Companies Act, No 71 of 2008 | Chapter 1 – The company as a separate legal person
10
Aug

I will deliver a series of articles on the Companies Act in order to convey a basic understanding thereof. Although the presentation will be based on the Act itself, and sometimes on case law, it should be recognised that the articles cannot be relied upon as absolute, as the articles will be summaries of the Act and will not cover all situations. Cases and facts may differ and the outcomes might be totally different. For specific cases expert advice should be sought.

It must first be thoroughly understood what a company is. In terms of section 19 of the Act a company is a juristic person, which exists continuously until its name is removed from the register at the Companies and Intellectual Property Commission (CIPC). It has all of the legal powers and capacity of an individual, except to the extent that a juristic person is incapable of exercising any such power, or having such capacity, or the company’s MOI (Memorandum of Incorporation) provides otherwise. The common-law principle that the company is a separate legal person was laid down in Salomon v A Salomon & Co Ltd (1897) AC 22 (HL). As the learned judge Innes CJ also said in Dadoo Ltd vs Krugersdorp Municipal Council 1920 AD 530 “It is one of the cardinal principles of company law that a registered company is a legal persona distinct from the members who compose it….. This conception of the existence of a company as a separate entity distinct from its shareholders is no merely artificial and technical thing. It is a matter of substance; property vested in the company is not, and cannot be, regarded as vested in all or any of its members”. This principle applies even if the company has only one member.

There are cases where the court has disregarded the company’s separate legal personality, and “pierced the corporate veil”, focusing on the persons behind the company. The court however held that Courts do not have a general discretion to disregard a company’s separate legal personality whenever they consider it just or convenient to do so. Only when fraud, dishonesty or improper conduct are present should it be considered. As one of the criteria in Ex parte application of Gore NO case supra was put “And the court will pierce the veil only so far as is necessary to provide a remedy for the particular wrong which those controlling the company have done”.

Section 19(2) states that a person is not, solely by reason of being an incorporator, shareholder or director of a company, liable for any liabilities or obligations of the company, except to the extent that the act or the MOI provides otherwise. However, in the case of a personal liability company (types of companies will be discussed in more detail in the next chapter), the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company as are or were contracted during their respective periods of office.

It must be pointed out that there is an inconsistency between this section 19(2) of the Companies Act and section 181 of the Tax Administration Act. The latter determines that where a company, other than a listed company, is wound up other than by means of an involuntary liquidation without having satisfied its outstanding tax debt, the persons who are shareholders of the company within one year prior to its winding up are jointly and severally liable to pay the tax debt, to the extent that they receive assets of the company in their capacity as shareholders within one year prior to its winding up, and the tax debt existed at the time of the receipt of the assets. The liability of the shareholders is secondary to the liability of the company.

Chris de Jager

Specialist Consultant

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