The Companies Act No. 71 of 2008 (“the Act”) expressly recognises shareholders’ agreements. Section 15(7) of the Act states that shareholders of a company may enter into any agreement with one another in respect to any matter relating to the company. It is, therefore, possible that a shareholders’ agreement may contain a vast array of provisions, but there are certain general provisions that should be considered.

1. Duties and obligations of the shareholders: It may be that certain or all of the shareholders are not part of the day-to-day business of the company, in an employee capacity or even as a director, but may have other responsibilities towards the company and/or the other shareholders.
2. Decision-making: It is important to determine how decisions will be made on a shareholder level – this may be regarding anything from how directors will be appointed to dividends that may be declared.
3. Funding of the company: In a new start-up company, it is highly unlikely that there will be no funding from shareholders. A shareholders’ agreement may address existing shareholder funding as well as future funding by shareholders, whether there is a duty to provide funding, and also how shareholders may reclaim the funding from the company.
4. Exiting of shareholders: When the time comes where a shareholder wishes to exit, there should be no uncertainty as to the process to be followed by the parties. A shareholders’ agreement may regulate the notice that should be given to other shareholders, the pre-emptive rights, the protection of minority shareholders should the exiting shareholder sell his or her shares to a third party, and also how the shareholding will be valued.
5. Dispute resolution: It is inevitable that disputes will arise in any business relationship. A shareholders’ agreement may set out the procedure that the parties can turn to in times of dispute.

The advantage of a shareholders’ agreement is that the document constitutes a private document between the parties, which is not open for inspection by the public, as it is not filed with the Companies and Intellectual Property Commission (“CIPC”). Secondly, the shareholders’ agreement creates a binding and enforceable agreement between the parties.

On the other hand, the shareholders’ agreement only binds the shareholders that are parties to the agreement unless the new shareholders’ consent to be bound to the shareholders’ agreement. The shareholders’ agreement may also only be amended with the consent of the shareholders.

Section 15(7) of the Act furthermore states that a shareholders’ agreement must be consistent with the Act as well the company’s memorandum of incorporation. Any provision in a shareholders’ agreement that is inconsistent with the Act and/or the company’s memorandum of incorporation will be void.

A shareholders’ agreement can be a vital tool to plan and operate your business, but it is important that a shareholders’ agreement be tailored to the needs of your business.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Joint owners own undivided shares in the property which they own jointly. Consequently, the joint owners cannot divide the joint property while the joint ownership remains in existence, and a joint owner also cannot alienate the property or a part thereof without the consent of the other joint owner. The rights in respect of the joint property need to be exercised jointly by the owners thereof.

Ways in which joint ownership can arise:

Joint ownership can come into existence by way of an inheritance in which an indivisible property is left to more than one person in indivisible shares; by way of a marriage in community of property, by the mixture of movable property in such a way that it forms a new movable item or by way of an agreement in terms of which the parties agree to jointly buy a property and that both will have equal indivisible shares in the property.

Division of joint property:

Any joint owner can claim the division of the joint property according to that joint owner’s share in the property.[1] It is a requirement for the division of the joint property that the parties need to try to divide the property among themselves first, before approaching the Court for an action to divide the property, which action is called the actio communi dividendo[2].

The underlying principle of the actio communi dividendo is that no co-owner is normally obliged to remain such against his will. If there is a refusal on the part of one of the co-owners to divide, then the other co-owner can go to Court and ask the Court to order the other to partition. The Court has a wide discretion in making a division of the joint property, which is similar to the discretion which a court has in respect of the mode of distribution of partnership assets among partners.

The Court may award the joint property to one of the owners provided that he/she compensate the other co-owner, or cause the joint property to be put up to auction and the proceeds divided among the co-owners.[3]  Where there is no agreement between the parties as to how the joint assets are to be divided a liquidator is ordinarily appointed, and he can then sell the assets and divide the proceeds, if it is not possible to divide the assets between the parties.[4] If the immediate division of the joint property will be detrimental to the parties, the Court can order in certain cases that the division or the sale of the property be postponed for a period.[5]

It is beneficial that there exist means to divide assets which are jointly owned by parties, who no longer wish to be co-owners, but who cannot reach an agreement on the division of the assets. Without such an action, people might be stuck with a property which they derive no benefit from because it is in the possession of the other co-owner, who refuse to sell the property.

• [1] Inleiding tot die sakereg, Van Niekerk & Pienaar, Juta, p 53 – 61.
• [2] Robson v Theron 1978 (1) SA 841 (A).
• [3] 1978 (1) SA 841 (A).
• [4] 1978 (1) SA 841 (A).
• [5] Van Niekerk & Pienaar, p 61 – 62.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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Certain people are not eligible to be appointed as directors of a company. In this article we look at who is disqualified from being a director as well as the effects of the actions of such persons while still acting as director.

A company must not knowingly permit an ineligible or disqualified person to serve or act as a director, according to section 69(3) of the Companies Act 71 of 2008. “Knowingly” includes the situation where the company should reasonably have known that the person is ineligible or disqualified.

Section 69(7) lists the persons on which there are an absolute prohibition, being juristic persons, minors or any persons disqualified in terms of the Memorandum of Incorporation. Section 69(8) lists the persons that are disqualified on a temporary basis, being someone who has been prohibited by the court or whom the court has declared a delinquent, unrehabilitated insolvents, persons who were removed from an office of trust on the grounds of misconduct involving dishonesty, and persons who were found guilty of a criminal offence and imprisoned without the option of a fine, or were ordered to pay a higher fine for being found guilty of any dishonesty crimes.[1]

A question that arises here is what the effect would be of appointing a prohibited director. Section 69(4) says that a person immediately ceases to be a director if they are prohibited from being a director, but section 71(3) states that if a shareholder alleges that a person is disqualified then the person must be removed by a board resolution before they cease to be a director. This means that any act done by such a person, despite his disqualification, will be valid and binding on the company unless the third party who was involved in the act was aware that the person they were dealing with was disqualified.[2]

Section 162(5) (a)-(f) sets out the grounds for an order of delinquency. A court must make an order declaring a person to be a delinquent director if the person:

1. consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director;
2. acted as a director in a manner that contravened an order of probation;
3. grossly abused the position of director while being a director;
4. took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm upon the company or a subsidiary while being a director;
5. acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust while being a director; or as contemplated in section 77(3) (a), (b) or (c);
6. has repeatedly been personally subject to a compliance notice or similar enforcement mechanism;
7. has been convicted of an offence at least twice, or subjected to an administrative fine or similar penalty; or
8. was a director of a company or a managing member of a close corporation, or controlled or participated in the control of a juristic person that was convicted of an offence, or subjected to a fine or similar penalty, within a period of five years. [3] ^& [4]

If a person is declared a delinquent in terms of section 162(5) (a) or (b) it is unconditional and for the lifetime of the person. If a person is declared a delinquent in terms of section 162(5) (c)-(f) this is temporary for a minimum of 7 years.[5]

It is therefore very important, when appointing a director, to make sure that he is qualified in terms of the new Companies Act. One must do proper research about a person accordingly before appointing him as a director of a company because it is possible that if you do not do so, the company in which you are a shareholder may have to bear the consequences of the actions of this disqualified person.

References:

• Companies Act 71 of 2008
• FHI Cassim et al Contemporary Company Law (2012)

[1] Section 69(7) – (8) of the Companies Act 71 of 2008.

[2] Section 69(4) and 71(3) of the Companies Act 71 of 2008.

[3] Section 162(5) (a)-(f) of the Companies Act.

[4] FHI Cassim et al Contemporary Company Law (2012) 435 – 437.

[5] FHI Cassim et al Contemporary Company Law (2012) 438.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).

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Many businesses devote considerable time and energy to the protection of that business’s trade secrets and confidential information. Many legal issues, some of them far from clear, arise in relation to confidential information. How enforceable is a restraint of trade signed by an employee, in which the employee acknowledges having access to confidential information? When can competitors be sued for misappropriating and misusing confidential information?

As a point of departure, it is necessary to consider the question – what exactly is confidential information? What distinguishes information which belongs to a company, as confidential and secret, from other information which may properly be regarded as generally known in a particular trade and industry, but which, on closer analysis, is information generally known in a particular industry and not protectable at the behest of a specific company or entity in that industry.

Firstly, it needs to be emphasised that information does not become confidential simply because the business using the information labels it as such.  In the case of Alum-Phos (Pty) Ltd v Spatz & Another (1997) 1 All SA (W), “general information about the business does not become confidential because the proprietor chooses to call it confidential”.  In a later case of Petre & Madco Ltd v Sanderson-Kasner & Others 1984 (3) SA 850 (W), “[i]t is trite law that one cannot make something secret by calling it secret”.

Information is confidential when it is not public knowledge, and of economic value to an entity carrying on business in the field to which that information pertains.  It is, however, necessary to add a rider.  A company may have spent time and money training its employees, but if the knowledge imparted during such training is nothing more than knowledge and skills generally known to those operating in that branch of industry, then the information is not confidential and the employees who receive the training cannot be prevented from utilising it, at a later stage, when joining a competitor.

Although the courts have never attempted to draw up an exhaustive list of various categories of confidential information, and have decided the matter on a case-by-case basis, the case of Metre Systems Holdings (Pty) Ltd v Venter & Another 1993 (1) SA 409 (W) is useful.  In that case the Court listed some of the categories of confidential information recognised in our case law (although emphasising that the list was not exhaustive).  The categories thus recognised included: (a) customer lists drawn up by a trader and kept confidential for purposes of his own business; (b) information received by an employee about business opportunities available to an employer, even if such information could be obtained from a source other than the employer or employee; (c) information otherwise in the public domain could become protectable if skill and labour has been expended in gathering and compiling it in a particular useful form; (d) information regarding any marketing proposals and campaigns which a company is contemplated, either in relation to its entire product range or in relation to specific products; (e) information relating to the specifications of a product, the process of manufacture followed in putting that product together, and the results obtained in the development of the product; and (f) Information relating to the prices at which a person has tendered competitively to do work for another.

In conclusion, a crucially important aspect must be emphasised.  In any court proceedings aimed at protecting confidential information or preventing competitors from making use thereof, it is necessary to spell out carefully and in detail why the information sought to be protected is confidential.  Facts must be put up showing that it is not in the public domain, it is different from whatever information trade rivals use in their parallel business activities.  Failure to properly identify the confidential information which a court is asked to protect, and to adequately spell out the facts showing that it is indeed confidential, will mean that litigation instituted to protect the confidential information is doomed to failure.

Compiled by Annerine Du Plessis

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By Annerine du Plessis

Due to excessive legal costs involved in litigation and the endless frustration associated with prolonged court cases, mediation, as a form of Alternative Dispute Resolution, is becoming the obvious alternative to fighting things out in a courtroom. South Africa is slowly but surely beginning to be part of the global mediation movement.

Mediation is a voluntary process whereby both parties must first reach consensus to refer their dispute to mediation. A party may withdraw at any stage of the proceedings and later litigation is still possible.

The mediator is not a judge and does not tell the parties what the solution to their dispute is. Mediation is the parties’ process and it is entirely up to them to find a solution that meets their needs and interests.

The role of the mediator is to facilitate discussions between the parties, assist them in identifying the relevant issues and explore the areas of compromise so that a settlement can hopefully be reached. The process of mediation not only has the benefit of saving the parties time, but will also in the long run save the parties money.

For more information on this topic contact Annerine du Plessis at Schnetler’s Incorporated (021) 552 4844.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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Certain people are not eligible to be appointed as directors of a company. In this article we look at who is disqualified from being a director as well as the effects of the actions of such persons while still acting as director.

A company must not knowingly permit an ineligible or disqualified person to serve or act as a director, according to section 69(3) of the Companies Act 71 of 2008. “Knowingly” includes the situation where the company should reasonably have known that the person is ineligible or disqualified.

Section 69(7) lists the persons on which there are an absolute prohibition, being juristic persons, minors or any persons disqualified in terms of the Memorandum of Incorporation. Section 69(8) lists the persons that are disqualified on a temporary basis, being someone who has been prohibited by the court or whom the court has declared a delinquent, unrehabilitated insolvents, persons who were removed from an office of trust on the grounds of misconduct involving dishonesty, and persons who were found guilty of a criminal offence and imprisoned without the option of a fine, or were ordered to pay a higher fine for being found guilty of any dishonesty crimes.[1]

A question that arises here is what the effect would be of appointing a prohibited director. Section 69(4) says that a person immediately ceases to be a director if they are prohibited from being a director, but section 71(3) states that if a shareholder alleges that a person is disqualified then the person must be removed by a board resolution before they cease to be a director. This means that any act done by such a person, despite his disqualification, will be valid and binding on the company unless the third party who was involved in the act was aware that the person they were dealing with was disqualified.[2]

Section 162(5) (a)-(f) sets out the grounds for an order of delinquency. A court must make an order declaring a person to be a delinquent director if the person:

1. consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director;
2. acted as a director in a manner that contravened an order of probation;
3. grossly abused the position of director while being a director;
4. took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm upon the company or a subsidiary while being a director;
5. acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust while being a director; or as contemplated in section 77(3) (a), (b) or (c);
6. has repeatedly been personally subject to a compliance notice or similar enforcement mechanism;
7. has been convicted of an offence at least twice, or subjected to an administrative fine or similar penalty; or
8. was a director of a company or a managing member of a close corporation, or controlled or participated in the control of a juristic person that was convicted of an offence, or subjected to a fine or similar penalty, within a period of five years. [3] ^& [4]

If a person is declared a delinquent in terms of section 162(5) (a) or (b) it is unconditional and for the lifetime of the person. If a person is declared a delinquent in terms of section 162(5) (c)-(f) this is temporary for a minimum of 7 years.[5]

It is therefore very important, when appointing a director, to make sure that he is qualified in terms of the new Companies Act. One must do proper research about a person accordingly before appointing him as a director of a company because it is possible that if you do not do so, the company in which you are a shareholder may have to bear the consequences of the actions of this disqualified person.

[1] Section 69(7) – (8) of the Companies Act 71 of 2008.

[2] Section 69(4) and 71(3) of the Companies Act 71 of 2008.

[3] Section 162(5) (a)-(f) of the Companies Act.

[4] FHI Cassim et al Contemporary Company Law (2012) 435 – 437.

[5] FHI Cassim et al Contemporary Company Law (2012) 438.

References:

• Companies Act 71 of 2008
• FHI Cassim et al Contemporary Company Law (2012)

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Traditionally, and under the previous Companies Act, a company could have a principal place of business and a registered office.  A company could, for instance, conduct its business at one office and also have a registered office with its auditors. In terms of the 1973 Companies Act any division of the High Court where a company’s registered office or its principal place of business was located, would have jurisdiction. More than one Court could, as a consequence, have jurisdiction in proceedings where a company was involved.

The new 2008 Companies Act, which repealed to a large extent the 1973 Act, does not have a similar wording that provides for more than one address. In the matter of Sibakhulu Construction (Pty) Ltd vs Wedgewood Village Golf Country Estate (Pty) Ltd (Nedbank Intervening) 2013 (1) SA 191 the Western Cape High Court dealt with the question of which Court would have jurisdiction where a company has a registered address different from its principal place of business.

The matter revolved around business rescue proceedings and winding up proceedings. The Court remarked that Section 128 of the Act makes reference to only “…the High Court…”  This wording denotes that a single Court would have jurisdiction over a company, and not more than one Court as in the previous Act. In dealing with the matter the Court considered the interpretation of the new Act.

Section 23(3) of the new Act specifically states that a company must continually maintain at least one office and register the address of its office or of its principal office if the company has more than one office. This office will, under the new Act, be the company’s registered office.  Section 23 makes it clear that this office must be maintained by the company itself and the following Section deals with documentary records to be kept at the address. The Court remarked that the new Act retained the institution of a registered office with which the outside world could make contact.

Unfortunately the Act does not define “principal office” but the Court remarked that, from a reading of the Act, it is clear that the intention is to denote the place where the administrative business of the company is centred. It follows, the Court suggested, that this office should also be the principal place of business. The Court concluded that the principal place of business and the registered office have to be at the same address under the new Act.

Reference was further made to Section 7 of the new Act where it is stated that the purpose of the Act is to provide a “predictable and effective environment for the efficient regulation of companies”. The Court held the view that to give effect to the purpose of the Act as set out in Section 7 it would follow that, in terms of Section 23, a company can only reside at its registered office, which means that only a single court can have jurisdiction.

Companies should be aware of this judgement and make sure that they register their principal place of business as their registered address.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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