of any notices required to be served on the company on its behalf. The statement "Incorporated in ... (stating the
name of the foreign country concerned) must be subjoined to its name.
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Company Law and Practice (CPL512S)
Unit 3 Types of Companies
8 Conversion of Companies
With the exception of a non-profit association, as we mentioned previously, any kind of company can, by means
of a special resolution, be converted into any other type of company. Conversion does not affect the continued
existence of a company’s rights and duties or any legal proceedings by or against the company.
Summary
In this unit you learned that the Companies Act makes provision for a number of different types of companies
to be registered. The two main types are companies with a share capital and companies without a share
capital (companies limited by guarantee). A company with a share capital can be either a public company or a
private company.
The Companies Act further makes provision for the incorporation of a private company that provides in its
memorandum that directors and former directors shall be jointly and severally liable for certain debts of the
company, and for the incorporation of non-profit associations.
References
Cassim, F.H.I, Cassim, M.F., Cassim, R, Jooste, R.D. (2011). Contemporary Company Law. Claremont: Juta.
Davies, D., Cassim,F, H.I, Geach, W., Mongalo,T., Butler, D., Loubser, A., Coetzee,L., Burdette, D. (2010).
Companies and Business Structures in South Africa. Cape Town: Oxford University Press.
Delport, P. (2011). The New Companies Act Manual. Durban. LexisNexis.
Mongalo, T. (2014). Corporate Law & Corporate Governance: A Global Picture of Business Undertakings in South
Africa. Cape Town: Oxford University Press.
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