3.1.1. Limited Liability Company

The most common form of business entity in South Africa is the limited liability company. Companies can be limited by guarantee or limited by shares. Companies limited by guarantee are generally not-for-profit organisations that primarily promote religious, charitable, educational and certain other similar interests. Companies having share capital may be public or private companies. The names of public companies end with the word "Limited", whereas those of private companies end with the words "Proprietary Limited". A private company is one which by its articles:

  • restricts the right to transfer its shares;
  • limits the number of its members (other than employees of the company) to 50; and
  • prohibits any offer for the subscription of any shares or debentures to the public.

All other companies are public companies and, as such, are not subject to the above restrictions. A public company may be listed or unlisted. Listed companies are subject to the rules and regulations laid down by The Johannesburg Stock Exchange.

For a private company, the minimum number of shareholders and directors is one, while a public company must have at least seven shareholders (unless it is a wholly-owned subsidiary of another company) and two directors. Directors need not own shares in the company, and need not be resident in South Africa, but a South African resident must be appointed as a public officer of the company to handle income tax matters. The board of directors is responsible for the daily management of the company for the benefit of its shareholders. It acts for the company in transactions entered into by it. The shareholders exercise their powers in general meetings. The annual general meeting must be held within nine months of the financial year-end and not more than 15 months after the last such meeting. Shareholders may be individuals or corporate bodies, and any or all of the company's shares may be held by non-residents.

Shares can be in any denomination, and no-par-value shares are permitted. There is no minimum amount of share capital, but foreign investors should note the restrictions on local borrowings if the company is 25% or more owned by non-residents.

The principle that a company exists separately from its shareholders applies to both private and public companies. A company can enter into contracts and can sue or be sued in its own name. A shareholder's liability for the debts of the company is limited to the amount of capital invested in shares. Partly-paid shares are not permitted.

A director may be held liable to indemnify the company or its shareholders against losses suffered by them in the following circumstances, among others:

  • unauthorised loans to directors or companies controlled by directors;
  • breach of faith or wrongs committed by the director;
  • reckless trading or fraud;
  • untrue statement contained in a prospectus; or
  • failure to repay monies received in respect of a share offer within a specified period.

Private companies may not offer shares to the public. "The public" is widely construed. Offers of shares to the public by public companies are controlled by statutory restrictions and the provisions of the Code and Regulations of the Securities Regulation Panel (see Part Five).

Companies may not provide financial assistance to their shareholders in connection with the purchase of their shares, and may not purchase their own shares. Strict provisions provide for the maintenance by companies of their capital. Reductions of capital require the consent of creditors, and in some cases the consent of the Court.

While bearer shares are not prohibited by law, exchange control restrictions mean that they are not used in South African companies.

3.1.2. External Company (Branch Operation)

Instead of operating through a South African subsidiary, a foreign company may operate through a branch in South Africa. A company incorporated outside of the Republic that establishes a place of business in South Africa is classified as an "external company". It is obliged to register with the Registrar of Companies and must comply with the provisions of the Companies Act, including the submission of statutory returns and the filing of annual financial statements for its entire operations (and not only its South African operations) with the Registrar of Companies, where they are open to public scrutiny. Exemption from the obligation to file those accounts can be applied for, and is fairly readily granted.

The company is required to appoint a South African resident who is authorised to accept notices served on the company.

3.1.3. Unlimited liability companies

Members of certain professions are allowed to incorporate. Their companies are private companies, but do not confer limited liability on the members. These companies are identified by the word "Incorporated" at the end of the name instead of "(Proprietary) Limited".

For further information please contact: 

Werksmans Attorneys 

Werksmans Chambers, 22 Girton Road, Parktown, Johannesburg 2193 
P.O. Box 927, Johannesburg 2000 South Africa

Enquiries:        Mr Charles Butler
Telephone         27 (011) 488-0000
Telefax           27 (011) 484-3100/3200
E-Mail Address    cbutler@werksmans.co.za