Main purpose and benefits
A private company is in essence a company whose shares are privately held by, for example, the company’s founders, a group of private investors or a subsidiary of a larger company. The main advantage is that the sale of shares is restricted and the shares cannot be offered to the public thereby protecting the shareholders’ interests.
A public company’s shares are held by the public and there are no restrictions on the transfer of shares to third parties. The main benefit is that a public company has relatively easy access to capital.
The main statutory and regulatory requirements for companies incorporated in terms of the Act are indicated below:
| Item | Section of the act | Private company | Public company |
|---|---|---|---|
| Name of the company | Section 11 | Need to have the abbreviation …(Pty) Ltd added to the name of the company on all requisite documentation | Need to have the abbreviation … Ltd added to the name of the company on all requisite documentation |
| Minimum number of members | Section 57 | 1 member | 1 member |
| Maximum number of members | N/A | No maximum | No maximum |
| Number of directors | Section 66 | 1 director unless otherwise specified in the memorandum of incorporation “MOI”. (3 directors are required should the company opt to have an audit committee) |
3 directors unless a higher number is specified in the MOI |
| Non-executive directors | Section 66/Section 93 | Need 1 director who is not involved in the day-to-day management of the company’s business to chair the social and ethics committee should such a committee be required | Must have 3 independent, non-executive directors to serve on the audit committee one of which can also serve on the social and ethics committee. |
| Requirement to have an annual audit | Section 30(2)(a) and Regulation 29 | The annual financial statements must be audited if the company’s public interest score is higher than 350, or if the public score is 100 and the financial statements were compiled internally, or if the company had chosen to be audited in its MOI. However, the company is exempt if every person who has a beneficial interest in any securities issued by the company is also a director of the company. |
The annual financial statements must be audited |
| Reporting standard | Regulation 27 | Depending on the public interest score the company must use IFRS, IFRS for SME’s, SA GAAP or the financial reporting standard as determined by the company for as long as no other standard is prescribed. | Must use either IFRS or IFRS for SMEs, provided that the company meets the scoping requirements outlined in the IFRS for SME’s. |
| Additional accountability requirements for certain companies | Section 34 | Not required to comply with the extended accountability requirements in Chapter 3 of the Act. | Is required to comply with the extended accountability requirements in Chapter 3 of the Act that relates to the appointment of a company secretary, auditors and an audit committee. |
| Company secretary | Section 84 | Do not have to appoint a company secretary, but the company may opt to do so. | The board has to appoint a company secretary. |
| Auditor | Section 84 / Section 90 | Do not have to appoint an auditor, but the company may opt to do so. | Have to appoint an auditor at the annual general meeting. |
| Audit committee | Section 84 / Section 94 | Do not have to appoint an audit committee, but the company may opt to do so. | Have to appoint an audit committee at the annual general meeting. |
| Social and Ethics Committee | Section 72 and Regulation 43 | Unless exemption has been granted, the company must have a social and ethics committee should its public interest score exceed 500 points. | Must have a social and ethics committee unless exemption has been granted. |
| Subscription of shares | Section 39 | If proposing to issue shares, each shareholder has a right, before any other person who is not a shareholder to be offered a percentage of the shares equal to the voting power of those shareholders voting rights. | By issuing a prospectus the company may invite public to subscribe to its shares. |
| Statutory annual general meeting | Section 61/ Section 30 | Does not need to hold an annual general meeting. An annual general meeting must be held if the company has opted to hold an annual general meeting in its MOI in order to approve its audited financial statements, approve non-executive director remuneration or appoint the audit committee members if applicable. |
A public company must convene an annual general meeting of its shareholders once every calendar year but no more than 15 months after the date of the previous meeting. |
| Notice of shareholders meeting | Section 62 | Should a shareholders’ meeting need to be held 10 business days notice needs to be given plus 7 days for posting should the notice be sent by post, unless altered in the MOI. | 15 business days, plus 7 days for posting, is required for a shareholders’ meeting of a public company, unless altered in the MOI. |
| Conflict of auditor | Section 90 | N/A | The auditor cannot fulfil the company secretarial function and the auditor cannot serve for a period of more than 5 financial years. |
| Takeover regulations | Section 118 | The takeover regulations could apply only when certain conditions are met. | The takeover regulations would apply with respect to an affected transaction or offer involving the company’s securities or the company itself. |