1.                   Introduction

This memorandum briefly sets out some of the material differences between a private company and public company.  It also deals with the respective powers of a public company versus a private company in issuing bonds and in public offerings.

2.                   General Differences

2.1.               The Companies Act, 1973 (”the Companies Act”) contemplates various forms of company; for present purposes we are concerned chiefly with public companies, on the one hand, and private companies on the other.

2.2.               Under the Companies Act a public company may be formed with a minimum of 7 members (section 32) and is not otherwise limited in the number of members it may have.

2.3.               The key distinguishing features of a private as opposed to a public company are that a private company (section 20) is a company which -

2.3.1.                     restricts the right to transfer its shares;

2.3.2.                     is limited to a maximum of 50 members; and

2.3.3.                     may not make an offer to the public for the subscription of any shares or debentures in itself.

2.4.               A public company, conversely, is not constrained in these ways.  Thus, a key benefit to a public company is its ability to raise capital by way of the issue of debentures, bonds, preference shares and other commercial paper to the public.  It is to be noted that the issue of such instruments does not, in the normal course, confer voting rights on the holders of those instruments.

2.5.               There are a variety of other technical and formal consequences attaching to a private or a public company respectively including, for example, provisions as to the articles, number of directors, quorums for general meetings and so on.

2.6.               Other features of a private company (but not a public company) include that a private company –

2.6.1.                     is not ordinarily obliged to lodge a copy of its annual financial statements with the Registrar of Companies (section 302);

2.6.2.                     cannot, because of restrictions on the transferability of its shares, issue a share warrant with respect to shares or stock;

2.6.3.                     a member of a private company cannot appoint more than one proxy (unless the articles of the company specifically allow otherwise);

2.6.4.                     voting rights in a private company may be unequal, whereas each member of a public company is entitled to votes in the company in proportion to their shareholding;  and

2.6.5.                     under the new Corporate Laws Amendment Bill, public and private companies will be subject to different accounting standards.  Public companies will be subject to financial reporting standards in accordance with International Financial Reporting Standards (“IFRS”).  Furthermore a private company will remain at liberty to choose whether to consolidate group financial statements.  This level of flexibility will not be available to public companies under the Bill.

3.                   Debentures

3.1.               The Companies Act prohibits a private company from offering debentures for subscription by the public.  The term “debenture” is defined widely in the Companies Act, as including:

debenture stock, debenture bonds and any other securities of a company, whether constituting a charge on the assets of the company or not.”

3.2.               This definition is sufficiently wide to include the issuing of any bonds or similar financial instruments.  This precludes a private company from issuing such instruments to the public under the Companies Act.  While it is practice for a private company to issue bonds with the use of an intermediary who subscribes for the bonds and then trades them on the Bond Exchange of South Africa, this is not a practice expressly prescribed under the Companies Act.

31 January 2007