MEMORANDUM BY ASHIRA CONSULTING (PTY) LTD
RE: TREATMENT OF MUNICIPAL ENTITIES IN THE MUNICIPAL FINANCE MANAGEMENT BILL
15 JANUARY 2003
Introduction
PART I: PRELIMARIES
What is a Municipal Entity?
"(a) a company, co-operative, trust, fund or any other corporate entity established in terms of any applicable national or provincial legislation and which operates under the ownership control of one or more municipalities, and includes, in the case of a company under such ownership control, any subsidiary of that company; or
Ownership control is part of the meaning of "municipal entity". If a municipality loses ownership control of an entity or forms an entity without ownership control, the entity is not a "municipal entity". The Systems Act does not prohibit municipalities from forming non-municipal entities, and indeed, says nothing about such entities. It may be the intention of the MFMB to either regulate or preclude the formation of non-municipal entities by municipalities.
In this memorandum we focus on the notion of ownership control because it is central to the definition in the Systems Act and because different regulations may apply to municipal entities and non-municipal entities. The forms can be compared on the extent to which they facilitate ownership control (see, for example, Table 1 under the heading "Control") and this is considered a virtue in this memorandum.
The definition requires that municipal entities must be established in terms of "applicable national or provincial legislation". This, in our view, excludes common-law corporate entities. This reading is supported by the fact that service utilities, which are established in terms of by-law, are treated separately in the definition. By inference, the reference to "other corporate entity" can be read to include close corporations which are not specifically mentioned in the definition and any other corporate entity established in terms of legislation.
For what purpose should a Municipal Entity be formed?
Joint ventures with the private sector
PART II: CRITICAL DISTINCTIONS
Different Kinds of Companies
A company having share capital is either a public or a private company (see section 19(2)). The core distinction between public and private companies having share capital is that public companies are larger than private companies in terms of shareholders (see section 20(1), and only public companies may be listed and have shares tradable on the Johannesburg Stock Exchange by the public. Accordingly there is publicity in respect of the financial information of public companies (see section 302(4)).
Companies limited by guarantee are deemed to be "public companies" (see section 19(3)) and include so-called section 21 companies (incorporated associations not for gain). In this memorandum, we will use the term "public company" to mean a public company having share capital.
Companies versus Trusts
There are standardized financial and governance controls regulating companies as contrasted with trusts (see Table 1 and Table 4 under the heading "Audit and Reporting" for an elaboration).
The Companies Act provides a complex corporate structure for companies, including shareholders or members with rights and duties, a board of directors with powers and functions, and external relationships with the public, all subject to the provisions of the Companies Act. In contrast, the rights and duties of a founder and the powers and functions of a trustee are less subject to regulation than those in a company, although there is an extensive common law relating to the powers and behavioural standards of trustees (see Table 4 under the heading "Governance").
The shares in a company (whether private or public) with share capital are capable of ownership, although the company itself is not technically owned by the shareholders. The rights of the shareholders vis à vis the company are regulated by the Companies Act. These shareholders participate in the surpluses achieved by the company. By contrast a company without share capital (including a section 21 company) and a trust are not owned in this manner. Both a trust and a section 21 company are formed and managed for the benefit of beneficiaries. The beneficiaries may be specified individuals or identified as a group or class of persons. The assets of a section 21 company are owned by the company, while the assets of a trust vest in the trustees. The assets of both are utilised to achieve the main object or purpose of the entity and not as a reward to the members or founders for investment.
Close Corporations
PART III: PRIVATE COMPANY
Examples in South Africa
Table 1: Summarizing Essential Features of Private Companies
PRIVATE COMPANY |
|
Control |
A maximum of 50 shareholders may own shares in a private company. The shareholders are able to exercise control of the company in the annual general meeting or meeting of members by voting for a change in the directors of the company. Comment: Maintaining "ownership control" as defined in the Systems Act is technically easier for a private company than for a listed public company. A private company may arrange its articles to provide for varying voting rights within each class of shares. It may provide for restricted voting rights or no voting rights at all for some shares. A second way of maintaining control would be by setting out in the articles of the company that if a shareholder wishes to sell shares he would have to offer the shares to the other shareholders first (pre-emptive rights). A third way would be by giving some shareholders the power to appoint directors. There are certainly other ways to maintain control in the private company and the treatment of it here is not exhaustive. In the context of municipal entities, and other companies created by national government, there has been some confusion around the identity of shareholders. A juristic person can be the shareholder of a company, and therefore, a municipality can be the shareholder of a company. However, in practice there have been instances where individuals representing the municipality have become the shareholders in their personal capacity. In our view these instances are attributable to error. |
Constitution |
The articles of the company regulate the internal affairs of the company; the memorandum of association of the company defines the limitation of the power of the company vis à vis the public at large. These instruments together form the constitution of the company. The articles may restrict the conduct of directors in respect of asset management, regulate the transfer of shares, limit the power of directors to borrow money, issue debentures, buy or sell assets and in any way carry on the business of the company. The Companies Act in schedule 2 provides a generic list of powers of directors that may be omitted by specific mention in the Articles. |
Audit and Reporting |
A full statutory audit must be performed by the company auditors after each financial year. The financial year of each company is determined by the articles of association of the company and these may prescribe that each municipal entity have one set financial year. Books of account and financial statements must be prepared in accordance with the provisions of the Act. The company is not, however, obliged to lodge a copy of its annual financial statements with the Registrar of companies. The directors are required to present the financial statements to the shareholders at the annual general meeting of the company. Comment: In terms of the Companies Act, companies only consolidate the accounts of a subsidiary, so minority shareholders do not incorporate the accounts of non-subsidiary companies in which they have ownership in to their group accounts. |
Governance and Management |
The board of director’s function is to manage and control the affairs of the company. A well-structured board could include executive and non-executive directors and should take account of the King Code of Conduct. The board must retain full and effective control over the company, monitor the executive management and ensure that decision-making on material matters is in the hands of the board. In the discharge of their functions, the directors must satisfy four common law and statutory requirements, namely they must act – (a) In good faith, in what they believe to be the best interests of the company as a whole; (b) With the degree of care, diligence and skill that may reasonably be expected from persons of their knowledge and experience; (c) Intra vires, that is, within the scope of their authority as prescribed by the memorandum and articles of association of the company; and (d) as a board. Comment: The issue of conflicts of interests is particularly difficult in the context of municipal entities where councillors or municipal employees may be appointed as directors. Directors are not the representatives of the shareholders who have appointed them, nor do they act for the benefit of these shareholders. Rather, the directors have a fiduciary duty towards the company. A director must recuse him/her self from participating in decision-making and sometimes even in the discussions of the board in the context of a conflict of interest. There is a further difficulty. Councillors and municipal employees who are also directors could misrepresent the policy and strategy of the municipality and mislead the board of directors. They could also undermine the role of the chairperson as go-between for the board and shareholder. The appointment and performance evaluation of directors is a complex issue. From a governance perspective, getting the right mix of persons to create a functional board, which is responsive to the needs of the municipality while able to act in the best interests of the company, is the most difficult task of the municipality. |
Adminis-tration |
The executive directors in the company run the day-to-day business of the company. The rights and duties of the shareholders in the management of the company are limited. There is a clear distinction between management and ownership of the company. In terms of the Articles, the executive directors are given the responsibility to manage the day to day running of the business without any interference from the owners of the company. The shareholders are given an opportunity to review the work of the directors at the annual general meeting and express their satisfaction or dissatisfaction by voting for the re-appointment or removal of the directors. Comment: In practice, municipal entities tend to rely heavily on support from the municipality and vice versa. Thus, an independent administration that is unresponsive to the municipality is risky, while an under-resourced municipality that cannot adequately respond to the needs of a municipal entity is equally risky. |
Asset Management |
In terms of section 228 of the Companies Act, the approval of the shareholders in general meeting of the company is required for the disposal of the whole or substantially the whole of the undertaking of the company or the whole or greater part of the assets of the company. As regards the powers of the directors with respect to the assets of the companies, the articles of association can provide for either broad powers or limited powers. |
Policy Direction |
The founding members of the company determine the main objects of the company. Thereafter, the Board decides on the strategy of the company in order to enable it to meet its objectives. However, the shareholders exercise control of this through the appointment of directors and may further reserve the power to approve the strategy and direction of the company (through approval of the business plan) either through the articles of association or through a corporate governance framework agreed with the Board. Comment: In practice the imposition of policy direction by shareholders proves to be a laborious and bureaucratic process that is costly in the utilisation of both municipal and municipal entity resources. Further, the board is bound to adhere to the service standards established in its business plan and deviations required to respond to changing circumstances and emergencies are time consuming and difficult to agree. Finally, a company established in one political regime with controls reflecting the current policy and direction of that regime may be difficult to adjust to the needs of a different political regime. This reduces the democratic power of institutions to immediately affect the policy and direction imposed by a previous regime. |
Intervention |
When any shareholder (majority or minority) of a company complains that any particular act or omission of a company is unfairly prejudicial, unjust or inequitable, or that the affairs of the company are being conducted in manner which is unfairly prejudicial, unjust or inequitable to him or other members of the company, he may make an application to the court for an order rectifying this grievance (see section 252 of the Companies Act). Comment: This section protects a shareholder who legitimately complains that the company is being managed in the manner stated above or that an act or omission of a company is unfairly prejudicial, inequitable or unjust to him or the other members of the company. It is important to remember that the shareholders maintain the power to appoint and terminate the appointment of directors (subject to appropriate labour law and contractual agreements). This is the most powerful tool for intervention the shareholders have. |
Dissolution |
A company may be wound by order of the court or voluntarily (see section 343). A voluntary winding-up may either be a creditors’ or a members’ voluntary winding up. A company may be wound up by the court inter alia if the company has resolved by a special resolution that it be wound up, the members are below seven in a public company or the company is unable to pay its debts. When a company is compulsorily wound up by the order of court, the control of the affairs of the company is taken from the board of directors and given to the liquidator. In a voluntary wind-up by the members, the control is in the hands of the members and in a creditors’ wind-up, control is in the hands of the creditors. Therefore, in a winding up, the board of directors forfeits the power of control over the company. As has been pointed out, a company may be wound up because it cannot pay its debts. In certain circumstances, however, it may be that, given time, the company may be able to rehabilitate itself and avoid being wound up. In terms of section 427, a provisional judicial order for judicial management of the company may be granted. In every winding-up of a company the assets shall be applied in payment of the costs, charges and expenses incurred in the winding-up and, subject to the provisions of section 435(1)(b), the claims of creditors as nearly as possible as they would be applied in payment of the costs of sequestration and the claims of creditors under the law relating to insolvency and, unless the memorandum or articles otherwise provide, shall be distributed among the members according to their rights and interests in the company (see section 342(1)). If however a company is deregistered, the liability of the members continues as if the company had not been deregistered (see section 173). |
Multiple "owners"
Assessment
PART IV: PUBLIC COMPANY
Table 2: Summarizing Essential Features of Public Companies
PUBLIC COMPANY |
|
Control |
The company must have a minimum of seven members. The members are those persons who sign the articles of association of the public company and take up shares in the company. These are one and the same as the shareholders of the company. Comment: The difficulty in the context of public companies and "ownership control" is the requirement of seven members. Often, especially in the context of section 21 companies, public companies established by national government have seven individuals affiliated to the department establishing the public company as the members. This can lead to difficulties if the individuals leave the department. One solution is for the members to be representatives of an office in the department rather than persons in their individual capacity. The articles will determine if the directors have the right to offer shares in this company to the members of the public. |
Constitution |
See private company. |
Audit and Reporting |
The company must lodge annual financial statements prepared in accordance with the Act with the registrar of companies. The financial year is set by the articles of association of the company, which could be prescribed by legislation. |
Governance/ Management |
The board manages and controls the affairs of the company in a manner similar to that in a private company; and is usually assisted by the board committees set up in accordance with the King Report. A public company must have at least two directors. |
Administration |
The executive directors in the company run the day-to-day business of the company. |
Asset Management |
See private company. |
Policy Direction |
See private company. |
Intervention |
See private company. |
Dissolution |
See private company. |
"Multiple owners"
Assessment
PART V: SECTION 21 COMPANY
Examples in South Africa
"some other association or institution or associations or institutions having objects similar to its main object, to be determined by the members of the association at or before the time of the dissolution or, failing such determination, by the Court."
Table 3: Summarizing Essential Features of section 21 Companies
SECTION 21 COMPANY |
|
Control |
There are no shareholders in the company, and the members do not act as "owners" in the sense that they benefit from the rights of ownership. A section 21 company must always have at least seven members as it is a public company. These members have specified rights and duties, and provide a check on the authority and actions of the directors. The members have the right to attend the meetings of the members of the company, to vote at these meetings and to appoint directors. Like shareholders of a private company, the members are not involved in the day to day running of the company. The members can be likened to the founding member of a trust. They will ensure that the directors of the section 21 company carry out the main object of the section 21. The members are also entitled to consider and accept changes to the memorandum and articles of association of the section 21 company. This allows the members to exercise control over the policy direction of the section 21 company. Comment: The best way for the company to maintain "ownership control" would be to ensure that the members are active in their representation of the municipality. It is important to note that each member is entitled to one vote in annual general meetings (see section 193(2)). As a safeguard, the holder of a particular office in the municipality should become the member and not the individual in his personal capacity. The articles of association can also provide for the disqualification of members on specified grounds, including termination of office or employment, and other more typical grounds like insolvency and criminal charges. It is important that the municipality exercise its right, and its responsibility, to appoint members, and to ensure that the members carry out their duties as members. |
Constitution |
The company constitution is constituted by the articles and memorandum of association. The memorandum must have the main object of promoting religion, arts, sciences, education, charity, recreation, or any other cultural or social activity or communal or group interest. The articles of the company must prohibit the payment of any dividend to its members. The company may or may not be exempt from taxation, depending on whether the service provided by the company falls within the parameters set out in section 10 of the Income Tax Act 58 of 1962 and schedules thereto. |
Audit and Reporting |
This is a public company and must therefore comply with the auditing and reporting duties applicable to public companies. The financial year of the section 21 company is determined in the articles of association, which date may be regulated by legislation. As with other public companies, a section 21 company is required to keep such accounting records as are necessary fairly to present the state of affairs and business of the company and to explain the transactions and financial position of the trade or business of the company. The financial statements of the company must be presented at the annual general meeting, and must be sent to each member and the Registrar prior to the annual general meeting. |
Governance/ Management |
Same as a public company, except that the members play the role of the shareholder. The payment of a dividend to members is prohibited (see section 21(1)(d). Comment: The strength of the "shareholder role" depends on the strength of the members. Where the members are appointed only in order to fulfil the requirements of the law, the board of directors plays a strong role, and becomes separated from the government body that has established the entity. On the other hand, a group of interested members will be able to lead the policy, strategy and direction of the board by participating in the annual general meetings, appointing directors, and evaluating the reports of the section 21. As with all companies, it is important for the members to have a governance framework in place with a board charter regulating the conduct of the directors. It is important to remember that directors have a fiduciary relationship to the company, and are required to act in the best interests of the company, and not of a particular members. Thus, differences of opinion may arise between the directors and the members as to the management of the company. In the end, members appoint directors. |
Administration |
Same as a public company. |
Asset Management |
The Companies Act does not provide for asset management specifically relating to the section 21 companies. In the absence of specific provisions, it may be assumed that the provisions of the Companies Act on asset management relating to public companies will apply. |
Policy Direction |
Same as public company. |
Intervention |
Same as a public company. |
Dissolution |
Upon winding up, deregistration or dissolution the assets of the company remaining after the satisfaction of all its liabilities must be given or transferred to some other institution or association having the same objects similar to its main object. In our view, this would allow for the assets to return to the municipality (see the discussion in paragraph 32 above). |
"Multiple owners"
Assessment
PART VII: TRUSTS
"[the] arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed—
(a) to another person, the trustee, in whole or in part, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument; or
(b) to the beneficiaries designated in the trust instrument, which property is placed under the control of another person, the trustee, to be administered or disposed of according to the provisions of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument,
but does not include the case where the property of another is to be administered by any person as executor, tutor or curator in terms of the provisions of the Administration of Estates Act, 1965".
Examples in South Africa
Table 4: Summarizing Essential Features of Trusts
TRUST |
|
Control |
The trust property vests in the trustees for purposes of administration of the trust but the trustees have no beneficial interest therein. Comment: "Ownership control" as defined in the Systems Act may be read as applying to trusts. The notion of "directors" can be substituted by "trustees" and the concept of "votes" can be substituted with the right of the municipality qua founder to change the trust deed. The founder in a trust may include provisions that limit the powers and duties of the trustees (excluding fiduciary duties) and may also provide for procedures for the amendment of the trust deed. The trust deed may provide for the different voting rights for trustees. |
Constitution |
The constitution of the trust is the trust deed, which sets out the powers and duties of the trustees and the objects of the trust. Comment: The beneficiaries in whose interest trustees must act would depend on the need of the municipality. These could range from the municipality itself, a specified list of persons, a specified class of persons, or an unspecified group – the public at large. The more specified the main object and the beneficiaries, the easier to monitor the performance of the trust and the trustees. Legislation could require that the main object of any municipal entity cohere with the IDP of the municipality establishing it. |
Audit and Reporting |
The trust is not required by law to make financial statements, although this may be required by the trust deed. The Master may also require financial statements. As with private companies, the financial statements of a trust do not have to be reported to the Registrar of Companies. Comment: The trust deed may require that the books of the trust be audited and that there be a report by the auditor to the beneficiaries. Legislation such as the MFMB could require all municipal entities to have a minimum standard of financial accounting and reporting. This would solve the difficulties which the flexibility around trust deeds currently presents. If the trust is a subsidiary of a municipality, the financial statements of the trust will have to be included in the consolidated accounts of the municipality. |
Governance |
A trust is managed by the trustees of the trust who hold a position and exercise function analogous to the position and functions exercised by the directors of the company. The appointment, and continuation of the position of trustees depends on the trust deed and the approval of the Master. The founder may retain the right to appoint trustees, or may choose to divest this power and give the trustees the right of assumption (that is, the right to bring new trustees on board). The trustees can be made as accountable to the founder as the founder wishes according to the terms of the trust deed. |
Administration |
The powers and functions of the trustees (and therefore of the trust itself) must be determined with reference to the trust deed. Comment: The trustees usually have the power to appoint individuals to carry out specific tasks. If the trust is a small one set up for a very specific purpose, the trustee can also be the person who carries out the executive tasks required of a trust. For larger trusts, the trust structure can be analogous to the company structure with the trustees playing the role which directors play (the analogy is supported in the discussion in the previous section). The nature of the object of the trust will determine the structure which the trust should take. The key advantage is that the trust is not burdened with a complex structure if it doesn’t need one (see further Table 7 below). |
Asset Management |
Determined by the trust deed and by law – both the Trust Property Control Act and the common-law. |
Policy Direction |
Determined by the trust deed and by law – both the Trust Property Control Act and the common-law. |
Intervention |
Determined by the trust deed. |
Dissolution |
Determined by the trust deed. |
"Multiple owners"
Assessment
PART VIII: FUNDS
PART X: CO-OPERATIVES
Table 5: Summarizing Essential Features of Trading Co-Operatives
TRADING CO-OPERATIVE |
|
Control |
A person becomes a member of a co-operative when a share in the co-operative is issued or transferred to him, or in the manner or on compliance with the requirements determined in the statute of the co-operative (see section 71). The statute of the co-operative may be used to maintain "ownership control". |
Constitution |
The statute of the co-operative comprises the constitution of the co-operative. |
Audit and Reporting |
The co-operative has to prepare annual financial statements and consolidated annual financial statements and lodge these with the registrar of co-operatives. |
Governance |
The affairs of a co-operative must be managed and controlled by a board of directors who exercise the powers and perform the duties of the co-operative subject to the provisions of the Co-Operative Act (see section 107(1)). The board is appointed at the annual general meeting of the members, by a vote of the members. As with a company, subject to any limitations set out in the statute of the co-operative, the board of directors may delegate any of its powers, including its powers of management and control, to a director or a committee of directors, or it may authorise a director or committee to perform any of the board’s duties or to act as the co-operative’s representative or agent. The board is required to report back to the members at the annual general meeting. This report must deal with every matter which is material for the appreciation by members of the state of affairs, the business and the surplus or deficit of the co-operative |
Asset Management |
A co-operative is not allowed to advance money to an undertaking or to a co-operative of which it is a member, indemnify its members or any such undertaking or co-operative against damage or loss or become surety for or give security on behalf of its members or any such undertaking or co-operative, except under authority of a special resolution. Provided that the objectives of the institution so established or taken over, or in which interests or shares have been acquired, shall relate to the objectives of the co-operative concerned (see section 52). |
Policy Direction |
The statute must contain a set of rules regulating the internal affairs of the co-operative (see section 30(1)(g)). |
Dissolution |
The dissolution of the co-operative will not affect the liability of a director, officer or member of the co-operative. Such liability, if any, subject to the law relating to prescription, will continue to exist and may be enforced as if the co-operative had not been dissolved (see section 47). |
"Multiple owners"
Assessment
PART IX: SERVICE UTILITIES
Table 6: Summarizing Essential Features of Service Utilities
SERVICE UTILITY |
|
Control |
In terms of section 82(2)(c) the municipality which established the service utility must exercise "ownership control", as defined in the Systems Act, over it in terms of the by-laws. The by-laws may set out exactly how this would be done. |
Constitution |
The by-laws. |
Audit and Reporting |
The by-laws will establish a financial system as well as controls. The entity will also be subject to national legislation which establishes minimum standards and controls. |
Governance |
If service utilities are established in the manner of statutory bodies, the utility could be governed either by a management committee, or an individual. Statutory bodies can be closely regulated, controlled and monitored by the department which establishes the body. This would probably be the same for service utilities. |
Administration |
Statutory bodies range from large complex administrations to very simple structures depending on the need. The creator of the service utility would be able to design an administrative system relevant to the needs of the service utility. Comment: The question of whether the executive management should be split from the strategic management would depend on the size and nature of the service utility. The King report is obviously designed for companies and deals with the issues that are related to companies. In a non-company context, many of the issues are different and the recommendations in the King report are not necessarily transferable. Governance checks, controls and balances are necessary, and minimum standards for these can be established in legislation. |
Asset Management |
Risk and assessment management controls tie up with financial controls. Obviously a complex administration would require far more controls than a simple administration. Further the by-law should set out how much power the management body (or person) would have over the assets, how to deal with the assets, and what to do with the assets on dissolution. |
Policy Direction |
The by-law would set out the main object of the service utility and provide guidance on who is to set the policy and direction of the service utility. |
Intervention |
This would be determined by the by-law itself. |
Dissolution |
This would be determined by the by-law itself. |
"Multiple owners"
Assessment
PART X: CONCLUSION
Comparative Assessment
Table 7: Showing a Direct Comparison of Different Forms
ISSUE |
PRIVATE COMPANY |
TRUST |
SECTION 21 |
SERVICE UTILITY |
Control |
Shareholders establish the company by registering it with its articles and memorandum. |
The Founding Donor establishes the trust by registering the trust deed. |
Seven members establish the company by registering it with its articles and memorandum. |
The municipality establishes the service utility by passing a by-law. |
Governing Body |
The board of directors is appointed by the shareholders or as otherwise stipulated in the articles. |
The trustees are appointed by the founding donor or as otherwise stipulated in the trust deed. |
The board of directors is appointed by the members or as otherwise stipulated in the articles. |
The governing body is established by the by-law and appointed as per the terms of the by-law. |
Constitution |
The memorandum and articles of association. |
The trust deed. |
The memorandum and articles of association. |
The by-law. |
Financial Statements |
Annual financial statements in accordance with the Companies Act are required to be audited annually. |
The trust deed may require financial statements and sets the standards to which these must adhere. In addition the Master may call a trustee to account under section 16 of the Trust Property Control Act. |
Annual financial statements in accordance with the Companies Act are required to be audited annually. |
The by-law may require financial statements and sets the standards to which these must adhere. |
Financial Year |
The articles establish a date for the financial year end. |
The trust deed may establish a date for a financial year end if the deed requires financial statements. |
The articles establish a date for the financial year end. |
The by-law will establish a date for the financial year end. |
Return of Assets |
On dissolution of the company, the assets are first utilised to meet the debts of the company, and then the assets are sold or otherwise distributed and the proceeds are distributed to the shareholders in the form of a dividend. |
The assets are to be utilised for the benefit of the beneficiaries. The trust deed may require that on dissolution the assets be distributed to the beneficiaries, or that the assets be transferred to an institution or entity that has the same or similar object as the trust. |
The assets are to be utilised in carrying out the main object of the section 21. The articles may (and most do) require that on dissolution the assets be transferred to an institution or entity that has the same or similar object as the trust. |
The by-law will establish a dissolution regime, and may make provision for the return of assets. |
Annual General Meeting |
Annual AGMs are required by the Companies Act. That Act requires that all shareholders be given notice of the AGM together with the Financial Statements, Auditors Report and the report of the chairman. The purpose of the AGM is to present the Financial Statements to the shareholders, appoint the directors and approve the auditors fees, and to put all resolutions recommended by the directors to vote. |
Not required by law, but may be required by the Trust Deed. |
Annual AGMs are required by the Companies Act. That Act requires that all members be given notice of the AGM together with the Financial Statements, Auditors Report and the report of the chairman. The purpose of the AGM is to present the Financial Statements to the members, appoint the directors and approve the auditors fees, and to put all resolutions recommended by the directors to vote. |
May be required by the by-law. |
Analysis of the Comparative Assessment
Coming into Operation of Selected Provisions
ANNEXURE A
SCHEMATA SHOWING SOME COMPANY ACT DISTINCTIONS
(Note the diagram does not show share block companies or external companies)
ANNEXURE B
Table 8: Showing the classes of shares that a private company and a public company may issue
CLASSES OF SHARES |
||
Types of shares |
Description |
Voting rights |
Ordinary shares |
Has unrestricted rights to participate in a distribution of dividends or capital after the rights of preferred shareholders have been satisfied. |
The shares may be divided into different classes, with each enjoying different voting rights (only in respect of unlisted companies). |
Preference shares |
Preferences shares usually enjoy a preferential right to dividends and the repayment of capital on liquidation, but depending on the articles of the company may or may not have a right to participate beyond a specified amount as regards dividends or return of capital. Preference shares may also be issued as redeemable on a specific date or at the option of the company, subject to certain restrictions. |
Voting rights may or may not be conferred on these classes of shares and these rights must be defined by the articles of the company. |
Convertible preference shares |
Preference shares that are convertible into the ordinary shares at a future date. |
Voting rights may or may not be conferred on these classes of shares and these rights must be defined by the articles of the company. |
Deferred shares |
Have the same attributes as ordinary shares, but only rank for a dividend after a prescribed minimum dividend has been paid to common stockholders or a certain period of time has elapsed. |
The shares may be divided into different classes, with each class enjoying different voting rights (only in respect of unlisted companies). |
ANNEXURE C
FRANSCHHOEK EMPOWERMENT & DEVELOPMENT INITIATIVE
The Franschhoek Empowerment and Conservation Trust ("FREMCO TRUST) is registered with the Master of the High Court in Cape Town under reference IT3341/2001, set up pursuant to a Franschhoek Municipal Council decision.
The two main purposes of the FREMCO Trust as a business trust, is to serve as vehicle through which the previously disadvantaged of Franschhoek can participate in the mainstream of the local economy, and to disburse levy funds on behalf of the Stellenbosch Municipality. The Trust is the joint venture partner of FRANDEVCO (Pty) Ltd. in the development of the former Franschhoek municipal Commonage land. In this capacity it will participate in the establishment and ownership of a large agricultural estate, a resort/spa hotel, and exhibition and convention hall, a craft centre and a food and wine museum and training centre. The Trust is also contractually charged with administering a development levy payable to it (consisting of 1% on the price realised of all property sold and transferred out of the Commonage land). The proceeds of this levy must be spent outside of the Commonage property, on improving the well-being of the previously disadvantaged of Franschhoek. Of the levy income 90% is destined for the empowerment of the previously disadvantaged, and 10% for the Mont Rochelle Nature Reserve (which adjoins the Commonage).
The beneficiaries of the Trust are all those who were legally resident in the municipal area of Franschhoek on 30 November 2000, who are breadwinners of a family and who either are members of FRALCRA (that is, a land claimant), and/or who belong to the previously disadvantaged communities of Franschhoek.