An external company is not a company as defined in the Companies Act, and it cannot therefore have prescribed officers with the obligations and liabilities imposed by the Act.
Prescribed officers are employees or other persons who, although they are not directors, exercise executive control over a significant part of a company’s business or participate materially in decision-making. Prescribed officers are required to act with the same level of care, skill and diligence and attract the same level of liability as directors of a company. For this reason, it is important for a company to identify who its prescribed officers are.
An external company is a foreign company that is carrying on business within South Africa. External companies are registered in South Africa, and they have to comply with certain provisions of the South African Companies Act. These sections include section 23, which deals with the registration of external companies, and section 33, which covers the annual returns of external companies. The foreign company is required to maintain an office in South Africa but does not have to have directors or executives present in the country. All the directors may be foreign residents.
The Companies Act defines a ‘company’ as ‘a juristic person incorporated in terms of this Act, a domesticated company, or a juristic person that…was registered in terms of the Companies Act 1973, other than as an external company as defined in that Act’.
External companies are therefore not companies as defined, and consequently do not have prescribed officers with the consequences in the Act. This lines up with the fact that the Companies Act does not have extraterritorial effect and should not impose the same obligations on foreign companies (which are governed by legislation in their home countries) as it imposes on local companies.