Choice of Business Structures in South Africa : Public Companies : PART 2
1 December 2016

– Summary

The South African company system is well developed and regulated. Here we discuss the advantages and disadvantages of Public Companies.

In this article, we will deal with PUBLIC COMPANIES … that end in “Limited” or “Ltd”.

The South African company system is well developed and formally regulated; the governing body for companies is the Companies and Intellectual Properties Commission (CIPC) and all businesses are governed by the Companies Act (2008).

Other articles will deal with:

A public company is a company whose shares are traded publicly usually on a stock exchange. These types of companies are heavily regulated to protect the public that can invest in them.

It is noteworthy that in most cases a public company will not be the appropriate choice for a new business, particularly a “start-up”; in fact, it may not be a matter of “choice” at all, as there are requirements to starting a public company that would prohibit its use for most entrepreneurs. Nevertheless, information regarding public companies may be useful for several readers.

Advantages and disadvantages are the best way to determine how appropriate a public company is to you.

ADVANTAGES OF PUBLIC COMPANIES

DISADVANTAGES OF PUBLIC COMPANIES

Public Investment

One of the biggest advantages of a public company is that capital can be raised directly from the public through the sale of shares publicly and, if the company qualifies, on a Stock Exchange such as the Johannesburg Stock Exchange (“JSE”).


Separate Legal Entity

A public company is treated as a separate legal entity, separate from its owners (or “Shareholders”) with separate Tax obligations.


Limited Liability

Shareholders’ liability is limited, they cannot be held accountable for the debt or actions of the public company.


Foreign Ownership

Foreigners and foreign entities can own 100% of the shareholding in South African public companies.


Life Span

Public companies last indefinitely.

Director’s Liability

Directors can be held personally liable for the debts and actions of a public company.


Set-up

Forming a public company is highly regulated. It is costly and time-consuming.


Ongoing Legal requirements

Public companies are subject to many day-to-day legal requirements and regulations which are highly onerous.

Public companies have many more ongoing legal formalities than private companies which are intended to protect the public investors.


Cost

Incorporating a public company is expensive and it is costly to regulate.


Owner Control

The original owners may lose control as shares are sold to the public and, once shares are in the hands of the public, the original owners have no control over to whom the shares are transferred/sold.


Number of Directors

A public company must have at least 3 directors to be incorporated and continue operating.


Number of Shareholders

A public company must have at least 7 shareholders and it is grounds for liquidator if the membership in a public company falls below 7.


Audits

Public companies require their annual financial statements to be audited and lodged with the Registrar of companies.


Inflexible

Public companies generally need to be very large enterprises to justify their establishment.


Management

Management can be complicated due to the large size of the company and the regulations required by law.

In truth, while public companies may be an attractive prospect because of the opportunity for public funding, they are very complicated entities to set up and run.  Assuming your enterprise qualifies to be listed as a public company, without experience or expert advice a public company is not really an option … or the right option.

DISCLAIMER: THERE ARE MORE CONSIDERATIONS THAN WE CAN COVER IN THIS ARTICLE SO ONLY USE THIS INFORMATION AS A GUIDE.   THIS INFORMATION DOES NOT CONSTITUTE LEGAL ADVICE.  IT IS ALWAYS BEST TO DISCUSS YOUR SITUATION WITH AN ATTORNEY; CONTACT US AT 0861 88 88 35helpdesk@gcm-legal.com AND THROUGH THE CONTACT FORM ON THIS PAGE.

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