Other kinds of company

1. Fifty shareholders, and no public offer

A private company must not have more than 50 shareholders. Where two or more shareholders hold one or more shares jointly, they count as one shareholder. Persons who are employees, and former employees who became members while employed and remained members, are left out of the count of 50. A private company must not offer its shares or debentures to the public.

Tamarind has two shareholders. It is inside the limit. An offer of the 20 new shares to Asha, who is one identified person, is not an offer to the public. An advertisement inviting the public to subscribe would breach the private-company rule even if fewer than 50 people responded.

The 50-shareholder limit does not apply to a company limited by guarantee, or to a company limited by both shares and guarantee. A company limited by guarantee without a share capital is also outside Part VII, which is the share-capital machinery, and outside the amalgamation Part.

Companies Act, sections 269 and 270.

2. Meera and Ravi agree to everything

Where all the shareholders of a private company agree to an action the company has taken or will take, that action is deemed to be validly authorised notwithstanding the constitution, and the provisions listed in the Eleventh Schedule do not apply to that action. When that agreement is the document to use, and when a constitution or a contract signed by only some of the shareholders is the document to use, is worked in the constitution chapter. The agreements that sit in this section include an issue of shares, a distribution, a repurchase or redemption, financial assistance, a director’s remuneration or a loan to a director, a contract with an interested director, a major transaction, and a later ratification of any of those.

Tamarind has two shareholders. An agreement signed by both Meera and Ravi is unanimous. An agreement signed only by Meera is not.

A distribution made under this section which leaves the company unable to satisfy the solvency test is deemed not to have been validly made. The company may recover it from the shareholder unless the shareholder received it in good faith and without knowledge of the failure, has altered his position in reliance on the distribution, and it would be unfair to require repayment.

A unanimous dividend of Rs 200,000

Meera and Ravi both sign a written agreement that Tamarind will pay a dividend of Rs 200,000. After that payment, assets would be Rs 800,000. Liabilities are Rs 400,000 and stated capital is Rs 100,000. Liabilities plus stated capital are Rs 500,000. Assets of Rs 800,000 are greater than Rs 500,000, so the assets limb is met. The agreement is unanimous, so the Eleventh Schedule provisions do not apply to that action. If the dividend left assets equal to Rs 500,000, they would not be greater, the solvency test would fail, and the distribution would be deemed not to have been validly made even though both shareholders had agreed.

Companies Act, section 272. Eleventh Schedule.

3. Guarantee, a limited life, and a quiet company

A company limited by shares may convert to a company limited by guarantee without a share capital where there is no unpaid liability on any share, all the members agree in writing to the conversion and to surrendering their shares for cancellation, a new constitution appropriate to a guarantee company is filed, and the members’ total liability to contribute on a winding up is not less than Rs 10,000. The Registrar issues the certificate of conversion when a copy of that constitution, the special resolution adopting it, and a declaration by a director and the secretary that those conditions have been met, are filed. Tamarind is a small private company, so section 163 does not require it to have a secretary while it remains one. The conversion filing still requires the secretary’s declaration, so the company appoints a secretary before that declaration can be given. Tamarind’s shares are fully paid, so the unpaid-liability condition is met. Both members would have to agree in writing and give up the shares. The Rs 10,000 is the minimum the members must undertake to contribute if the company is wound up.

A limited life company is registered with a constitution that limits its life to not more than 50 years from incorporation, or from continuation. It may later alter the constitution to extend that life, so long as the periods do not exceed 150 years in aggregate from incorporation.

A company is dormant for a period in which no significant accounting transaction occurs. It ceases to be dormant when such a transaction occurs. A transaction counts where it has to be entered in the accounting records. The issue of shares to a subscriber on incorporation is not, by itself, that transaction. The company may declare itself dormant by special resolution, if it has been dormant from formation or since the end of the previous accounting period, and it is not required to prepare group accounts. A company formed for banking or insurance must not make that declaration. Within 14 days the company gives the Registrar notice, and the Registrar records it as dormant. If a significant accounting transaction then occurs, the company gives notice within 14 days that it has ceased to be dormant.

Invoices mean the company is not dormant

Tamarind is invoicing clients. Those invoices are entered in the accounting records. It is not dormant, and a special resolution cannot declare it dormant while that work continues. A company that has never traded, and whose only share issue was to the subscribers on incorporation, can be dormant from formation and can declare itself so, unless it was formed for banking or insurance.

Companies Act, sections 163, 266, 287, 288, 293 and 294.

What you should now be able to explain

Tamarind stays private while it has no more than 50 shareholders and makes no public offer. Both shareholders together can authorise an action, and a distribution that fails the solvency test is not saved by that agreement. Conversion to a guarantee company needs the written surrender of fully paid shares and a guarantee of at least Rs 10,000. A limited life stops at 50 years unless extended within the 150-year aggregate. A company that is still invoicing is not dormant.

Next: a company incorporated outside Mauritius that carries on business here, or that asks to continue as a Mauritius company.