Originally published June 2011
Phasing out of close corporations
It is not possible to register a new Close Corporation under the new Companies Act, No. 71 of 2008 (new Act).
Instead one could opt to register a private company, since, under the new Act a private company / (Pty) Ltd can be formed by one person and need only have one director. The appointment of a company secretary or an auditor is also not required and, as with close corporations, there are no onerous financial requirements imposed.
Close corporations registered before 1 May 2011 (the date on which the new Act commenced) may remain operational until dissolution, deregistration or conversion to a (Pty) Ltd.
From 1 April 2012, one year after the commencement of the Consumer Protection Act (CPA) it will no longer be possible to operate a business "trading as". This is because sections 79 (1)-(3) a-b, 80 and 81 of the CPA governing the use of business names, their registration and criteria for registration will be implemented on that date.
Use, registration and criteria for business names
Section 79 (1) of the CPA states that a, "person will no longer be allowed to trade in business, advertise their services, do promotions, offer for sale or supply goods and services or enter into any form of agreement or business transaction with a consumer under any name unless the person's full name is recorded in an identity document or the business name is registered as either a close corporation, company, partnership or association".
Section 80 makes provision for a notice in a prescribed manner and form to be filed with the Registrar of Companies to register a business name. The name may, in terms of section 81, contain words in any language, certain symbols, any letters, numbers or punctuation either alone or in combination. The section also states that it does not matter if the words are in common use or not Importantly section 81 (2) (a) also specifies that a business name must not be the same as, or confusingly similar to:
- a name of an incorporated company, close corporation or co-operative under the relevant legislation;
- a pending or registered trade mark belonging to a third party or a "well known" mark in terms of section 35 of the Trade Marks Act No. 194 of 1993. It follows that an applicant for registration of a mark as a business name can be the trade mark proprietor, applicant or authorised licensee; or
- a mark, word or expression protected under the Merchandise Marks Act No. 17 of 1941.
Section 81 (2) (b) further states that there should be no false implication or suggestion that the business is associated with inter alia other persons or entities, the State and its related bodies, persons or bodies with any particular educational designation.
Section 100 permits the Consumer Commission to address a compliance notice to a person that fails to comply with section 79 (1) allowing him or her a reasonable time within which to apply for the registration of a business name as per sections 80 and 81 of the CPA.
The Consumer Commission may not however impose penalties if the business name was registered before 25 October 2010 under any public regulation other than a repealed law or in instances where the business had been operative for a least one year prior to 25 October 2010.
Public regulation is widely defined under the CPA and includes any company or close corporation name registered in terms of the Companies Act No. 61 of 1973 (the old Act) or the Close Corporations Act No. 69 of 1984.
Whether a pending or registered trade mark falls within this definition is open to interpretation. As business may be conducted with a subsidiary or operating division rather than the trade mark proprietor, the identity of the business is not always known. Consequently the purpose of the CPA may not be fulfilled. Until this position is clearer it would be prudent for trade mark holders to also register trade marks as business names.
As mentioned, it is only possible to register business names as of 1 April 2012. Companies and / or trade mark holders would therefore be well advised to register defensive names in the meantime. In terms of the new Act a defensive name protects the name from use by a third party for a period of two years and can be renewed thereafter. However, in order to secure a defensive name, a material interest in the name is required. A trade mark application and / or registration will meet the criteria.
Section 160 of the new Act concerns name objections. Provision is made for an application to be lodged with the Companies Tribunal of South Africa (Companies Tribunal) for a decision as to whether a reservation, registration or use of a name, alternatively a transfer of a reservation of a name, meets the new Act's requirements.
The Companies Tribunal may make an administrative order directing the Companies and Intellectual Properties Commission (Commission) to either reserve or register the contested name or, alternatively, order that the name or transfer be cancelled.
Name objections can emanate from one of the following two scenarios:
- In terms of section 160 (1) the Commission can serve a written notice on an applicant to serve a copy of its application on any person who has an interest in the name. An applicant includes anyone who is seeking the reservation of a name; the registration of a defensive name or a company name; or who wishes to transfer the reservation of a name or the registration of a defensive name. Section 160 (2) (a) provides that an interested person who receives this notice may, within three months after the date of the notice, file an objection to the name with the Companies Tribunal.
- In terms of section 160 (2) (b), an objection can also be lodged, "on good cause shown at any time after the date of the reservation or registration of a name that is the subject of the application". Section 160 (2) (b) is not retrospective and is therefore only applicable as of 1 May 2011.
This is a distinct departure from the way that objections were previously dealt with under section 45 of the old Act and section 20 of the Close Corporations Act No. 69 of 1984. Within this legal framework, objections could only be lodged with the Registrar of Companies or Close Corporations within one year of incorporation or with the Registrar of the High Court within two years of incorporation.
Grounds for an objection
It appears that a name dispute can still be filed in instances where a name is the same or confusingly similar to inter alia:
- an existing company, close corporation or co-operative name;
- registered business name; pending, registered or well-known trade mark in terms of the Trade Marks Act No. 194 of 1993;
- a protected mark under the Merchandise Marks Act No. 17 of 1941.
It may therefore also be possible to file a name dispute in instances where the name suggests or falsely implies that the company is associated with another person or entity.
Previously name objections letters setting out the grounds of the objection were addressed to the Registrar of Companies and / or Close Corporations. In terms of section 160 (1) of the new Act, it is now necessary to complete a prescribed form which may be supplemented with an affidavit setting out the basis for the objection.
Matters are set down and heard before the Companies Tribunal and the time frames are akin to High Court procedures (Regulations 142, 143 and 144 of the new Act). Applications are accordingly lodged
with the Companies Tribunal and served on the respondent within five days. The respondent has twenty days within which to answer. Thereafter the applicant may reply within fifteen days. In instances where the respondent does not answer, the applicant may seek default judgment.
Companies are therefore urged to bring disputed names and indeed section 160 (1) notices, if received, to the immediate attention of their legal advisers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.