How many directors and shareholders?
(Pty) Ltd companies must have at least one director, and he/she has to be appointed when the company is formed.
Interestingly, however, a (Pty) Ltd company does not have to have any shareholders. It is formed with an authorised capital, usually of 1000 shares. That is capital (shares) that the director(s) are authorised, but not obliged, to issue.
This is an advantage for us when we form a new trust and a new company that is to be owned by the trust. We can form the company, usually within about 1 week. The director can then use the company to buy property, start a business, or whatever it was intended for. Then, when the trust is eventually registered, often many weeks later, the shares, usually 100 or 120, can be issued to it and the structure is thus completed.
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If the company has authorized 1000 shares
But only 1 director has 120 where is the rest
Hi Lauren,
The remaining 880 shares are available to be issued by the directors (sold by the company) to future shareholders. This rarely happens in a small company.
If my Pty Ltd investment company makes a profit from trading and reinvest that profit in JSE stocks before tax month, does the company have to pay income tax on that profit made before reinventing it?
Hi Kali,
I don’t know anything about gambling in listed shares. But as a CA(SA), I recall that there are two classifications of a share investment company. It will either be trading, and subject to income tax (as is your case) or investing, that is, holding shares (I think for a minimum of 3 years) for dividends. These latter companies are subject to CGT when they sell the shares at a profit.
Can an association such as a club form a (pty) Limited company? If it can, are their any restrictions and what would they be and who would be liable for any liabilities the company may incur?
Hi Colin,
If the Association is allowed in terms of its constitution, to own assets, then it can register a company and be the shareholder. It will then appoint Directors to manage the company on its behalf.
There would be no special restrictions.
The shareholders are not liable for the debts of the company.
The directors may be liable if they acted recklessly, but under normal circumstances, they would not be liable.
Anybody who signs surety for the company’s debts would be liable.
If the company wanted to borrow money from a bank, the Directors will almost always be asked to sign surety.
When you form a company, there is also the capital that goes into the company. That money must come from somewhere & when you later issue share to the trust you have effectively donated the money from the original source of funds to the trust.
What am I missing?
Hi Dave,
You are not missing something, you’ve actually added something. When you form a company, no capital goes into it and it has no capital. All that happens is that, in terms of the MoA, the directors are authorised to issue shares, usually 1 000, but they are not obliged to issue any. Of course, under normal circumstances, they would issue 100 or 120 shares straight away and this might appear to be part of the registration process rather than a separate transaction.
Hi Dave, I have registered a company and issued shares to my partner who is also the director of the company.
He can no longer be a shareholder as it disqualifies him from registering as a turnover tax entity, which is what he wants to do. I am also a turnover tax entity so I cannot be a shareholder.
What does this shareholding actually mean, realistically? If I were to put my mother or brother down as shareholders? Or is this merely a practicality if agreed between family that won’t want compensation or to be held liable for anything.
Does it affect them in their own tax affairs?
Is it compulsory to issue shares? My accountant advised me it had to be done as part of the company registration process.
What is the best way to go about this?
Thanks
Hi Alexis,
I presume that you both want to be Sole Traders and Micro Enterprises? That’s about the only time when turnover tax works.
The Companies Act does not specifically state that a company must issue shares, but various “opinions”, including that of your accountant apparently, state that at least one share must be issued. This is, in my view, rubbish – just someone’s opinion based on someone esle’s opinion, based on someone else’s opinion and is not based on law.
However, bear in mind that it is the shareholder(s) who appoint the director(s) so, without a shareholder, there can be no director to run the company, so the company cannot operate. Now, when registering a new company at CIPC they require the details of at least one (presumably future) director. CIPC then “appoints” the Director with no reference to (or respect for) the shareholder(s). Crazy stuff!
But hey, I’m just having fun. Let’s get back to your situation. Just go ahead and make a family member the shareholder. It carries no risk (the word “Limited” means that the shareholders’ risk is limited to the loss of their shares) and has nothing to do with their personal tax.
hey Derek,
Thanks for your reply.
Turnover tax works!
You know what they say about opinions?
But also, seriously wish people would just go by what is REQUIRED and not by what they would do according to their opinion.
Can the company un-share the shares?
Hi Alexis,
No. But there may be some wiggle room. Why can’t the existing shareholder donate the shares to the new one? From what I recall the company is worth nothing.