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                                                                                                BUSINESS FORMS

Personal Liability Company 


Definition: A personal liability company is a voluntary association of 1 or more persons, governed by the company Act 71 of 2008, incorporated in terms of the Memorandum of Incorporation and its name ends with the suffix 'Incorporated' or 'Inc'. The directors are jointly and severally liable with the company for all company debts and liabilities incurred.   


Characteristics of a Personal liability company: 

  • 1 or more persons (including juristic persons) may incorporate a personal liability company. There is no limit on number of shareholders.
  • The board of a personal liability company must comprise at least one director (1 or more directors) or any other minimum number as stipulated in its MOI. Each incorporator is a first director of the company. 
  • Personal liability companies are subject to fewer disclosure and transparency requirements.
  • The directors are jointly and severally liable with the company for all company debts and liabilities incurred. The Act imposes personal liability on directors who are knowingly part of the carrying on of the business in a reckless or fraudulent manner;
  • Certain professional persons, such as attorneys and accountants, who are statutorily prohibited from enjoying limited liability, often incorporate a personal liability company to regulate their affairs.
  • The company has the benefit of corporate existence and perpetual succession. 
  • These companies are identified by the suffix 'Incorporated' or 'Inc'.
  • A personal liability company is prohibited by MOI from offering its shares to the public and the transferability of its shares is restricted. 
  • Personal Liability Company must prepare annual financial statements, but is not required to lodge its annual financial statements with the Commission. 
  • Annual financial statements need not be either audited or independently reviewed, unless prescribed by regulation / voluntary audit / independently review except exempted by regulation if one person or every holder holds a beneficial interest.
  • Shareholders of a personal liability company have a right of pre-emption in respect of the issue of new securities unless the MOI provides otherwise.
  • Where there are more than two shareholders (except in the case of a one-person company), the shareholder quorum at general meetings is three shareholders with voting rights, unless the MOI provide otherwise. 
  • The person quorum for all meetings is the presence at the meeting of the holders of at least 25% of all the voting rights that are entitled to be exercised. The voting rights must be determined by MOI, i.e. the MOI may lower or higher the percentage.
  • A personal liability company has a separate legal personality. Shareholders have limited liability
  • A personal liability company is required to give 10 business days notice for shareholder meetings. . 
  • The Act imposes personal liability on directors who are knowingly part of the carrying on of the business in a reckless or fraudulent manner.
  • Information in the personal liability company is available to shareholders. 
  • Each share has one general voting right unless class; preferences, rights and limitations in MOI provides otherwise. 
  • All distributions to shareholders require board approval and need to satisfy the solvency and liquidity tests. Distributions are unfortunately extremely widely defined and include dividends and share buy- backs. Payments will be according to the class, preferences, rights and limitations of shares held.
  • Personal Liability Company is required to give 10 business days notice for shareholder meetings. 


Advantages of Personal Liability Company:

  • The board of a personal liability company must comprise at least one director (1 or more directors) or any other minimum number as stipulated in its MOI. Each incorporator is a first director of the company. 
  • The life span of a personal liability company is perpetual.
  • The company is a separate legal person it can buy property in its own name.
  • The Act imposes personal liability on directors who are knowingly part of the carrying on of the business in a reckless or fraudulent manner.
  • Directors of a personal liability company are not compelled to attend the Annual General Meeting (AGM) 
  • Audited financial statements are optional; otherwise the financial statements need to be independently reviewed unless exempted by regulation.
  • A personal liability company is not required to lodge its annual financial statements with the Commission.  
  • Personal liability companies are subject to fewer disclosure and transparency requirements.
  • Shareholders of a personal liability company have a right of pre-emption in respect of the issue of new securities unless the MOI provides otherwise. 


Disadvantages of Personal Liability Company:

  • The directors and past directors are jointly & severally liable together with the company, for the debts and liabilities of the company that were contracted during their respective terms of office.
  • Subject to many legal requirements, hence it is difficult and expensive to establish compared to Close Corporations and Sole Proprietorship
  • A personal liability company is prohibited by MOI from offering its shares to the public and the transferability of its shares is restricted. 
  • The company is subjected to double taxation, i.e.  on the taxable income and Standard Tax on Companies (STC)  payable on declared dividends. 
  • A meeting may not begin or a matter may not be debated unless at least three shareholders are present. 
  • The meeting may not begin to be considered unless sufficient persons are present at the meeting to exercise in aggregate at least 25% of all the voting rights. The voting rights must be determined by MOI.
  • Personal liability companies are compelled to prepare annual financial statements. 
  • All distributions to shareholders require board approval and need to satisfy the solvency and liquidity tests and  the payment are also  extremely widely defined