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Eduvos (Pty) Ltd is a registered private higher education institution in South Africa, focusing on corporate law and legal personality. The document outlines learning outcomes related to legal personality, the consequences of acquiring it, and the circumstances under which the separateness of a legal person may be disregarded, including case law examples. It emphasizes the importance of understanding the concept of legal personality and the implications for business structures and liability.

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63 views164 pages

Full Notes

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You are on page 1/ 164

Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with

the Department of Higher Education and Training as a private higher education

institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Thursday, 6 June 2024, 12:05 PM

LWCLA2-22 (2024)
1.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this topic, you should be able to:

Explain the concept of legal personality and the

consequences for an entity having acquired legal personality.
Explain why and when the separateness of the legal person
will be disregarded.
List the different business structures (undertakings).
Briefly indicate the relative advantages and disadvantages of
each business form.

Prescribed Reading
Haupt, A. and Malange, N. J. 2013. Corporate
Law for Commerce Students. 2nd Edition.
Chapter 6 - Legal Personality.

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2. Case Study

Watch the following video: Salomon v Salomon: The "One-Man Company":

[Accessed - 26 August 2023]

Time Allocation: 1 hour

3. Notes

Watch video: "Company Law - Nature of Legal Personality"

Legal Persons: There are two kinds of legal subjects: natural persons and legal persons. A legal person is
also known as a juristic person. Examples would be companies and close corporations. Legal persons are
able to acquire rights and to trade, as well as to incur debts.

Legal persons are established in a few ways. Have a look at the ways in your textbook to make sure you
know and understand them. They are established through a specific Act of Parliament, a general (enabling)
Act of Parliament, such as the Companies Act, 2008, or through conduct.

Consequences of legal personality: The legal person exists separately from its owners or the members
comprising it. The consequences of this are that the legal person has perpetual succession, can acquire its
own assets and profit and losses. It has limited liability, meaning that the liabilities are those of the legal
person only and it can sue and be sued in its own name, and it has to act through its duly appointed
representatives.

Example: If we use a company as an example, it is considered as a person itself and the law treats it as an
independent person. It can acquire rights and incur obligations and has the powers of a natural person. It,
however, acts through its representatives, namely the directors.

Case law

In Airport Cold Storage v Ebrahim (2008) (2) SA 303 (C) it was said that one of the most fundamental
consequences of incorporation is that a company is a juristic entity separate from its shareholders.

In Dadoo v Krugersdorp Municipal Council 1920 AD 530 the court found that the property of the company
vested in the company and could not be regarded as vesting in any or all of the shareholders of the
company.
4. Activity

Question

P (Pty) Limited bought goods from F (Pty) Limited on credit. When P was liquidated F did not receive a
dividend as P had no assets. F subsequently tried to hold the directors who are also shareholders liable for
the debts of P.

Discuss under what circumstances the directors of P (Pty) Limited could be held responsible for the debts of
P. Your answer should include a full discussion of separate legal personality as well as a discussion of Airport
Cold Storage (Pty) Limited v Ebrahim 2008 (6) SA 585 SCA.

Completed on Wednesday, 15 May 2024, 7:32 PM

Time taken 34 secs

Marks 5/5

Grade 10 out of 10 (100%)

Question 1

Correct

Mark 5 out of 5

Explain the concept of legal personality and the consequences for an entity having acquired legal personality by selecting the correct missing

words -

A legal person is created once it is Registered  . There are four legal consequences that need to be considered for a legal

person being: Perpetual succession  , Assets  , Profit and loss  and

limited liability 

Your answer is correct.

The correct answer is:

Explain the concept of legal personality and the consequences for an entity having acquired legal personality by selecting the correct missing
words -

A legal person is created once it is [Registered]. There are four legal consequences that need to be considered for a legal person being:
[Perpetual succession], [Assets], [Profit and loss] and [limited liability]

Jump to...

t 1.1. Notes [ ± 60 mi...

1.3. Practice Activity [ ... #
Activity 1
There are two kinds of legal subject, namely 1_______________________ and legal persons. Legal
persons are also known as 2____________________. Legal persons are created through a separate
Act of parliament, or a general enabling Act such as the Companies Act, or through 3______________.
Each company in a group is in principle, 4 ________________ legal entity. The principle of juristic
personality was first laid down in 5___________________.

Activity 1 Memo

1. Natural
2. Juristic persons
3. Conduct
4. Separate
5. Salomon v Salomon and Company

Jump to...

t 1.2. Practice Quiz [ ...

Learning Outcomes Post-as... #

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Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Thursday, 6 June 2024, 12:06 PM

LWCLA2-22 (2024)
2.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this topic, you should be able to:

Explain why and when the separateness of the legal person

will be disregarded.

Prescribed Reading

Haupt, A. and Malange, N. J. 2013. Corporate

Law for Commerce Students. 2nd Edition.
Chapter 6 - Legal personality

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2. The Corporate Veil

The general rule was stated in the Salomon case, namely that a corporate entity is something distinct from
its members, and its assets and liabilities are its own.

Shareholders generally enjoy protection against the creditors of company. This means that the creditors
cannot claim against the shareholders for the debts of the company. This is as long as the company was
legitimately created and operated within the law.

When fraudulent use is made of the corporate entity, courts will disregard the separate legal existence
of company and treat the member and the company as one, and the member will incur personal
liability for debts of company. This is known as “piercing the corporate veil”. See the examples below
for where the courts have done this.

Case law
In Amlin v Van Kooij 2008 (2) SA 558 (C), the court stated that it has no general discretion to disregard
company’s separate legal personality but that fraud, dishonesty, improper conduct or concealment of the
true state of affairs constitute sufficient grounds for piercing the corporate veil, which should only be done
as last resort where justice will not otherwise be done and where no alternative remedy is available.

In Robinson v Randfontein Estates Gold Mining Company 1921 AD 168, Robinson was the chairman of
the board of the company. He used a subsidiary company to acquire and sell property at a huge profit to
the holding company. The court disregarded the existence of the subsidiary company as it was used as a
mechanism by Robinson to evade his fiduciary duties towards the holding company, and the profit that
was made by Robinson was regarded as profit belonging to the company.

In Le Bargo Fashions CC v Lee 1998 (2) SA 608 (C), Mrs Lee had personally signed a restraint of trade
contract and proceeded to trade through a company of which she was the sole shareholder and director.
The court held that she had signed the restraint personally and the company was not a party to the
contract notwithstanding the fact that company had not been party to restraint. Its competition with the
plaintiff amounted to intentionally assisting Mrs Lee to breach her agreement and such assistance was
regarded as wrongful and the company could thus be interdicted.

In Airport Cold Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C) the creditor of a close corporation sold
and delivered meat products to the corporation on account. On liquidation of the corporation the creditor
proved a claim against it for the amount outstanding but received no dividend because the corporation
had no assets. The creditor sought to hold the member and his father personally liable for the debt. The
court stated that it does not have the general discretion simply to disregard the existence of a separate
corporate identity whenever it considers it just or convenient to do so, and veil-piercing will be employed
only where special circumstances exist, indicating that a company or close corporation is a mere façade
concealing true facts. Fraud would be such a special circumstance but existence of fraud is not essential.

The corporate veil will also be pierced where the controlling shareholders do not treat the company as a
separate entity but instead as their alter ego. The court ruled that the defendants operated the business
as if it were their own and did not have regard to or compliance with the statutory and bookkeeping
requirements, and when it suited them, they chose to ignore the separate juristic identity of the
corporation. The defendants were held to be jointly and severally liable to the plaintiff for the amounts
owed to the plaintiffs at the time of liquidation.

In Ex Parte Gore NO (2013) 2 All SA 437 (WCC) the liquidators were unable to identify the correct
corporate entity against which the individual investor or creditors had to prove claims and the court had to
decide whether it should pierce the corporate veil and disregard the separate existence of subsidiary
companies and the holding company. Even the investors’ funds were treated with no distinction. The court
concluded that the group was a sham and the court found unconscionable abuse by the controllers of the
separate juristic personalities of the subsidiaries in terms of section 20 (9) of Companies Act, 2008. The
court declared that except for the holding company, all the companies in the group were deemed not to be
juristic persons and the King companies to be regarded as a single entity. Section 20 (9) is an unqualified
remedy and not only a remedy of last resort.

In Cape Pacific v Lubner Controlling Investments (Pty) Ltd 1995 (4) SA 790 (A) the court said that if a
company has been legitimately established and is legitimately operated but is misused in a particular
instance ‘to perpetrate fraud, or for a dishonest or improper purpose’, there is no reason in principle or
logic why its separate personality cannot be disregarded in relation to the transaction in question.

It is important to study the following cases as indicated in the textbook for corporate veil:

1. Robinson v Randfontein Estates Gold Mining Company Ltd 1921 AD 168

2. Le Bergo Fashions CC v Lee 1998 (2) SA 608 (C)
3. Airport Cold Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C); Airport Cold Storage v Ebrahim 2008 (6)
SA 585 (SCA),
4. Amlin (SA) (Pty) Ltd v Van Kooij 2008 (2) SA 558 (C)
5. Ex parte Gore NO and Others NNO 2013 All SA 437 (WCC)

3. Activity

Scenario:

Lisa resigned from ABC (Pty) Limited where she was employed for several years. At the time of her
employment with ABC (Pty) Limited she signed a restraint of trade agreement which stated that she may not
compete with the business of ABC (Pty) Limited for a period of 1 year after resigning. She has subsequent to
her resignation registered her own company, Lisa’s Brand (Pty) Limited, and is using the company, of which
she is the sole shareholder and director, as a front to circumvent the provisions of the restraint of trade
agreement.

The directors of ABC (Pty) Limited approach you for advice. They are aware that Lisa’s Brand (Pty) Limited is
a separate legal person to Lisa, they however feel that Lisa’s Brand (Pty) Limited should still be bound by the
restraint of trade agreement. Provide advice to ABC (Pty) Limited in respect of the legal position and whether
they can still rely on the restraint of trade agreement to prevent Lisa’s Brand (Pty) Limited from competing
with them. In your answer refer to the case that is most relevant to the facts in this question.
[Note: This question does not require you to have an understanding of the validity of restraint of trade
agreements but rather an understanding of legal personality].

Completed on Wednesday, 15 May 2024, 7:41 PM

Time taken 7 mins 18 secs

Grade Not yet graded

Question 1

Complete

Marked out of 15

Lisa resigned from ABC (Pty) Limited where she was employed for several years. At the time of her employment with ABC (Pty) Limited, she
signed a restraint of trade agreement which stated that she may not compete with the business of ABC (Pty) Limited for a period of one year
after resigning. She has subsequent to her resignation registered her own company, Lisa’s Brand (Pty) Limited, and is using the company, of
which she is the sole shareholder and director, as a front to circumvent the provisions of the restraint of trade agreement. The directors of ABC
(Pty) Limited approach you for advice. They are aware that Lisa’s Brand (Pty) Limited is a separate legal person to Lisa. They, however, feel
that Lisa’s Brand (Pty) Limited should still be bound by the restraint of trade agreement.

Provide advice to ABC (Pty) Limited in respect of the legal position and whether they can still rely on the restraint of trade agreement
to prevent Lisa’s Brand (Pty) Limited from competing with them. In your answer refer to the case that is most relevant to the facts in
this question.

[Note: This question does not require you to have an understanding of the validity of restraint of trade agreements but rather an understanding
of legal personality].

Lisa has pierced the corporate veil and is abusing the limited liability and legal personality of the company. The court can void the legal
personality of the company as she is committing criminal activity and using the separate legal entity (legal persona) to void her restraint of
trade agreement. The courts can hold her liable.

Consider Chapter 6 - Lifting the corporate veil and relevant court cases
Question 2

Complete

Marked out of 10

P (Pty) Limited bought goods from F (Pty) Limited on credit. When P was liquidated F did not receive a dividend as the P had no assets. F
subsequently tried to hold the directors who are also shareholders liable for the debts of P.

Discuss under what circumstances the directors of P (Pty) Limited could be held responsible for the debts of P. Your answer should
include a full discussion of separate legal personality as well as a discussion of Airport Cold Storage (Pty) Limited v Ebrahim 2008
(6) SA 585 SCA.

P cannot hold the shareholders liable as the company bears the rights and obligations to pay its creditors and not the shareholders. The
company and shareholders bear limited liability meaning the debt cannot be claimed from the shareholders and they are separate in terms of
rights and obligations to the company.

Consider chapter 6 - Lifting the corporate veil and relevant cases

Question 3

Not answered

Marked out of 10

The Queen Sisters operate a group of various companies. The manner in which they operate the companies is to treat them all as one entity
through the holding company. They have essentially been operating a sham taking investors’ money. One of the investors approaches you for
advice. He does not know which of the companies they would have to sue.

Must he sue a specific company, or can he sue any of the companies within the group? Provide him with advice.

[Your answer must also include a discussion of how the legal personality of the companies is treated in a group generally, and thereafter a
discussion of Ex parte Gore NO and Others NNO 2013 All SA 437 (WCC)].

Consider chapter 6 - Lifting the corporate veil with relevant case law
Question 4

Not answered

Marked out of 10

S worked at a company called Pin Fashions (Pty) Limited. While she was working there, she signed a restraint of trade agreement with them.
She resigned. In order to avoid the restraint of trade agreement, she started a company called Black (Pty) Limited. This company competes
directly with her former employer, Pin Fashions (Pty) Limited. Pin Fashions (Pty) Limited want to bring an interdict against Black (Pty) Limited
but they have been told that they will be unsuccessful because Black (Pty) Limited is a separate legal person.

Discuss whether this assertion is correct. Your answer should include a full discussion of separate legal personality as well as a discussion of
the most relevant case law to suit the facts.

Chapter 6 - Legal Personality

Question 5

Not answered

Marked out of 1

Work through paragraphs 6.3.3 and 6.3.4 (Chapter 6) in your textbook and discuss the principle of lifting the corporate veil and indicate the
circumstances under which this principle becomes relevant with reference to relevant case law.

See Chapter 6

Jump to...

t 2.1. Notes [ ± 60 mi...

3.1. Notes [ ± 60 min ] ... #

Date: Thursday, 6 June 2024, 12:06 PM

LWCLA2-22 (2024)
3.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this topic, you should be able to:

List the different business structures (undertakings).

Prescribed Reading

Haupt, A. and Malange, N. J. 2013. Corporate

Law for Commerce Students. 2nd Edition.
Chapter 1 - Forms of Business Undertaking

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2. Case Study

Entrepreneurs need to choose what business they want to use

as a “vehicle” to drive the proposed business. This is an
important decision because the business type that an
entrepreneur chooses will determine the different consequences
for the entrepreneur. Different business ventures have different
rights and obligations and liabilities for the entrepreneur.

In addition, the entrepreneur must ensure that he registers the

correct type of company in the event that he has to choose to
use a company as the vehicle for his business.

Please watch this video

. [Accessed: 29 December 2023].

Started on Wednesday, 15 May 2024, 7:42 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:42 PM

Time taken 12 secs

Marks 0/11

Grade 0 out of 10 (0%)

Question 1

Not answered

Marked out of 5

C is considering starting a business to sell his peanut butter. He isn’t sure what type of business enterprise to start. Advise C on 5 (five) factors
which will play a role in his choice of a specific business enterprise.

See chapter 1
Question 2

Not answered

Marked out of 5

C is considering starting a business to sell his peanut butter as a sole proprietor and is trading as Cs PB. He isn’t sure whether he has to
register his business name. Advise C.

See Chapter 1

Question 3

Not answered

Marked out of 1

C is considering starting a business to sell his peanut butter. He isn’t sure whether he has to register a company or if he can continue his
business as a sole proprietorship. Advise C on the most important aspects to take into account in this respect.

See Chapter 1

Jump to...

t 3.1. Notes [ ± 60 mi...

4.1. Notes [ ± 60 min ] ... #

Date: Thursday, 6 June 2024, 12:07 PM

LWCLA2-22 (2024)
4.1. Notes [ ± 60 min ]
Description

In this lesson, you will learn about the different forms a business may take.

1. Learning outcomes

By the end of this topic you should be able to:

Understand and define the different types of Companies.

Prescribed Reading

Haupt, A. and Malange, N. J. 2013. Corporate Law for Commerce Students. 2nd Edition.
Chapter 8

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400 Bad Request
Request Header Or Cookie Too Large

nginx/1.15.12
2. Notes

The Companies Act, 2008 provides for different types of Companies.

Profit Companies: Chapter 1 of Companies Act, 2008 defines a profit company as a company incorporated
for the purpose of financial gain for its shareholders. These are the following different types of profit
Companies: Private company - “(Pty) Ltd”; Public company - “Ltd”; Personal liability company – “Inc.
/Incorporated”; State-owned company – “(SOC) Limited”.

Private Companies: A private company’s memorandum of incorporation provides that they cannot offer
shares to the public. In addition, there is a restriction on the free transferability of its shares, e.g., must first
offer shares to current shareholders before they can transfer them to persons outside of the company.

Personal Liability Companies: What makes a personal liability company is that the memorandum of
incorporation states as a special condition that the directors and past directors of the company are jointly and
severally liable, along with the company, for the debts and liabilities of the company that were contracted
during their respective terms of office. This type of company is used by professions such as attorneys.

Public Companies: The Companies Act, 2008 defines a public company as a profit company that is not a
state-owned company, a private company or a personal liability company. The memorandum of incorporation
does not prohibit the offer of its securities (shares) to the public and does not limit the transferability of its
shares from an existing shareholder to the next.

State-owned Companies: The Companies Act, 2008 defines a state-owned company as any company
registered as a company and listed as a public entity in terms of the Public Finance Management Act or any
company registered as a company and is owned by a municipality in terms of the Local Government
Municipal Systems Act 32 of 2000.

Non-Profit Company: The memorandum of incorporation must have at least one of the following objects for
the public benefit, must relate to one or more cultural or social activities or of a communal or group interest. A
non-profit company may have shares in a profit company and can carry on any business or undertaking,
provided this is consistent with its object(s). It, however, must use all assets and income to advance or attain
its objects. The incorporators, members, directors or officers may not receive any financial gain or benefit
from the company. They may receive remuneration for reasonable services rendered. A non-profit company
cannot merge with or be converted into a profit company. When it is wound-up, all the assets must be
transferred to an organisation with a similar object(s). A non-profit company requires at least three persons to
incorporate it and can be incorporated with or without members.

External and Foreign Companies: The Companies Act, 2008 defines an external company as a foreign
company that is carrying on business or non-profit activities in South Africa.

A foreign company is defined as an entity that is incorporated outside of South Africa but carrying on
business or non-profit activities in South Africa. An external company must register with the Companies and
Intellectual Property Commission (CIPC).

Domesticated Companies: A foreign company can apply to transfer its registration to South Africa. It is then
treated as if it was originally incorporated in terms of the Companies Act, 2008. A company can only become
domesticated if certain requirements are met (consult your textbook for the requirements).
3. Examples

SOC Company: The Public Investment Corporation Limited (PIC) SOC is the largest single investor of
shares on the JSE and invests funds on behalf of public sector entities.

Public Company: Absa Bank Limited is an example of a public company. All banks have to be public
companies. Absa Bank Limited is permitted to offer its shares to the public.

Personal Liability Company: Werksmans Inc, a law firm.

Private Company: Cape Union Mart Group (Pty) Limited is an example of private company. It cannot offer
its shares to the public.
Started on Wednesday, 15 May 2024, 7:43 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:43 PM

Time taken 10 secs

Marks 0.00/5.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 5.00

Mr Smith is a Lawyer. Up until now he has been practicing as a sole proprietor, but he has decided that he should register a company. He has
been informed by the CIPC that he has a choice of a Personal Liability Company, a Public Company or a Private Company.

1. What type of company should he incorporate and why?

2. What should he name that company? Give a reason for your answer.
3. What special condition(s) must be contained in the relevant company document that founds the company for the type of company that you
identified in Question 1 above?

Jump to...

t 4.1. Notes [ ± 60 mi...

Date: Thursday, 6 June 2024, 12:07 PM

LWCLA2-22 (2024)
5.1. Notes [ ± 60 min ]
Description

In this lesson, you will learn about the different forms a business may take.

1. Learning outcomes

By the end of this topic you should be able to:

Explain the process of incorporating a company

Prescribed Reading

Haupt, A. and Malange, N. J. 2013. Corporate Law for Commerce Students. 2nd Edition.
Chapter 10

Time Allocation:

60 minutes

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2. Notes

Reservation of company name:

Name reservation is optional.

Companies enjoy freedom of expression in the choice of name but hate speech is not allowed.
The registration may include words, numbers, and symbols.
The registration number may be used as a company name. The number will be followed by “South
Africa”.
The company name should end with the appropriate designated abbreviation depending on the type of
company: “(Pty) Ltd” – Private company “Ltd” for a Public company “Inc” / “Incorporated for a Personal
Liability Company and “SOC” for a State-owned Company.
The term "ring-fenced" is used to refer to a company where the company’s Memorandum of Incorporation
contains any special condition, and the name must be followed by “(RF)”.
The reservation is valid for an initial period of six months, but the reservation period may be extended.
The reservation is transferable.

Reservation process: In terms of regulation 9, an application for the reservation of a company name is made
on Form CoR 9.1 and is accompanied by the payment of the prescribed fee. The application may contain
four alternate names listed in their order of preference.

Offences relating to company names: The following are offences: The failure to provide the company name
and registration number accurately, the misrepresentation in the use of a company name and the passing off
the business as a company when it is not registered as a company in terms of the Companies Act, 2008.

Disputes regarding company names: The CIPC may require the company to serve a copy of the Notice of
Incorporation on another person or company where the CIPC believes on reasonable grounds that the
proposed name is the same name as the name of another company or similar to the name of another
company to the extent that it creates confusion with the name or trademark of existing company.

Incorporation – The registration process: Incorporation comprises the signing of the Memorandum of
Incorporation by the requisite number of persons, filing of the prescribed Notice of Incorporation. The CIPC
will assign a company registration number and issue a Certificate of Registration by the CIPC.

Notice of incorporation: The Companies Act, 2008, defines the “Notice of Incorporation” as the notice to be
filed by the incorporators or creators of the company. The purpose of the notice of incorporation is to inform
the CIPC of the incorporation of that company for the purpose of having it registered.
The incorporation is complete when the MOI is registered, and the Certificate of Incorporation is issued by
the CIPC.

Certificate of Incorporation is conclusive evidence that there has been substantial compliance with the
requirements for incorporation and that the company is incorporated.

The notice of incorporation is completed on Form CoR 14.1 and is accompanied by the prescribed fee. The
memorandum of incorporation should be attached to the notice of incorporation.

Memorandum of incorporation: contains the following information:

Details of the incorporators

The number of directors and alternate directors, and the share capital.
A company can utilise the default memorandum of incorporation that is contained in Part A of Schedule 1
of the Companies Act, 2008. Article 1.1 (2) of the default memorandum states that the company is
governed by the unalterable provisions of the Companies Act, 2008 the alterable provisions of the
Companies Act, 2008 subject to the limitations, extensions, variations or substitutions of the
memorandum of incorporation and the provisions of the memorandum of incorporation.

Alterable provision: a provision of the Companies Act, 2008, in which it is expressly contemplated that its
effect on a particular company may be negated, restricted, limited, qualified, extended or otherwise altered in
substance or effect by the company’s memorandum of incorporation.

Unalterable provision: provision of the Companies Act, 2008 that does not expressly contemplate that its
effect on any particular company may be negated, restricted, limited, qualified, extended or otherwise altered
in substance or effect by the company’s memorandum of incorporation.

Binding effect of the memorandum of incorporation: The memorandum of incorporation and internal rules are
binding between a company and its members, the members themselves, between a company and its
directors, between a company and any person serving the company as a member of the audit committee or
any other committee of the board “in the exercise of their respective functions within the company”.

Special conditions in the Company’s memorandum of incorporation: Memorandum of incorporation may

make certain special conditions applicable to the company e.g., personal liability company. Can you
remember what that special condition is? See page 102 of textbook. Another instance of special conditions is
in respect of a ring-fenced company that have the letters “RF” at the back of the company name, which
draws attention to persons dealing with the company that they are dealing with a company that has certain
restrictions in place.

3. Activity

You are approached by Mrs Maisel. Mrs Maisel makes excellent chocolate chip cookies, and she has been
told by her friends and family that she should start her own chocolate chip cookie business. Mrs Maisel
requires your assistance in setting up her business in such a way that it complies with the laws of South
Africa. She has heard about ‘the new Companies Act’ and knows that her business should be registered, but
other than that she is completely clueless.

With reference to the facts set out:

1. Which type of company Mrs Maisel should open and explain why.

2. Explain what the registration process of such a company is.

Started on Wednesday, 15 May 2024, 7:48 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:49 PM

Time taken 59 secs

Grade Not yet graded

Question 1

Complete

Marked out of 10.00

Set out the procedure for a company to amend its name.

A company’s MOI may be amended in any of the following three ways:

1. In compliance with a court order;

2. In the manner contemplated in section 36(3) and (4); or

3. at any other time if a special resolution to amend it is proposed (a) by the board of the

company, or (b) by shareholders who are entitled to exercise at least 10 per cent of the

voting rights that may be exercised on such a resolution; and if (no matter who proposes

such special resolution) that resolution is adopted at a shareholders’ meeting.

Jump to...

t 5.1. Notes [ ± 60 mi...

5.3. Practice Quiz 2 [ ±... #

Started on Wednesday, 15 May 2024, 7:49 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:50 PM

Time taken 11 secs

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

You are approached by Mrs Maisel. Mrs Maisel makes excellent chocolate chip cookies and she has been told by her friends and family that
she should start her own chocolate chip cookie business. Mrs Maisel requires your assistance in setting up her business in such a way that it
complies with the laws of South Africa. She has heard about ‘the new Companies Act’ and knows that her business should be registered, but
other than that she is completely clueless.

With reference to the facts set out:

1. Which type of company Mrs Maisel should open and explain why;
2. Explain what the registration process of such a company is.

Jump to...

t 5.2. Practice Quiz [ ...

Lecturer-Led Session Reso... #
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Thursday, 6 June 2024, 12:09 PM

LWCLA2-22 (2024)
6.1. Notes [ ± 60 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Analyse the capacity and representation of a company in pre-incorporation and post-incorporation

contracts.

Prescribed Reading

Haupt, A. and Malange, N. J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 11 - Capacity and representation

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2. Notes

In terms of the common law, it is not possible for an agent to act on behalf of a non-existing principal. A
person cannot act on behalf of a company not yet incorporated, meaning that promoters of the company
cannot act as agents or representatives of a company or conclude contracts in the name of the company that
still has to be registered, the agent or promoter can only do so after the company has in fact been registered.

One possibility is that the owner of the soon to be formed company can use the stipulatio alteri – contract on
behalf of a third party. It allows for the conclusion of contract between two parties stipulating that
performance should be in favour of a third party.

Aside for the common law solution above, the legislature also created pre-incorporation contracts, which are
set out in section 21 of the Companies Act, 2008.

Pre-incorporation Contract: An agreement entered into before the incorporation of a company by a person
(the promoter) who purports to act in name of, or on behalf of, the company with the intention or
understanding that the company will be incorporated and will thereafter be bound by the agreement.

The company has three months after incorporation to ratify or reject any pre-incorporation contract and after
three months, the company will be regarded as having ratified the contract, meaning the company is deemed
to have ratified the contract. Where the company ratified the contract or the contract is deemed to have been
ratified, the company is liable in terms of contract as if it were party to agreement. In such an instance, the
promoter is not liable. The promoter is liable, jointly and severally with “any other such person” where the
company is not incorporated or where the company rejected the agreement. Where the promoter has
incurred liability, he/she has a claim against the company for any benefit the company might have received
from the agreement.

3. Activity

Smart food is a company that is in the process of being registered. Before registration, Zara acts on behalf of
a company and enters into a contract with Future-d (Pty) Limited for the purchase of organic vegetables for
R100 000. Subsequently, Smart food (Pty) Limited is successfully incorporated and after incorporation, the
company refuses to ratify the contract that Zara entered into on its behalf with Future-d (Pty) Limited. They
also refuse to pay Future-d (Pty) Limited for the organic vegetables, as it states that it does not have the
funds available. Smart food (Pty) Limited does, however, sell the organic vegetables that it purchased to its
customers.
Explain the type of agreement that was entered into and the recourse available to Smart food (Pty) Limited.
Started on Wednesday, 15 May 2024, 7:50 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:51 PM

Time taken 8 secs

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

Smart food is a company that is in the process of being registered. Before registration, Zara acts on behalf of a company and enters into a
contract with Future-d (Pty) Limited for the purchase of organic vegetables for R100 000. Subsequently, Smart food (Pty) Limited is
successfully incorporated and after incorporation, the company refuses to ratify the contract that Zara entered into on its behalf with Future-d
(Pty) Limited. They also refuse to pay Future-d (Pty) Limited for the organic vegetables, as it states that it does not have the funds available.
Smart food (Pty) Limited does, however, sell the organic vegetables that it purchased to its customers.

Explain the type of agreement that was entered into and the recourse available to Smart food (Pty) Limited.

Jump to...

t 6.1. Notes [ ± 60 mi...

7.1. Notes [ ± 60 min ] ... #

Date: Thursday, 6 June 2024, 12:09 PM

LWCLA2-22 (2024)
7.1. Notes [ ± 60 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Analyse the capacity and representation of a company in pre-incorporation and post-incorporation

contracts.

Prescribed Reading

Haupt, A. and Malange, N. K. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 11 - Capacity and Representation

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2. Notes

Capacity: This deals with the contracts a company may enter into and the scope of business of a company.
The company must have the necessary capacity to enter into the contract and the contract must fall within
the scope of the company’s business.

Representation: This deals with the question of who may act on behalf of a company and refers to the
concept of agency. As a legal person, the company cannot itself conclude a contract and acts through its
duly authorised representatives.

Capacity of a Company: This is the sphere of actions a company may legally perform.

Ultra Vires Conduct: The conclusion of the transaction is beyond its legal capacity. When an act on behalf
of the company falls outside its main and ancillary objects, the company does not exist in law and
consequently, such an act is not binding on the company, it is then described as ultra vires.

Ultra Vires Doctrine: This refers to acts that fall outside the scope of the company’s powers as determined
in the MOI.

In terms of our common law, a contract is ultra vires when the conclusion of the transaction is beyond its
legal capacity. In other words, if a company’s principal business is, for instance, catering, it would be outside
the company’s capacity to buy an expensive yacht on behalf of the company. The ultra vires doctrine is
based on the understanding that a company exists in law only for the purpose for which it was incorporated.
According to the ultra vires doctrine, when an act on behalf of the company falls outside its main and
ancillary objects, the company does not exist in law and consequently, such an act is not binding on the
company. Such an act is described as an ultra vires act. In the catering example mentioned above, it would
be within the scope of the principal business (intra vires) for the company to purchase a refrigerator that it
needs for catering.

Whether a particular contract falls within the capacity and powers of the company is a question of fact. If the
main purpose of the company was to carry on the business of a hotel, it is clear that acts necessary to
achieve this purpose, for example the purchasing of furniture and the hiring of staff, are intra vires.

In terms of Section 20 (1) of the Companies Act, 2008, no action of the company is void if the only reason
therefore is that the action was prohibited by a limitation, restriction or qualification in the memorandum of
incorporation or that a consequence of this form of limitation was that the directors who purported to act on
behalf of the company had no authority to authorise the company’s action.

Section 20 (2) provides for the shareholder, by way of special resolution, to ratify any action taken by the
company that was inconsistent with or in breach of a specified limitation, restriction or qualification contained
in the memorandum of incorporation.

Even though an ultra vires transaction will be binding on the company, the shareholders are provided with
recourse to claim back their losses from the person who acted beyond the scope of the company’s capacity.
Section 20(6) of the Companies Act provides that each shareholder has a claim for damages against any
person who fraudulently, or due to gross negligence, causes the company to do anything inconsistent with
the Companies Act, 2008 or a limitation, restriction or qualification on the powers of the company as stated in
its memorandum of incorporation, unless ratified by special resolution in terms of section 20(2). This is in
addition to the remedy provided for in section 165.

If the company or directors have not as yet performed the planned action (e.g., concluded the contract) that
is inconsistent with a limitation or qualification of the company’s powers contained in the memorandum of
incorporation, one or more shareholders, directors or prescribed officers of the company may obtain a court
order restraining (i.e., preventing) the company or directors from doing so in terms of section 20(4) and (5). A
third party who did not have actual knowledge of this limitation or qualification and acted in good faith will, in
such a case, have a claim for any damages suffered as a result.

Representation relates to a person acting under the company’s authority. If a company gives an agent
authority to act on its behalf, the agent possesses actual authority and will bind the company in acts that fall
within the scope of the mandate given to him or her.

A company may also be bound to a contract on basis of estoppel where a person purporting to conclude a
contract on its behalf lacked the actual authority, express or implied but the other party to the contract had
been misled by the company into believing that he or she did not have authority. This is called ostensible or
apparent authority. In other words, a company may be liable to a bona fide third party if it is represented by
someone who does not have actual authority, and where the company allows such a person to represent the
company as if that person did have authority.

Doctrine of Constructive Notice: Third parties dealing with a company are deemed to be fully acquainted
with the contents of the public documents of the company.

The consequences of this doctrine could be detrimental to someone dealing with the company, because the
contract could be a null and void contract if the company acted ultra vires. As such, the English courts
developed the Turquand rule to mitigate the harsh effects of the doctrine.

Since Section 19 (4) of the Companies Act, 2008 partially abolished the doctrine of constructive notice, third
parties contracting with a company are no longer deemed to have notice of public documents of a company
merely because they have been filed with the CIPC or are accessible for inspection at the office of the
company.

However, it is still applicable in terms of Section 19(5). Section 19 (5) provides two exceptions. A person is
deemed to have knowledge of any provision of a company’s memorandum of incorporation in terms of S 15
(2) (b) (relating to special conditions applicable to the company and additional requirements regarding their
amendment). This means that a third party dealing with a ring-fenced company is deemed to have
knowledge of the applicable restriction/s.

The second exception is Personal Liability companies. A person is regarded as having received notice and
knowledge of the effect of 19 (3) i.e. that directors and past directors are jointly and severally liable with the
company for debts of the company contracted during their periods of office.

Turquand Rule: According to common law Turquand rule, an outsider contracting with a company in good
faith is entitled to assume that all internal requirements and procedures have been complied with. The
company will be bound by contract, even if internal requirements and procedures have not been complied
with.

If no act had taken place that was obviously contrary to the provisions of the documents of the company that
were lodged with the registrar, the third party could assume that there was compliance with all the internal
requirements of the company.

The Turquand rule was accepted into South African law and had the effect that a third party would not be
affected by the doctrine of constructive notice, unless this party knew that an internal requirement or rule had
not been followed or should reasonably have been suspected this to be the case, and yet did not make
enquiries. If an outsider was aware of fact that requirements and procedures had not been complied with, or
if the circumstances under which contract was concluded were suspicious the Turquand rule would not apply.

Section 20 (7) of Companies Act, 2008 now codifies the Turquand rule in a modified form by providing that a
person dealing with company in good faith is entitled to assume that the company has complied with all of
the procedural requirements in terms of the Companies Act, 2008, memorandum of incorporation and any
rules of the company, unless the person knew or ought to have known of any failure by company to comply
with its formal and procedural requirements.

The Companies Act, 2008 provides three remedies for ultra vires acts: restraint, ratification and damages.

Restraint Restraining Order/Interdict: One or more shareholders or directors or other interested parties
may institute proceedings to restrain a company from any act that is inconsistent with a limitation, restriction
or qualification in the company’s memorandum of incorporation. There will still be a valid contract between
a bona fide party and the company, but the above-mentioned persons can get an interdict to prevent the
company from performing if the mala fide third party will not obtain any rights.
Ratification: After unauthorised conclusion of a contract, the company can ratify or approve the transaction.
The transaction is then regarded as valid as if it had been authorised from the outset.

Damages: This remedy is not available where the company has ratified a transaction. The remedy is limited
to shareholders and each shareholder has a claim for damages against any person who fraudulently or due
to gross negligence causes the company to do anything inconsistent with a limitation, restriction or
qualification in the memorandum of incorporation.

3. Activity

SR Carriages (Pty) Limited’s main business is the manufacturing and selling of railway carriages. Mr Buckley,
one of the directors, is authorised by the board of directors to act on the company’s behalf. Mr Buckley
concludes a contract with Mr Matthews for the purchase of a holiday flat. Is the company bound by the
contract concluded by Mr Buckley?
Started on Wednesday, 15 May 2024, 7:51 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:51 PM

Time taken 9 secs

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

The main business of N (Pty) Limited is to act as a property developer. Despite this, the CEO of the Company enters into an agreement in the
amount of R10 million with Boats Africa (Pty) to buy two luxury boats. Boats Africa (Pty) has already delivered the luxury boats. The
shareholders approach you for your urgent advice and want to know whether the agreement is valid.

Advise them with reference to the following: the ultra vires doctrine under the common law, the impact of Section 20 (1) (a) of the Companies
Act, 2008 and the most suitable remedy that is available to the shareholders.

Jump to...

t 7.1. Notes [ ± 60 mi...

Lecturer-Led Session Reso... #

Date: Thursday, 6 June 2024, 12:04 PM

LWCLA2-22 (2024)
8.1. Notes [ ± 120 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Explain the basic terms such as share capital, shares, stock and share warrants.
Understand the scope and extent of the capital of a company.
Explain the solvency and liquidity test and how the share capital of a company is maintained.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 12 - Capital of company and 13 - shares

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2. Capital

Capital refers to the share capital of a company.

A member of a company contributes to the joint capital by subscribing to shares in the company. A company
issues shares to its members – who are shareholders. A company can obtain additional funding from
external sources such as loans and debentures.

3. Types of Shares

Authorised Share Capital: This is the total amount a company can raise by selling or issuing shares. The
amount a company can raise is authorised by its memorandum of incorporation.

Issued Share Capital or Subscribed Capital: This is the part of the authorised share capital that has been
taken up by the members of the company and constitutes the effective part of company for funding of the
company’s operations.

Unissued Share Capital: This is the part of authorised share capital that has not been taken up and may
still be issued.

The memorandum of incorporation will set out the different classes of shares, the number of shares of each
class, the designation for that class, the preferences, rights, limitations and other terms attached to that class
of share and may confer special, conditional or limited voting rights and provide for redeemable and
convertible shares.
We will look at the different classes of shares below. Essentially, the type of share determines the
preferences, rights and limitations attached to that class of share.

Unclassified Shares: A company’s memorandum of incorporation may also provide for unclassified shares.
These are shares where the associated preferences, rights and limitations of that class of share have not
been specified before issuing. The board of directors must determine the associated preferences, rights and
limitations of these shares.

Shares as a Type of Security: This provides the shareholder with the rights and preferences already
mentioned. There are also other types of security, such as debentures that may provide rights and
preferences. Debentures fall under the larger category ‘Debt instruments’.

Maintenance of Share Capital: Under the previous Companies Act, 1973, there was a capital maintenance
regime, and you merely have to read paragraphs 12.2.1 and 12.2.2 in your textbook in this respect. The
Companies Act, 2008 moved away from this regime and applies the solvency and liquidity test in all matters
relating to maintenance of capital of a company instead.

All transactions relating to capital maintenance must meet the solvency and liquidity requirements. Section
4 of the Companies Act, 2008 states that a company satisfies the solvency and liquidity test at a particular
time if considering all the reasonably foreseeable financial circumstances of the company at the time:

1. The assets of the company fairly valued exceed the liabilities of the company; and
2. It appears the company will be able to pay its debts as they become due in ordinary course of business
for period of 12 months after date of which test is considered.

The financial information to be considered concerning the company must be based on accounting records,
financial statements that satisfy requirements of section 29 and the fair valuation of the company’s assets
and liabilities.

All payments of dividends or distributions are subject to the solvency and liquidity test. In other words, the
company must pass the solvency and liquidity test.

Dividend: This is the portion of the company’s profits that is distributed to the shareholders in accordance
with the rights attached to shares as laid down by the memorandum of incorporation. Shareholders have no
right to dividend prior to declaration. After dividends have been declared, then only do shareholders have a
claimable right to payment.

Distribution: This is the direct or indirect transfer by the company of money or other property of the
company other than its own shares to or for benefit of one or more holders of any of shares of that company
or another company within the same group of companies and includes dividends, payment in lieu of
capitalisation shares, purchase of the company’s own shares by the company and consideration for any
other debt or obligation.

Financial Assistance: Loan, guarantee, the provision of security or otherwise to any person but does not
include the lending of money in the ordinary course of business by the company whose primary business is
the lending of money. The board of directors may authorise the company to provide financial assistance to
purchase shares in the company. If this takes place the solvency and liquidity criteria must be met and the
conditions in the memorandum of incorporation prescribed with.
If not in conflict with the memorandum of incorporation, the board of directors may authorise the company to
provide direct or indirect financial assistance to the directors. Financial assistance is provided on the same
conditions as the provisions of financial assistance to buy shares in the company.

4. Activity

You are the company secretary of Tau Gold Ltd. At a meeting of the board of directors, it is proposed that a
dividend be paid out to shareholders.

Advise the board on the requirements before a dividend can be validly paid to shareholders.

Answers
Started on Wednesday, 15 May 2024, 7:52 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:53 PM

Time taken 16 secs

Marks 0.00/20.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

FP (Pty) Limited has one million ordinary shares. Each ordinary share carries one voting right. The company wants to issue a further one
million ordinary shares in terms of its general authority to issue shares granted in Section 36 of the Companies Act, 2008.

The company secretary doubts the validity of the proposed issue and is of the opinion that a special resolution would have to be passed. Is the
company secretary correct? Provide an explanation for your answer.
Question 2

Not answered

Marked out of 10.00

W is a promising young man, and he has great ideas for a company that he would like to join as a shareholder. He just does not have the
financial ability to buy shares in the company. The company wants to assist W with buying shares in the company. The company’s assets
currently exceed its liabilities, and it is able to pay its creditors. The memorandum of incorporation of the company is silent on the issue.

Discuss whether or not the company may provide the financial assistance. (Your answer should include a discussion of what constitutes
financial assistance, who must authorise the provision of the financial assistance, the requirements thereof and who must agree thereto.)

Jump to...

t 8.1. Notes [ ± 120 m...

9.1. Notes [ ± 120 min ]... #

Date: Thursday, 6 June 2024, 12:11 PM

LWCLA2-22 (2024)
9.1. Notes [ ± 120 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Explain the basic terms such as share capital, shares, stock and share warrants.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 13 - Shares

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2. Notes

‘Share’ is defined in Section 1 of the Companies Act, 2008 as one of the units into which the proprietary
interest in a profit company is divided. ‘Unit’ is defined as any right or interest in any securities.

‘Securities’ is defined in the Securities Services Act 36 of 2004 as broader than shares and includes shares
but also some securities other than shares. Shares form part of a larger group of securities associated with
the right to vote at general shareholder’s meeting. An example of a security that is not a share is a
debenture.

‘Stock’ refers to a number of shares grouped together as a block of shares of a company.

'Shareholder' is a person who owns a share or shares. They then own part of the company. Being a
shareholder gives you the right to vote on decisions affecting the company and a right to a dividend if the
company’s board of directors declares that some of the company’s profits should be returned to the
shareholders by way of a distribution.

An authorised unissued share has no rights associated with it until it has been issued.

‘Treasury shares’ are shares that are held for reissue. A company is allowed to buy back shares it has
previously been issued. When the shares are repurchased, they may either be cancelled or held for reissue.

‘Debt instruments’ include any securities other than shares. Promissory notes and loans are excluded from
the definition of debt instrument.

‘Debenture’ is a document issued by a company in which it acknowledges its indebtedness to the debenture
holder of instrument and specifies the conditions of payment of the debt.

Legal Nature of Company Shares: Shares represent a complex of personal rights. They are incorporeal
movable property. A share can be negotiated or disposed of. A share is transferrable in any manner provided
for or recognised by the Companies Act, 2008 or other legislation.

A share certificate that is issued by the company serves as proof that a person whose name appears on the
certificate is holder of the number and class of shares that appear on the certificate.

Classes of Shares: Memorandum of incorporation stipulates the total number of shares a company may
issue (authorised share capital), the different classes of shares rights, limitations and other terms embodied
in the shares.

If a company has only one class of shares, the shares must be ordinary shares and will carry the same
voting rights. The shareholders are entitled to the surplus when the company is liquidated. In a company with
more than one class of share, the memorandum of incorporation must state that at least one class of shares
has voting rights in respect of all matters and the shareholders will be entitled to the surplus when the
company is liquidated.

Ordinary Shares: Ordinary shareholders receive dividends only after the preference shareholders have
received dividends.
Deferred Shares: This is also known as equity shares, founder’s shares, vendors’ shares, promoters’ shares
or management shares. They entitle the holder to a proportion of the profits if the dividend shares amount to
more than a fixed percentage that is only payable after preference shares and ordinary shares have received
their dividend.

Preference Shares: This can only exist where there are ordinary shares in relation to which they carry some
preferential rights. When dividends are declared, the preference shares will receive dividend before any
other shareholder. Preferential shareholders receive a fixed dividend expressed as percentage of nominal
value of share. There are five types of preference shares: cumulative preference shares, non-cumulative
preference shares, participating preference shares, convertible preference shares and redeemable
preference shares.

Cumulative Preference Shares: Preference shareholders are entitled to a dividend in respect of each
financial year. If the financial position is such that dividends can be paid, the dividend of the cumulative
preference shares must always be paid first in respect of each financial year that these were not paid and
unpaid dividends in respect of cumulative preference shares accumulates.

Non-Cumulative Preference Shares: The company will not be required in a subsequent year to make up
any deficiency and the dividend for the year in question will have been lost.

Participating Preference Shares: These carry the right to both a lower fixed percentage preference
dividend as well as to share in residual distributable profits.

Convertible preference Shares: Any securities that may after a stated date be converted into another type
of security of the company.

Redeemable Preference Shares: These can be bought back by a company on terms and conditions as
provided in the memorandum of incorporation.

Uncertificated Securities/Dematerialised Shares: Securities of a listed company that are not evidenced by
a certificate.

Right of Pre-emption: Pre-emptive rights are rights that are intended to prevent dilution of interest and
value of shares of existing shareholders in companies. The Companies Act, 2008 grants, by default in
Section 39, pre-emptive rights to shareholders in private and personal liability companies. A shareholder has
the right to buy shares in respect of every new issue of shares in proportion to the shareholder’s existing
shareholding and voting, this power can be limited or excluded in the memorandum of incorporation of the
company. This does not apply to public companies unless the memorandum of incorporation specifically
includes a right of pre-emption.

3. Activity

The directors of Rainbow (Pty) Ltd wish to issue shares to Fred. Fred is currently not a shareholder of
Rainbow (Pty) Ltd but has agreed to become the managing director of Rainbow (Pty) Ltd in a month’s time.
Fred has entered into a service agreement with Rainbow (Pty) Ltd and is required to hold qualification shares
in the company before he can become a director.
Advise the directors on whether or not they may take the decision to issue shares to Fred without
shareholder approval.

Answers
Started on Wednesday, 15 May 2024, 7:53 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:54 PM

Time taken 10 secs

Marks 0.00/16.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 6.00

Consult paragraph 13.1 and set out the distinctions between shares and debentures.
Question 2

Not answered

Marked out of 10.00

FP Limited plan on issuing an additional 10 000 shares to raise capital for new pipes to be laid. C holds 1 000 shares in the company, which
equates to 10 percent of the voting rights in the company. She insists that the company is obligated to offer her 1 000 of the new shares before
issuing them to members of the public in terms of her right of pre-emption. The memorandum of incorporation of the company is silent on the
issue. Discuss whether C is correct in her assertion.

Jump to...

t 9.1. Notes [ ± 120 m...

10.1. Notes [ ± 60 min ]... #

Date: Thursday, 6 June 2024, 12:12 PM

LWCLA2-22 (2024)
10.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this lesson, you should be able to:

Demonstrate an understanding of the different types of shares of a company.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 15 - Public offers

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2. Notes

A public company that offers its shares to the public and investors have an opportunity to acquire a portion of
the ownership of such company through the purchase of issued shares. The proceeds from such purchases
are used by the company to finance projects and operations. Investors can divest themselves of their
ownership by selling their shares to other investors. It allows investors to realise some profit should they be
able to sell the shares at a higher price than the purchase price.

The sale can either take place in the primary market, where a company makes investment opportunities
available to investors and receives the proceeds or the secondary market where the investor and not the
company gets the proceeds.

Offer of Shares: A person may not make an offer to the public of any securities of any person unless the
latter person is a company. An initial public offering can only be made if a registered prospectus has been
filed. A primary offering of listed securities to the public can only be made if such offer complies with the
requirements of the relevant exchange and registered prospectus has been filed. Unlisted securities can only
be offered if accompanied by a prospectus.

Offer: Offer made in any way by any person in respect of the acquisition, for consideration, of any securities
in a company. This also includes an advertisement that satisfies all the requirements of the Companies Act,
2008 relating to a registered prospectus.

To the Public: This includes any offer of securities to be issued by the company, a subsidiary of the
company or a third party to any section of the public but excludes a secondary offer made through an
exchange.

Initial Public Offering: This is an offer to the public of any securities of a company to the public if no
securities of that company have previously been the subject of an offer to the public or all the securities of
that company that had previously been the subject of an offer to the public have subsequently been
reacquired by the company.

Primary Offering: This is an offer to the public made by or on behalf of a company of securities to be issued
by that company.

Allotment of Shares: A person can acquire shares in two ways, either from an existing shareholder, which is
termed as a transfer of shares or directly from the company which is termed as the issue and allotment of
shares.

Secondary Offering: This is any offer to the public of any securities of a company or its subsidiary made by
or on behalf of a person other than the company or its subsidiary. Offers in the secondary market take place
when a person buys shares directly from an existing shareholder.

Prospectus: This includes any notice, circular, advertisement or other invitation offering any shares of the
company to the public. There are several rules surrounding the issuing of a prospectus, make sure you are
aware of them.
Liability for Untrue Statements in Prospectus: An untrue statement in a prospectus is any statement that
is misleading in the form and context in which it is made and includes a written statement or summary
directing a person to either a prospectus or a written statement if it is contained in any report or
memorandum that appears on face of the prospectus, written statement or summary that is incorporated by
reference within or is attached to or accompanies the prospectus, written statement or summary.

Any omission from a prospectus or written statement that in the context is calculated to mislead also
constitutes an untrue statement in that prospectus or written statement.

Several persons can incur liability for untrue statements. Make sure you know who these persons are and
the circumstances under which they will incur liability.

3. Activity

The directors of Fox Lakes Limited have issued a prospectus with the purpose of issuing shares to the
public. In it, they included a report from a geologist. The geologist overstated the reserves of gold to be
mined. The directors are concerned that they can be held liable for the untruths in the prospectus. Give them
advice.

Answers
Started on Wednesday, 15 May 2024, 7:54 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:54 PM

The correct answer is 'True'.

Question 6

Not answered

Marked out of 1.00

Only uncertificated shares can be traded on the JSE.

Select one:

' True

' False

The correct answer is 'True'.

Jump to...

t 10.1. Notes [ ± 60 m...

Lecturer-Led Session Reso... #

Date: Monday, 10 June 2024, 11:10 AM

LWCLA2-22 (2024)
11.1. Notes [ ± 60 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Explain what is meant by registered office.

Explain what information constitutes company information and the way access can be made to company
records.
Explain what financial records entail and the circumstances under which a company must be audited.
Identify and explain the companies that must comply with the enhanced accountability and transparency
requirements.
Explain the appointment, duties and termination of the company secretary.
Explain the appointment and duties of the auditors and audit committees.

Prescribed Reading
Haupt, A. & Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 16 - Transparency, Accountability and Access to Information
and Chapter 17 - Enhanced Accountability and Transparency

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2. Case Study

Read the following article:

Kew, J. 2021. Ex-Deloitte Auditor Faces Disciplinary Action Over Steinhoff. Available from: Ex-Deloitte
Auditor Faces Disciplinary Action Over Steinhoff Audit - Bloomberg. [Accessed 10 January 2024].

3. Note

Registered office is defined as the office of a company, external company. The address is recorded in the
Notice of Incorporation when the company is first registered.

Company records must be kept for seven years at the registered office of the company. The records include
the memorandum of incorporation and internal rules, registers, reports, notices and minutes and resolutions
of meetings held by shareholders, the board and committees. Security holders, creditors and trade unions
have access to company records.

Accounting Records and AFS: All companies must keep accurate accounting records and prepare financial
statements within six months of its financial year-end.
Annual financial statements include the auditor’s report, the report of the directors and any prescribed
information.

Enhanced transparency and accountability requirements must be complied with by public companies and
state-owned companies. In terms of section 34 (2), private companies, personal liability companies and non-
profit companies are not required to comply with the enhanced transparency and accountability requirements
however the memorandum of incorporation may provide for the adherence to these requirements for
increased accountability and transparency.

The extended requirements in terms of section 84 (4) require that a company must appoint a company
secretary, auditor and audit committee.

Company Secretary: A state-owned company and public company must have a company secretary. The
company secretary must be a permanent resident in South Africa and can be a juristic person or partnership.
The company secretary is accountable to the board of directors. Section 88 of the Companies Act, 2008, sets
out what the company secretary does: guides company directors in respect of their duties, responsibilities
and powers, informs directors about any laws that may affect the company, reports to the board any failure
by either the company or director to comply with the Companies Act, 2008, keeps minutes of meetings of
shareholders, board of directors and audit committee, certifies the annual financial statements (AFSs),
forwards the AFSs to all persons entitled to receive them and acts as a designated person to ensure
company compliance with the filing of the annual return.

Auditors: These are usually appointed at the incorporation of a company or else, the directors are
compelled to appoint an auditor within 40 business days after the company has been incorporated. The first
auditor appointed holds office until the first AGM. At every AGM the company must appoint an auditor. There
are certain criteria for the auditors that are appointed in respect of a company. Make sure you are aware of
what this criterion is.

In terms of section 93 of the Companies Act, 2008, an auditor has right of access at all times to the
accounting records, books and documents of company and its subsidiaries, the auditor also has the right to
obtain information and explanations from directors and prescribed officers of the company and its
subsidiaries, to perform his audit, to receive notices and information and to attend and address general
shareholder’s meetings in respect of his audit and to apply for the appropriate court order to enforce his or
her rights.

Liability of an Auditor: An auditor may incur civil liability, criminal liability and face disciplinary action from
the Independent Regulatory Board for Auditors (“IRBA”).

Civil Liability of an Auditor: A distinction is made between the liability of an auditor towards his own client,
the company, and the liability towards third parties such as shareholders, creditors and potential investors of
the company.

Common Law Liability of Auditors towards their Client, the Company: The relationship between a
company and its auditor is based on contract. The parties normally agree in writing to the terms and
conditions of the audit and if this is not in writing, the parties have tacitly agreed that audit is to be carried out
with the required professional care according to general accepted standards. Where an audit fails to detect
fraud, theft or fictitious invoicing or fails to verify asset register, securities or contingent liabilities, the
company will have a claim against the auditor for breach of contract and the company must prove the
existence of a contractual relationship, the terms of the contract, the acts or omissions that constitute the
breach and the loss the company has suffered as result of the breach.

As an alternative to the breach of contract claim, the company may also rely on a claim based in law of
delict against the auditor on the basis that there was negligent performance of duties as auditor. In this
instance, the company has to prove all the elements of a delict, which are the act or omission that took place,
wrongfulness, fault, damage and causation. The auditor can raise contributory negligence of the company as
a defence and reduce the amount of damages in terms of Apportionment of Damages Act 34 of 1956. This
remedy is only applicable in respect of the delictual claim so it would generally be better for a company to
proceed with the breach of contract claim.

Liability towards Third Parties: There is no contractual relationship between the auditor and third parties
who may have suffered loss due to the auditor not fulfilling his/her functions properly, there is also no
fiduciary relationship between an auditor and these third parties. Third parties as a consequence must base
their claims in delict if they have suffered loss as a result. Third parties such as creditors (banks/suppliers),
shareholders and investors must prove all the elements of delict.

Audit Committees: It is compulsory for a public company and a state-owned company to have an audit
committee that is elected at the annual general meeting. The audit committee assists with the appointment of
the auditor, including the terms of the contract and the audit fees. Have a look in your textbooks to see how
an audit committee should be composed and its duties. The audit committee has to include a report in the
annual financial statements in which it sets out how it performs its functions, declares whether it is satisfied
that the auditor was independent of the company and comments on the financial statements, the accounting
practices and the internal financial control measures of the company.

Social and Ethics Committees: It is also compulsory for a public company and a state-owned company to
have a social and ethics committee. In addition, any company that has a public interest score of more than
500 points in the previous five years must also have a social and ethics committee. The role of the social and
ethics committee is to oversee and report on a number of issues, including, corruption, the Employment
Equity Act 55 of 1998, black economic empowerment, the environment etc.

4. Activity 1

Discuss the Thoroughbred Breeders’ Association v Price Waterhouse case.

Answers
5. Activity 2

The auditor of GP (Pty) Limited created misleading financial statements. What remedies does the Bank that
has lost money as a result, have against the auditor? What must the Bank prove in respect of this remedy?
Refer to the International Shipping v Bentley (1990) SA 680 (A) case in your answer.

Answers
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:11 AM

LWCLA2-22 (2024)
11.2 Transparency, Accountability and Access to Information

1. Transparency, Accountability and Access to Information

Part C of chapter 2 of the Companies Act, 2008 contains the accountability and transparency requirements.

All companies must comply with these requirements.

Registered office: is defined as the office of a company, external company. The address is recorded in the
Notice of Incorporation when the company is first registered.

Accounting records and AFS: All companies must keep accurate accounting records and prepare financial
statements within 6 months of its financial year-end.

Annual financial statements include the auditor’s report, the report of the directors and any prescribed
information.

1.1. Activity

Answer the true or false questions on page 185 of your textbook.

Date: Monday, 10 June 2024, 11:11 AM

LWCLA2-22 (2024)
11.3 Enhanced Accountability and Transparency

1. Enhanced Accountability and Transparency

Unlike the previous accountability and transparency requirements above, the chapter 3 – Enhanced
transparency and accountability requirements must be complied with by public companies and state-owned
companies.

In terms of section 34 (2), private companies, personal liability companies and non-profit companies are not
required to comply with the enhanced transparency and accountability requirements, however, the
memorandum of incorporation may provide for the adherence to these requirements for increased
accountability and transparency.

The extended requirements in terms of section 84 (4) require that a company must appoint a company
secretary, auditor and audit committee.

Auditors: are usually appointed at the incorporation of a company, or else the directors are compelled to
appoint an auditor within 40 business days after the company has been incorporated. The first auditor
appointed holds office until the first AGM. At every AGM, the company must appoint an auditor. There are
certain criteria for the auditors that are appointed in respect of a company, Make sure you are aware of what
this criterion is.

Liability of Auditor: An auditor may incur civil liability, criminal liability and face disciplinary action from the
Independent Regulatory Board for Auditors (“IRBA”).

Civil Liability of Auditor: A distinction is made between the liability of an auditor towards his own client, the
company, and the liability towards third parties such as shareholders, creditors and potential investors of the
company.

Common Law Liability of an Auditor towards his or her Client, the Company: The relationship between
a company and its auditor is based on contract. The parties normally agree in writing to the terms and
conditions of the audit and if this is not in writing the parties have tacitly agreed that audit is to be carried out
with the required professional care according to general accepted standards. Where an audit fails to detect
fraud, theft or fictitious invoicing or fails to verify asset register, securities or contingent liabilities the company
will have a claim against the auditor for breach of contract and the company must prove the existence of a
contractual relationship, the terms of the contract, the acts or omissions that constitute the breach and the
loss the company has suffered as result of the breach.

As an alternative to the breach of contract claim, the company may also rely on a claim based in law of
delict against the auditor on the basis that there was negligent performance of duties as auditor. In this
instance the company has to prove all the elements of a delict, which are the act or omission that took place,
wrongfulness, fault, damage and causation. The auditor can raise contributory negligence of the company as
a defence and reduce the amount of damages in terms of Apportionment of Damages Act 34 of 1956. This
remedy is only applicable in respect of the delictual claim so it would generally be better for a company to
proceed with the breach of contract claim.

1.1. Examples

In Thoroughbred Breeders’ Association v Price Waterhouse (2001) 4 All SA 161 (A), it was found during the
course of investigations into the affairs of the business that an employee had stolen considerable sums of
money from the business. It was common cause that the auditors were contractually bound to exercise
reasonable care in the execution of the audit and not to do the work negligently. The allegation was that the
auditors had failed in that respect and had the audit work been done properly, the employee’s theft would
have been uncovered fairly early on and all the direct losses suffered by the business due to the employee’s
subsequent thefts and his inability to repay were accordingly for the auditor’s account. The court found that
had the auditors probed further in the course of their audit, as they should have done when certain
accounting records were found to be missing, the employee’s past thefts would have been uncovered and
his future ones avoided. A competent auditor would have known that the failure to recognise, identify and
engage a problem of this kind could lead to a prospective loss of the kind suffered and the auditors were
found to be negligent and liable for the losses suffered by their client.

In International Shipping Co v Bentley 1990 (1) SA 680 (A), the court found that act consisted of preparation
of materially false and misleading financial statements. The auditor acted wrongfully, as he owed a duty of
care towards the third party. Fault in form of negligence was also proven, as the auditor’s conduct fell short of
accepted professional standards. The court, however, did not find a sufficiently close link between the act
and loss to justify legal liability of auditor.
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:11 AM

LWCLA2-22 (2024)
12.1. Notes [ ± 60 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Distinguish between members of profit and non-profit companies.

State the requirements for acquisition and termination of membership.
State the requirements of the securities register.
Explain the right to access information in respect of the securities register.
State the requirements for shareholder agreements.
Distinguish between certificated and uncertificated shares.
Identify the rights of shareholders.
Explain the dissenting shareholders’ appraisal rights.
Examine the different dispute resolution mechanisms available to companies and shareholders.

Prescribed Reading
Haupt, A. & Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 17 - Company Meetings and Resolutions.

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2. Notes

Membership of Non-Profit Companies: A non-profit company may consist of members. In this case, a
member of a non-profit company is a person who holds membership and specified rights in respect of the
non-profit company. The memorandum of incorporation may provide for the non-profit company to have
members and will set qualifications for the membership process. There are several rules pertaining to the
membership of a non-profit company. Make sure you acquaint yourself with them.

Membership of Profit Companies: The following persons are members of a profit company: the
subscribers to the memorandum of incorporation who have agreed to become members of the company
upon its incorporation and whose names have been entered into register of members; every person who
agrees to become a member of company and whose name is entered into the register of members; a person
who is the bearer of a share warrant of the company; the executor, administrator, liquidator, trustee, curator
or guardian of the estate of a deceased or insolvent member of the company or of a member who is legally
disabled (who shall be registered as member nomine officio of company). A member of a profit company is
essentially a shareholder of the profit-company or the holder of a share warrant.

Acquisition of Membership: There are two main ways of acquiring membership of a profit company: by
buying shares directly from a registered company or by buying shares from an existing shareholder.

Capacity to become a member: Because membership of a company is based on a contractual relationship,

only those with the necessary contractual capacity may become a member of a company.

The following persons may be members of a profit company: natural persons, companies, close corporations
and the partners of a partnership. There is no minimum number of members under the Companies Act, 2008.

Securities register is kept at the registered office of the company and contains a record of particulars of the
members of the company.

Certificated Securities: The securities register must contain the names and addresses of persons to whom
securities were issued and the number of securities issued to each of them. Certificated shares are
evidenced by share certificates. A share certificate serves as proof that one has shares in a company and the
securities register serves as proof that one is a member of a company.

Uncertificated Securities: These are securities that do not have a share certificate. The company’s
uncertificated securities register must be kept by the company or central securities depository.

Termination of Membership: A person may terminate membership in a company by the transfer of all his
shares to another and the deletion of his name from the register of members, the sale and transfer of his
shares by company in terms of a lien and the deletion of his name from securities register, dissolution of
company after liquidation, insolvency of the member and death of the member.

Shareholders: The shareholders invest money in the company and in return they receive shares from the
company. All the shareholders own the company jointly and they are also known as members of a company.
Shareholder refers to the holder of share or shares issued by the company, the person whose name is
entered as holder of shares in the company’s securities register and a person who in terms of section 57 of
the Companies Act, 2008 is entitled to exercise any voting rights in relation to the company, irrespective of
form, title or nature of securities to which those voting rights are attached.
Shareholder Agreements: The shareholders may enter into any agreement with one another concerning
any matter relating to the company, however, any such agreement must be consistent with the Companies
Act, 2008 and the memorandum of incorporation, else it is void to the extent of the inconsistency.

Rights of Shareholders: The shareholders of a company have the right to attend and vote at meetings of
the shareholders, appoint and remove directors, compel the company to act in accordance with its
memorandum of incorporation, the common law and the Companies Act, 2008, to receive dividends and
share in the surplus assets of the company upon the winding-up of company if money is available after all
the creditors have been paid in full.

Application to Protect Rights of Securities Holders: The holder of issued securities may apply to court for
an order to determine and protect his rights in terms of Companies Act, 2008, the memorandum of
incorporation, the internal rules of the company. The court may order the company to rectify any harm
suffered by the securities holder and may determine the extent to which the directors may be held liable.

Dissenting Shareholder’s Appraisal Rights: In terms of section 164 of the Companies Act, 2008, the
minority shareholder may lodge a written objection if a company has given notice of a meeting to consider a
resolution that may adversely affect rights of a shareholder. The company must within 10 business days after
it has adopted resolution give notice of resolution to the objecting shareholder and the shareholder may
within 20 business days after receiving the notice demand in writing payment of the fair value of shares he
holds in the company. The shareholder who has sent demand has no further rights in respect of those shares
other than to be paid their fair value. Every offer made in respect of the shares of the same class or series
must be on same terms and lapses if it has not been accepted within 30 business days after offer was made.

3. Activity

Thabo is a shareholder of 24 Hour creche Pty LTD. He holds 15% of the voting rights and is not happy with
the merger that the company is planning with their bigger rival the Montesouri Way Pty LTD. The rest of the
shareholders with 70% voting power are excited to enter into the merger as it will mean more money for
them when the company declares a dividend. Thabo on the other hand will have even lesser voting power
due to the dilution of his ownership because of the other shareholders for the other company.

Advise him on what he can do to protect his shares.

Answers
Started on Wednesday, 15 May 2024, 7:56 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:56 PM

Time taken 9 secs

Marks 0.00/30.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

The auditor of GP (Pty) Limited failed to detect fictitious invoicing taking place. What two remedies does the company have against the
auditor?

What must the company prove in respect of each of those remedies?

Which of the two remedies would you advise the company to pursue and why?
Question 2

Not answered

Marked out of 10.00

The auditor of GP (Pty) Limited created misleading financial statements. What remedies does the Bank that has lost money as a result have
against the auditor? What must the Bank prove in respect of this remedy? Refer to the International Shipping v Bentley (1990) SA 680 (A) case
in your answer.

Question 3

Not answered

Marked out of 10.00

The auditor of GP (Pty) Limited created a fraudulent financial opinion in order to obtain investments into the company. Discuss whether the
auditor can incur liability in terms of the Auditing Profession Act 26 of 2005.

Jump to...

t 12.1. Notes [ ± 60 m...

12.3. Practice Quiz 2 [ �... #

Started on Wednesday, 15 May 2024, 7:57 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:57 PM

By the end of this lesson, you should be able to:

Distinguish between different company meetings.

Identify the requirements to call a general meeting of shareholders.
State the requirements for the validity of a company resolution.
Distinguish between ordinary and special resolutions and the quorum of such meetings.
Explain general terms such as ‘proxy’, ‘adjournment’ and ‘postponement.

Prescribed Reading
Haupt, A. & Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd Edition.
Pretoria: Van Schaik. Chapter 19 - Company Meetings and Resolutions

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2. Notes

Company Meeting: Companies have different kinds of meetings: general shareholder’s meetings e.g., AGM,
separate meetings by holders of specific class of shares e.g., redeemable preference shareholders,
meetings of the board of directors and meetings of committees of the board.

General Meetings of Shareholders: The general or shareholder’s meetings are convened for attendance
by general body of shareholders. They are meetings that deal with the ordinary business issues of the
company. Have a look in your textbook to see who may call a general shareholders' meeting and under what
circumstances.

Annual General Meetings: The AGM enables shareholders to satisfy themselves that the board of directors
are conducting the business of the company in a satisfactory manner. The board of directors must convene
the AGM initially no more than 18 months after company’s date of incorporation and thereafter once in every
calendar year – no more than 15 months after date of previous AGM. Have a look in your textbook to see
what issues are discussed at the AGM.

Board Meetings: These are meetings of all the directors of a company and are presided over by the
chairman.

Essentials of Valid Meeting: The meetings must be properly convened, duly constituted and properly
conducted.

In order for a meeting to be properly convened, it must be called on authority of the chairman and the notice
calling the meeting must be forwarded to all persons entitled to receive notice.

Notice to Attend: Every member entitled to attend the meeting must be given notice to attend. In terms of
section 62 (1) of the Companies Act, 2008, the company must deliver the notice of each shareholders’
meeting to all the shareholders of the company as on record date for the meeting at least 15 business days
before the meeting is to begin in the case of a public company or non-profit company that has voting
members, and 10 business days before the meeting is to begin in any other case.

Requirements of Notice: This should be in writing, including date, time and place for the meeting, include a
record date for the meeting, state general and any specific purpose of the meeting, contain a copy of the
proposed resolution to be considered and the required percentage of voting rights to adopt the resolution and
include a prominent statement that proxies are permissible. In addition, in the case of an AGM there must
also be a summarised version of the financial statements as well as directions for obtaining a copy of the
complete AFS. In addition, there must be a quorum: In terms of section 64 (1) of the Companies Act, 2008,
the quorum is met when 25% of voting rights are present. If the company has more than two shareholders,
the meeting may not begin unless at least three shareholders are present.

Voting: Members in meetings have general voting rights. Every person at a meeting that is entitled to vote
has one vote. Members have discretion whether to vote or abstain. If a company has no share capital, every
member has one vote. In companies with a share capital, every holder of securities has one vote in respect
of each share held by him or her.

Proxies: The term proxy itself can either mean the person who has been appointed to represent another at a
meeting or the instrument in writing by which such person is appointed.

Person appointed as Proxy: A shareholder may at any time appoint an individual to act at a shareholder’s
meeting on behalf of the shareholder. The proxy is entitled to participate, speak and vote or abstain from
voting. The proxy appointment must be done in writing.

A meeting can be adjourned or postponed. Make sure you understand the difference between the concepts.

Resolution: This is a formal decision taken at a meeting or a motion adopted by majority vote at a meeting.
This is the way that members (shareholders) can express will of company on a matter. The resolution is
effective from the date it is passed.

Ordinary Resolution: This type of resolution requires the support of more than 50% of the voting rights
exercised on the resolution.

It is possible for a company’s memorandum of incorporation to specify a higher percentage to pass a special
resolution (except for in the case of a removal of a director). There must, however, at all times, be a
difference of 10% between the ordinary and special resolution.

Special Resolution: This is a resolution where the support of more than 75% of voting rights exercised on
resolution is required.

The percentage for a special resolution can be a lower percentage if it is permitted by the memorandum of
incorporation. There again there must not be no more than a 10% difference between the ordinary and
special resolution. The special resolution will be valid on adoption. A special resolution is required to amend
the company’s memorandum of incorporation, approve the voluntary winding-up of the company, and
approve any proposed fundamental transaction.
3. Activity

Discuss the South African Broadcasting Corporation Ltd v Mpofu 2009 4 All SA 169 GSJ.

Answers
Started on Monday, 10 June 2024, 11:12 AM

State Finished

Completed on Monday, 10 June 2024, 11:13 AM

Time taken 47 secs

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

K is the minority shareholder of ABC (Pty) Limited. The company has given a notice to K in terms of which she has been advised that a
resolution is going to be passed in terms of which her class of share will no longer have any voting rights attached to it. Discuss the process for
dissenting shareholder’s appraisal rights in the context of K’s options.

Jump to...

t 13.1. Notes [ ± 60 m...

14.1. Notes [ + 60 min ] ... #

Date: Monday, 10 June 2024, 11:14 AM

LWCLA2-22 (2024)
14.1. Notes [ + 60 min ]

1. Learning outcomes

By the end of this lesson, you should be able to:

Identify the rights of shareholders.

Explain the dissenting shareholders’ appraisal rights.
Examine the different dispute resolution mechanisms available to companies and shareholders.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Pretoria: Van Schaik. Chapter 18 - Members and shareholders

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2. Members and Shareholders

A member of a profit company is essentially a shareholder of the profit-company or the holder of a share
warrant.

Acquisition of membership: There are two main ways of acquiring membership of a profit company: by
buying shares directly from a registered company or by buying shares from an existing shareholder.

Capacity to become a member: Because membership of a company is based on a contractual relationship,

only those with the necessary contractual capacity may become a member of a company.

The following persons may be members of a profit company: natural persons, companies, close
corporations and the partners of a partnership.

There is no minimum number of members under the Companies Act, 2008.

Securities register is kept at the registered office of the company and contains a record of particulars of the
members of the company.

A Share Certificate serves as proof that one has shares in a company and the securities register serves as
proof that one is a member of a company.

Uncertificated Securities: These are securities that do not have a share certificate. The company’s
uncertificated securities register must be kept by the company or central securities depository.

Shareholder Agreements: The shareholders may enter into any agreement with one another concerning
any matter relating to the company, however, any such agreement must be consistent with the Companies
Act, 2008 and the memorandum of incorporation, else it is void to the extent of the inconsistency.

Date: Monday, 10 June 2024, 11:23 AM

LWCLA2-22 (2024)
15.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this lesson, you should be able to:

Define the term ‘director’.

Identify individuals who are ineligible and disqualified to act as directors.
Explain the grounds and procedure to declare a director delinquent, place them under probation, or
remove them from office.
Discuss the election and appointment of directors and how vacancies are filled.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 20 - Directors

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2. Note

Ex officio directors: is a person who holds the office as a director of particular company solely as a
consequence of that person holding some other office. An ex officio director has all the powers and functions
of any other director.

Acting director: any person occupying the position of director or alternate director.

Temporary directors: persons appointed by the board (or otherwise) to fill a casual vacancy.

Ineligibility and disqualification: There is a distinction between persons that are ineligible and persons that
are disqualified. A person that is ineligible or disqualified must not be appointed or elected as a director and
the company must not knowingly allow a disqualified or ineligible person to serve as a director of the
company.

Ineligibility: The following persons are ineligible to be a director of company: a juristic person, minor person,
a person with a legal disability, and a person who does not meet criteria specified in company’s
memorandum of incorporation.

Disqualification: The following persons are disqualified to be directors of a company: a person who in terms
of court order was declared disqualified, was declared a delinquent director, been removed from office of
trust for misconduct involving dishonesty, been convicted and imprisoned without the option of a fine for theft,
fraud, forgery or perjury or for offence in connection with promotion, formation or management of a company,
a person who is an unrehabilitated insolvent and a person who is prohibited from being director in terms of
public regulation.

Appointment: The incorporators of the company serve as the first directors of the company and continue
serving as directors until the company appoints a board of directors.

Elected directors: at least 50% of directors of a profit company must be elected by its shareholders. The
directors must be elected by persons that are entitled to exercise voting rights in such election. The directors
must be elected by persons entitled to exercise voting rights in such election.

Memorandum of incorporation appointed directors: The memorandum of incorporation regulates the

appointment of these directors in detail, specifying how and by whom the appointment is made.

Minimum number of directors: The minimum number of directors that a company must have is determined
by the type of company. Public company, 3; Non-profit, 3; Private company, 1 and Personal Liability
company, 1.

Removal: In terms of section 220 of the Companies Act, 2008, a company has the right to remove a director
before the end of his term of office, even if there is anything contrary in the company’s memorandum of
incorporation, the separate agreement (service contract between the company and the director) the
agreement between the director and the company’s shareholders. The removal can be done by the
shareholders or the board of directors. Have a look in your textbook to see what the requirements for the two
forms of removal are.

Delinquency and probation: The stakeholders may apply in terms of section 162 of the Companies Act,
2008 to declare a director delinquent or under probation.

A director that has been declared a delinquent is prohibited from being director. A director that is placed
under probation is restricted by the terms of the probation. Have a look in your textbook to determine the
grounds for probation and the grounds for delinquency.

Payment to directors: A company may remunerate directors subject to the memorandum of incorporation.
Remuneration must be approved by the shareholders by way of a special resolution within the previous two
years.

Financial assistance to directors: The company may under certain circumstances provide financial
assistance to the directors. Financial assistance includes the loan, provision of security for debt or obligation
or any other direct or indirect financial assistance. There are requirements that have to be met for a company
to be able to provide financial assistance. Make sure you know them.

3. Activities

Read the PPWAWU National Provident Fund v Chemical, Energy, Paper, Printing, Wood and Allied Workers’
Union 2008 and discuss what they said about independent directors.
Answers
Started on Monday, 10 June 2024, 11:24 AM

State Finished

Completed on Monday, 10 June 2024, 11:24 AM

Time taken 6 secs

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Question 1

Not answered

Marked out of 1.00

A wants to appoint his son, C as a director. C’s business has failed and he has been advised to apply for the sequestration of his estate.
Should C proceed with the application for sequestration of his estate in light of the offer as director?

Jump to...

t 15.1. Notes [ ± 60 m...

16.1. Notes [ ± 60 min ]... #

Date: Monday, 10 June 2024, 11:24 AM

LWCLA2-22 (2024)
16.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this lesson, you should be able to:

Explain the duties, liabilities and indemnification of directors.

Discuss directors’ financial interests in contracts with their own company.
Discuss the remuneration of and financial assistance to directors.

Prescribed Reading

Haupt, A. & Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 20 - Directors

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2. Note

In terms of section 66 (1) of the Companies Act, 2008, the business and affairs of the company must be
managed by or under the direction of its board. The board has the authority to exercise all of its powers and
perform all the functions of the company subject to the limitations of the memorandum of incorporation and
the Companies Act, 2008. The board may appoint a number of committees and delegate to the committee
any authority the board committee enjoys full authority of.

Duties of directors: The standards of the directors conduct is set out in section 76 of the Companies Act,
2008. The directors also have duties in terms of the common law.

Duties in terms of the common law: The directors have fiduciary duties which are duties that arise from a
relationship of trust as well as the duty of care and skill.

Fiduciary duties: A director must act within the scope of authority given to him and not exceed his powers. If
he acts outside of his authority, the company will have a claim against the director for exceeding his authority.
A director must avoid a conflict of interest. A director has to prevent a situation where his personal interests
come into conflict with the interests of the company. Further fiduciary duties: not divulge information of
confidential nature such as client lists, trade secrets, industrial process, to always act in good faith and in the
best interests of company and under no circumstances should he compete with his own company on a direct
or indirect basis. Further, a director should exercise an unfettered discretion; this requirement emphasises
the importance of a director’s independence and that he must apply his mind objectively to a matter before
him and take informed decisions based on facts and not be a puppet in the hands of the CEO and
shareholders. In addition, a director must use his powers for the purpose for which they were granted and
not abuse his powers.

Duty of care and skill: A director must act with the reasonable care and skill as can be expected from a
person with his/her particular knowledge, skills and experience. Where a director acts negligently or in
dereliction of his duties towards the company there is a breach of duty of care.

Duties in terms of the Companies Act, 2008: The common law duties and statutory duties have now been
codified in the Companies Act, 2008.

Section 76(3) of the Companies Act, 2008: A director acting in that capacity must exercise his powers and
perform the functions of a director in good faith and for proper purpose, in the best interests of a company
with the degree of care, skill and diligence that may reasonably be expected of a person carrying out
functions in relation to the company as those carried out by a director having the general knowledge, skill
and experience of that director.

Business judgment rule: A director will have satisfied the obligations to act in the best interests of company
and to act with reasonable care and skill if the director has no material personal financial interest in the
matter, has taken reasonable steps to become informed about the matter, is entitled to rely on performance
of, or information supplied by, someone to whom authority had been delegated made or supported the
decision with a rational basis for believing (objective part of the test) and indeed believed that decision was in
best interests of company (subjective part of the test).
Director’s personal financial interest in transactions with company: In terms of section 75 of the
Companies Act, 2008, a director has a duty of disclosure in the event that he/she has or is aware that a
related person has a personal financial interest in the matter to be decided by board. He/she must make the
disclosure, share his/her insights in respect of the matter but he/she cannot participate in consideration of the
matter.

Director’s personal financial interest in transactions with the company: In terms of section 76 of the
Companies Act, 2008, a director must not use his/her position of director or the information obtained while
acting in capacity of director to gain advantage for him/herself or any other person other than the company or
wholly-owned subsidiary of the company to cause harm to the company or subsidiary of the company.

Liability of directors: Section 77 of the Companies Act, 2008 regulates the liability of directors.

Liability of directors may be based on breach of fiduciary duty, delict, claims arising from unauthorised acts,
reckless trading, fraud, false or misleading financial statements or untrue statements in prospectus, acts
relating to maintenance of capital breach of solvency and liquidity criteria.

Breach of trust: A director is liable for any loss, damage or costs incurred by a company for breach of trust
where the director has in accordance with common-law principles of breach of fiduciary duty failed to
disclose personal financial interest in a transaction or agreement with the company, avoid a conflict of
interest, act in good faith and for proper purpose, and act in the best interests of the company.

Breach of duty of care: A director will be liable in accordance with common-law principles relating to the
delict for any loss, damage or costs sustained by the company as a consequence of any breach by the
director of duty to act with reasonable care, skill and diligence, breach of any provision of the Companies Act,
2008 or any provision of company’s memorandum of incorporation.

Unauthorised acts: A director is liable where he, despite knowing that he lacks authority to do so, acts in
name of and signs or authorises action on behalf of a company.

Reckless trading: A director is liable where he/she allows the company to carry on business knowing that it
was conducted recklessly with gross negligence with the intent to defraud any person or for any fraudulent
purpose trade under insolvent circumstances.

Fraud: A director is liable where he/she has knowingly been a party to an act or omission by the company
calculated to defraud a creditor, employee, shareholder or has another fraudulent purpose.

Misleading financial statements and prospectus: A director incurs liability where he has signed,
consented to or authorised publication of financial statements that were false and misleading or prospectus
that contains untrue statements. A director further has to compensate a person who acquired securities on
the faith of untrue statements in the prospectus unless he had reasonable grounds at the time the securities
were allotted to believe the statements to be true.

Criminal liability: In terms of section 214 of the Companies Act, 2008, directors will incur criminal liability for
trading with a company in a manner calculated to defraud a creditor
3. Activity

Grant is the director of Energy Pharmaceuticals (Pty) Limited. Energy Pharmaceuticals (Pty) Limited has
found a new cure for pneumonia. Grant gives the formula to the senior scientist of Superb-A Pharmaceuticals
(Pty) Limited against payment of a fee. Energy Pharmaceuticals (Pty) Limited is furious about this.

Will Energy Pharmaceuticals be able to lodge an application to have Grant declared a delinquent? Set out
the grounds of their court application and also set out what the effect of such an order would be.

Answers
Started on Wednesday, 15 May 2024, 7:59 PM

State Finished

Completed on Wednesday, 15 May 2024, 7:59 PM

Time taken 8 secs

Marks 0.00/20.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

A is a director of a company. He failed to advise the company against signing a contract with J when he knew J was an unrehabilitated
insolvent and would not pay the company in terms of the contract. He did this because J is his cousin. As a result, the company lost millions.
Can he be held liable? Discuss in relation to breach of trust.
Question 2

Not answered

Marked out of 10.00

A is a director of a company. He failed to read a contract before signing it and as a result the company lost millions of Rands. Discuss whether
or not he can be held liable.

Jump to...

t 16.1. Notes [ ± 60 m...

17.1. Notes [ ± 60 min ]... #

Date: Monday, 10 June 2024, 11:25 AM

LWCLA2-22 (2024)
17.1. Notes [ ± 60 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

Explain the duties, liabilities and indemnification of directors.

Discuss directors’ financial interests in contracts with their own company.
Discuss the remuneration of and financial assistance to directors.

Prescribed Reading

Haupt, A. & Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 20 - Directors

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2. Authority, Powers and Duties of the Board; Duties of Directors;
Liability of Directors

Duties of directors: The standards of the directors conduct is set out in section 76 of the Companies Act,
2008. The directors also have duties in terms of the common law.

Duties in terms of the common law: The directors have fiduciary duties which are duties that arise from a
relationship of trust as well as the duty of care and skill.

Fiduciary duties: A director must act within the scope of authority given to him and not exceed his
powers. If he acts outside of his authority, the company will have a claim against the director for exceeding
his authority. A director must avoid a conflict of interest. A director has to prevent a situation where his
personal interests come into conflict with the interests of the company. Further fiduciary duties: not divulge
information of confidential nature such as client lists, trade secrets, industrial process, to always act in good
faith and in the best interests of company and under no circumstances should he compete with his own
company on a direct or indirect basis. Further, a director should exercise an unfettered discretion; this
requirement emphasises the importance of a director’s independence and that he must apply his mind
objectively to a matter before him and take informed decisions based on facts and not be a puppet in the
hands of the CEO and shareholders. In addition, a director must use his powers for the purpose for which
they were granted and not abuse his powers.

Duties in terms of the Companies Act, 2008: The common law duties and statutory duties have now been
codified in the Companies Act, 2008.

Director’s personal financial interest in transactions with the company: In terms of section 76 of the
Companies Act, 2008 a director must not use his/her position of director or the information obtained while
acting in capacity of director to gain advantage for him/herself or any other person other than the company or
wholly-owned subsidiary of the company to cause harm to the company or subsidiary of the company.

Liability of directors: Section 77 of the Companies Act, 2008 regulates the liability of directors.

Unauthorised acts: A director is liable where he, despite knowing that he lacks authority to do so, acts in
name of and signs or authorises action on behalf of a company.

Fraud: A director is liable where he/she has knowingly been a party to an act or omission by the company
calculated to defraud a creditor, employee, shareholder or has another fraudulent purpose.

Criminal liability: In terms of section 214 of the Companies Act, 2008, directors will incur criminal liability for
trading with a company in a manner calculated to defraud a creditor.
2.1. Example

Feedback: In terms of Section 162 of the Companies Act, 2008, a court can declare a person to be a
delinquent or to be under probation. The company is one of the persons who may apply to court for such an
order. One of the grounds for such an application is that the director, grossly abused his position of director,
while he was a director. Another ground is that the director took personal advantage of information or an
opportunity. Both these grounds are applicable to the set of facts and as such the Company may make the
application. The order of delinquency will subsist for seven years or such longer period as determined by the
court. In addition, the court may order that the director concerned: undertake a designated programme of
remedial education relevant to the nature of the person’s conduct as director; carry out a designated
programme of community service; or pay compensation to any person adversely affected by the person’s
conduct as a director to the extent that such a victim does not otherwise have a legal basis to claim
compensation.

3. Examples

In Da Silva v CH Chemicals 2008 (6) SA 620 (SCA), the court considered the breach of fiduciary duty. The
director exploited a “corporate opportunity”. A corporate opportunity is an opportunity that is made use of and
results in a conflict between the personal interests of a director and the interests of a company. In the event
that this happens, such an opportunity belongs to the company and not the director. The director cannot
escape liability towards the company even if he resigns before the opportunity is exploited.

In McLuckie v Sullivan 2011 (1) SA 365 (GSJ), a sole director of a company allowed the company to incur
debt at a time when he knew it would not be able to repay the debt without his financial assistance. The court
found that the attempt by a director to use during winding-up, the company’s separate identity to avoid
payment constituted reckless conduct of the business of the company in terms of S 424(1) of Companies
Act, 1973. The director was found personally liable for the debt incurred.

In Ex Parte Barron 1977 (3) SA 1099 (C), the applicant had been a director of several private companies of
which he and his wife were the only shareholders. He had tried to circumvent certain regulations prohibiting
the export of ostrich leather and he was convicted of fraud as a consequence. As such, he was a disqualified
person. He applied to court for authorisation to act as director. The court held that the factors that affect the
discretion of the court in such a case were the following:
1. The type of offence;
2. Whether or not it was the first conviction;
3. The type of punishment imposed;
4. Whether it was a public company in regard to which the applicant wished to act as a director, or whether it
was a private company, and
5. The attitude of shareholders and whether all the shareholders supported the application.
In this case, the court held that it could be more lenient where it was a private company affected, than where
a public company is involved because in the case of a public company, a director deals with funds from the
public.
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:25 AM

LWCLA2-22 (2024)
18.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this lesson, you should be able to:

Discuss what is meant by ‘the decriminalisation of company law by the 2008 Companies Act’.
Identify, distinguish and discuss the broad categories under which civil remedies fall in terms of the 2008
Companies Act.
Identify and distinguish the basic alternatives for addressing complaints regarding alleged contraventions
of the Act or for the enforcement of rights.
Explain the concept of ‘Alternative Dispute Resolution’.
Identify the different bodies/agencies responsible for the enforcement of the Act and discuss the functions
of each.

Prescribed Reading

Haupt, A. & Malange, N.K. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 24 - Dispute resolution, remedies and enforcement.

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2. Note

The Companies Act, 2008 provides rights to shareholders to protect their rights, such as: section 163 offers
relief from oppressive or prejudicial conduct; section 161 allows for an application to protect the rights of
securities holders; and section 164 provides for dissenting shareholders’ appraisal rights

Remedies against directors who have abused their position: Remedies include: the right to apply for an order
of delinquency or probation in terms of section 162 and the right to institute an action on behalf of the
company in terms of section 165.

The derivative action in terms of 165: The derivative action is a court action instituted by any of the
persons described in section 165 on behalf of the company in order to protect the company’s legal interests.
The remedy is available against an alleged wrongdoer who is in control of the company.

The statutory remedies available to shareholders to protect their own rights include: relief from
prejudicial/oppressive conduct in terms of section 163; dissenting shareholders’ appraisal rights in terms of
section 164; rights of shareholders to require a company to pay fair value in exchange for their shares in
certain circumstances; and additional relief to protect the rights of securities holders in terms of section 161
in the form of declaratory orders or other appropriate relief.

Enforcement of rights ensuring compliance with the Companies Act, 2008: There are four alternatives
for addressing complaints regarding alleged contraventions of the Act or for the enforcement of rights:
1. Attempt to resolve the dispute using ADR procedures.
2. Apply to the Companies Tribunal for adjudication only in respect of any matter for which such an
application is permitted in the Act.
3. Apply to High Court.
4. File a complaint with the CIPC, which could result in the Commission after investigating the complaint
issuing a compliance notice.

The Companies Act, 2008 is generally a system of administrative enforcement.

The CIPC is the body responsible for enforcement of the Act. The Companies Tribunal functions include the
review of certain decisions of the CIPC while the High Court’s primary forum for resolving disputes in respect
of the interpretation and enforcement of Companies Act.

3. Activity

Discuss the Mouritzen v Greystones Enterprises (Pty) Ltd 2012 (5) SA 74 (KZD) case.

Answers
Started on Wednesday, 15 May 2024, 7:59 PM

State Finished

Completed on Wednesday, 15 May 2024, 8:00 PM

Time taken 9 secs

Marks 0.00/14.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 10.00

K is the minority shareholder of A (Pty) Limited. The company has given a notice to K in terms of which she has been advised that a resolution
is going to be passed in terms of which her class of share will no longer have any voting rights attached to it. Discuss the process for dissenting
shareholder’s appraisal rights in the context of K’s options.
Question 2

Not answered

Marked out of 4.00

T alleges that WC (Pty) Limited has contravened certain provisions of the Companies Act. T’s complaint can be addressed in four different
ways. List them.

Jump to...

t 18.1. Notes [ ± 60 m...

18.3. Practice Quiz : Dir... #

Started on Wednesday, 15 May 2024, 8:00 PM

State Finished

Completed on Wednesday, 15 May 2024, 8:00 PM

Time taken 11 secs

' False

The correct answer is 'True'.

Jump to...

t 18.2. Practice Quiz [...

18.4. Practice Quiz : Rem... #

Started on Wednesday, 15 May 2024, 8:00 PM

State Finished

Completed on Wednesday, 15 May 2024, 8:00 PM

Time taken 9 secs

By the end of this lesson, you should be able to:

State the objective of the legislature with the introduction of close corporations.
Understand the legal nature of a close corporation and differentiate them from companies and
partnerships.
Explain the procedures for the amendment of the founding statement.
Discuss the procedures for conversion of a close corporation into a private company.
Identify and explain the legal requirements for membership of a close corporation and member’s interest.
Explain the duties of a member and apply the principles of the Act to solve disputes between members of
a close corporation.
Explain the decision-making process in the close corporation.
Explain the capacity and representation of a close corporation.
Discuss the consequences of transactions where a member acted without authority.
State the requirements for validity of a pre-incorporation contract entered into on behalf of a close
corporation not yet incorporated.
Define partnership and the general requirements for the validity of a partnership.
State the essentialia and naturalia of partnership law.
Demonstrate a detailed knowledge of the legal nature of partnerships.
Demonstrate an understanding of circumstances under which a partnership may be dissolved.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapters 26,27,28 and 30.
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2. The Close corporation concept

The Close Corporations Act, 1984, provides for simple deregulated flexible limited liability entities that are
suitable for small businesses. They have legal personality and enjoy benefits of perpetual succession.

The founding statement is the document that establishes a close corporation and sets out certain details
about the corporation, such as the name of corporation, financial year details of members, details of the
accounting officer, and principal place of business of the corporation. Members can draw up an association
agreement, which is a contract that principally sets out the rights and duties of and relationship between the
members.

The close corporation has members and is a separate legal person that is distinct from its members. It can
be liable for its debts in certain circumstances.

The close corporation is made up of 1 – 10 members and ideally suited for those entrepreneurs who wish to
own and manage their own businesses. The Act allows every member to participate in the business and to
make legally binding decisions on behalf of the corporation. Only natural persons may be members of a
close corporation. The close corporation itself can however be a shareholder in a company. The Trustee of
an inter vivos trust or of a testamentary trust can be a member of a close corporation in the capacity of a
trustee but no juristic person can be a beneficiary of that trust.

Close corporations and the Companies Act, 2008: No new close corporations can be incorporated and no
company can be converted into a close corporation. Close corporations that existed before 1 May 2011 are
allowed to continue indefinitely.

Smaller businesses will now have to incorporate as private companies. The Close Corporations Act will
however continue to govern close corporations and they can convert into a company.

A close corporation can be converted into a company, there must be a notice of conversion that must be
accompanied by a written statement of consent approving the conversion of the close corporation that has
been signed by members of the close corporation that have at least 75% of the members interest MOI
meeting requirements of Companies Act, 2008 and the prescribed filing fee. Every member is entitled to
become a shareholder and on conversion all assets, liabilities, rights and obligations of the close corporation
will vest in the Company.

Power of members to contract on behalf of close corporation: In terms of section 54 of the Close
Corporations Act, 1984, every member of the close corporation qualifies as an agent of the corporation for all
purposes “(1). Subject to the provisions of this section, any member of a corporation shall in relation to a
person who is not a member and is dealing with the corporation, be an agent of the corporation. (2) Any act
of a member shall bind a corporation, whether or not such act is performed for the carrying on of business of
the corporation, unless the member so acting has in fact no power to act for the corporation in the particular
matter and the person with whom the member deals has, or ought reasonably to have, knowledge of the fact
that the member has no such power”.

Contributions by members and nature of members’ interests: A person becomes a member of a close
corporation when the founding statement reflecting membership was registered and each member is entitled
to a certificate of member’s interest. A member ceases to be a member after disposing of his or her
member’s interest and after registration of an amended founding statement reflecting the loss of
membership.

Member’s interest is movable property transferable in the manner provided by the Act and is an incorporeal
personal right against the incorporation that entitles the member to a proportionate share in the aggregate
member’s interests, to participate in a distribution of profits and to share in a distribution of the assets on
liquidation once all the creditors have been paid. It also provides voting rights and their right to participate in
the distributions of profits and other payments by the corporation to its members will be in proportion to their
members’ interests.

Acquisition and disposal of a member’s interest: New members must acquire their members’ interests
from an existing member and make a contribution in the form of money or other assets to the corporation.
The Act makes provision for the disposal of a member’s interest in the event of death or insolvency or where
they were attached and sold by way of sale in execution or termination by a court order. Or else dispositions
are made in terms of the association agreement.

Prescribed reading - Chapters 26, 27, 28 & 30

2.1. Example

In J and K Timbers (Pty) Ltd t/a Tegs Timbers v G L and S Furniture Enterprises CC 2005 (3) SA 223 (N), the
court held that a member is an agent, even though no authority, express or implied has been conferred upon
him by the corporation, and the corporation is bound by the related act, unless the third party knew, or ought
reasonably to have known of the absence of such power.
Started on Wednesday, 15 May 2024, 8:02 PM

State Finished

Completed on Wednesday, 15 May 2024, 8:02 PM

Time taken 16 secs

Marks 0.00/15.00

Grade 0.00 out of 10.00 (0%)

Question 1

Not answered

Marked out of 5.00

Set out the procedure to convert a close corporation into a company.

Question 2

Not answered

Marked out of 10.00

Read paragraph 26.3 and set out the advantages vs the disadvantages of a close corporation.

Jump to...

t 19.1. Notes [ ± 60 m...

Unit Quiz Close corporati... #

Started on Wednesday, 15 May 2024, 8:03 PM

State Finished

Completed on Wednesday, 15 May 2024, 8:04 PM

Time taken 9 secs

By the end of this topic you should be able to:

Define a partnership and the general requirements for the validity of a partnership.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 2 - Concepts of Partnerships

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2. Note

A partnership is a legal relationship created by way of a contract between two or more persons, in terms of
which each of the partners agrees to make some contribution to the partnership business, which is carried on
for the joint benefit of the parties and the object of which is to make a profit.

If we were to break it down, a partnership consists of the following elements:

1. A Legal relationship;

2. Created by way of a contract (can be written or verbal);

3. Has two or more persons;

4. Each of the partners makes a contribution;

5. The partnership is for the partnerships joint benefit; and

6. The object of the partnership is to make a profit.

If all the elements in 1 – 6 above are present then it is a partnership.

South African law has adopted the aggregate theory of partnership which treats a partnership as an
aggregate or collection of individual parties being the partners. The partners are owners of partnership
property as co-owners in undivided shares. The rights and liabilities of the partnership are considered to be
their rights and obligations. The partnership does not have legal personality.
Know the difference between Universal partnership and Particular partnership and ordinary partnership and
extraordinary partnership.

Two types of universal partnerships: universorum bonorum (which is usually in marriage) and the second
type occurs in commercial undertakings where the partners agree that all that they acquire from whatever
form of commercial activity shall be treated as part of the property of the partnership.

Particular partnerships: Partners contribute their resources for a particular defined purpose only.

Ordinary partnerships: Partners are jointly and severally liable for all of the debts of the partnership.

Extraordinary partnerships: The liability of certain partners is limited in some way. There are three types of
extraordinary partnerships: anonymous partnership, partnership en commandite and special partnership.
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:28 AM

LWCLA2-22 (2024)
21.1. Notes [ ± 60 min ]

1. Learning Outcomes

By the end of this lesson, you should be able to:

State the essentialia and naturalia of partnership law.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 2 - Concept of Partnerships

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2. Note

There are four essentials of a partnership:

1. Each partner brings something to the partnership.

2. The business should be carried for the joint benefit of the partnership.

3. The object should be to make a profit.

4. The contract between the parties should be a legitimate contract.

When all four of these essential elements are present it is a partnership agreement and it does not matter
what else the partners may decide to call it. If one of the essentials are missing, it is not a partnership
agreement.

Contribution: Every partner must make a contribution that must have commercial value. This could be labour
or skill, it could be money or property. The most common form of contribution is money.

Joint benefit of the parties: The business should be carried out for the joint benefit of the parties. SA law does
not recognise a partnership where one partner is entitled to all the losses and one partner is entitled to all the
profits.

Business should be carried out to make a profit: The purpose of the partnership should be to make a profit.
This is why charitable institutions or sports clubs cannot be considered partnerships.

Legitimate contract: A partnership is established by means of a valid agreement or legitimate contract, which
must embody the basic essentials of a partnership and must be entered into with the clear intention of
creating a partnership.

To create a valid partnership agreement = Essentials + intention to create a partnership.

Other legal formalities: A partnership must comply with the law. It does not have to be in writing and there are
no formalities required however if the partners wanted to they could agree to formalities themselves
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:28 AM

LWCLA2-22 (2024)
Types of partnerships

1. Learning Outcomes

By the end of this lesson, you should be able to:

Define partnership and the general requirements for the validity of a partnership.
State the essentialia and naturalia of partnership law.
Demonstrate a detailed knowledge of the legal nature of partnerships.
Demonstrate an understanding of circumstances under which a partnership may be dissolved.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapters 2 - Concepts of Partnerships

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2. Types of partnerships

Know the difference between: Universal partnership and Particular partnership and ordinary partnership
and extraordinary partnership.

Universal partnerships: The partners contribute all their property or all their profits to the partnership. It is
usually for an open-ended period and for wide-ranging purposes with a commensurate sharing of the profits
of their enterprises.
Two types of universal partnerships: universorum bonorum (which is usually in marriage) and the second
type occurs in commercial undertakings where the partners agree that all that they acquire from whatever
form of commercial activity shall be treated as part of the property of the partnership.

Particular partnerships: Partners contribute their resources for a particular defined purpose only.

Ordinary partnerships: Partners are jointly and severally liable for all of the debts of the partnership.

2.1. Example

In Schrepfer v Ponelat (2010) ZAWCHC 193, the court had to determine whether a universal partnership
existed between the parties. The plaintiff and defendant lived together and never married. When the
relationship ended the plaintiff sought to rely on the existence of a universal partnership to claim a share of
the assets owned by the defendant. The court accepted that a universal partnership could come into
existence between spouses and co-habitees where they agree to pool their resources. The court stated that
the ‘partership universorum bonorum is that by which the contracting parties agree to put in common all their
property, both present and future.’

2.2. Activity

There are three types of extraordinary partnerships: anonymous partnership, partnership en commandite and
special partnership.
Have a look in your textbook to see what these three different types of extraordinary partnerships are.
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:29 AM

LWCLA2-22 (2024)
23.1. Notes [ ± 60 min ]

1. Learning outcomes

By the end of this topic you should be able to:

Demonstrate a detailed knowledge of the legal nature of partnerships.

Demonstrate an understanding of circumstances under which a partnership may be dissolved.

Prescribed Reading
Haupt, A. and Malange, N.J. 2013. Corporate Law for Commerce Students. 2nd edition.
Chapter 2 - Concept of partnerships

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2. Note

Contract uberrimae fidei: The partnership is a contract of the utmost good faith and the relationship must be
based on mutual trust and utmost confidence.

Each partner is in a fiduciary relationship towards the others.

The partners have the following rights:

1. A right to share in the profits of the partnership.

2. A right to participate in the management of the business.

3. The right to compensation.

4. The right to inspect the partnership books.

5. The right to distribution of assets on dissolution.

The partners also have duties to the partnership:

1. The duty to make a contribution towards the partnership.

2. A duty to share in the losses.

3. A duty of care and skill.

4. A duty of full disclosure.

5. A duty to account.

The value of the utmost good faith gives rise to four duties of the partner:

1. Duty to accept and fulfil the obligations of the partnership agreement.

2. Duty to acquire benefits for partnership.

3. Duty to guard against a conflict of interest.

In addition a partner has a duty to disclose to all co-partners all information in his or her possession that
affects the partnership and may not may not conceal facts from his or her partners if knowledge of such facts
may have an influence on the remaining partner’s decision regarding the partnership.
When a partner contracts on behalf of the partnership that partner acts as a principal in relation to
himself/herself, and as a representative of the other partners. He/she acts as an agent and binds all the
remaining partners, provided he/she acts within the scope of his/her authority. The partner is acting as both
an agent to the partnership and a principal in one and the same transaction.

Each partner is jointly and severally liable for partnership debts. During existence of the partnership,
creditors of the partnership cannot sue the partners individually but must sue all of them.

A partnership may be terminated in a number of ways:

1. Effluxion of time: it has been agreed that a partnership will exist for a certain period only.

2. The end of an undertaking: if the partnership is set up to conduct a particular undertaking, once that
undertaking is completed, the partnership will terminate.

3. Mutual agreement between the parties.

4. Change in the membership of a partnership: retirement, death, new partner terminates the existing
partnership.

5. Insolvency of the partnership or any of its members.

6. Notice of dissolution given by one of the members.

7. Where the partners become alien enemies after an outbreak of war.

8. Order of court granted on application of one or more of the partners for good cause.

On dissolution: a proper rendering of an account must be completed before amounts owed to the individual
partners can be claimed; any creditor can sue the members of the firm as individuals, jointly and severally for
the debt; no partner can bind the partnership; each partner may demand an account from his co-partners.

S14 of the constitution states that everyone has the right to privacy, which includes the right not to have their
person or home searched, their property searched their possessions seized, or the privacy of their
communications infringed.

In order to prove if there has been an infringement to privacy the courts have typically employed
the boni mores test to establish whether an invasion of privacy has occurred. This test looks at whether
the reasonable person would consider the act in question to be an invasion of another’s rights. The
exceptions to this right included public interest and consent. It can be argued that the suicide attempt is not
an issue of public interest
3. Activity

Activity
Answer the following Multiple Choice Questions:

1.1 Partnerships in South Africa are governed by the:

a. Partnership Act 7 of 1963.

b. Common law.

c. Business Names Act 71 of 2008.

d. Trust Property Control Act 57 of 1988.

1.2 Choose the incorrect option:

a. A partnership is created by way of a contract between two or more people.

b. A partnership must have the objective of making a profit.

c. The partnership business must be carried on for the joint benefit of the partners.

d. Each partner must contribute to the partnership financially.

1.3 Which one of the following is not essential for a partnership to exist?

a. The partners must agree that they will all share the profits equally.

b. The partners must each make a contribution that has commercial value.

c. The object of the partnership must be to make a profit.

d. The contract between the partners must be a legitimate contract.

1.4 Four friends enter into an agreement to open a hairdressing salon in Sandton. Which one does not
qualify as a valid partnership contribution?

a. Nosihle decides to contribute her award-winning styling skills.

b. Lerato contributes R50 000, but does not want to be known to third parties.

c. Venus contributes R50 000, which she says should be repaid in three years.

d. Pulane contributes the use of her garden cottage, to be used as the business premises.

1.5 Indicate which of the following statements about the rights of partners is incorrect: To

a. carry on the business of the partnership.

b. share in the profits and losses of the partnership equally.

c. inspect the partnership books.

d. have the authority to represent the partnership to third parties.

1.6 Indicate the correct statement:

a. During the existence of a partnership, creditors can sue any one of the partners or the partnership itself
for debts owed.

b. After dissolution of a partnership the partners are considered to be jointly and severally liable.

c. After dissolution of a partnership creditors can only hold the partners liable as a group.

d. After the dissolution of a partnership, the partners are no longer liable for partnership debts either to
each other or to third parties.

Activity Memo
Answers:
1.1 b
1.2 d
1.3 a
1.4 c
1.5 b
1.6 d
Eduvos (Pty) Ltd (formerly Pearson Institute of Higher Education) is registered with
the Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 101, of 1997. Registration Certificate
number: 2001/HE07/008.

Date: Monday, 10 June 2024, 11:29 AM

LWCLA2-22 (2024)
Relationship Between Partners; Authority of Partners to Contract with
Third Parties and Personal Liability of a Partner

1. Relationship Between Partners; Authority of Partners to Contract

with Third Parties and Personal Liability of a Partner

Contract uberrimae fidei: The partnership is a contract of the utmost good faith and the relationship must
be based on mutual trust and utmost confidence.

Each partner is in a fiduciary relationship towards the others.

The partners have the following rights:
1. A right to share in the profits of the partnership.
2. A right to participate in the management of the business.
3. The right to compensation.
4. The right to inspect the partnership books.
5. The right to distribution of assets on dissolution.

The partners also have duties to the partnership:

1. The duty to make a contribution towards the partnership.
2. A duty to share in the losses.
3. A duty of care and skill.
4. A duty of full disclosure.
5. A duty to account.

The value of the utmost good faith gives rise to four duties of the partner:
1. Duty to accept and fulfil the obligations of the partnership agreement
2. Duty to acquire benefits for partnership
3. Duty to guard against a conflict of interest

In addition, a partner has a duty to disclose to all co-partners all information in his or her possession that
affects the partnership and may not may not conceal facts from his or her partners if knowledge of such facts
may have an influence on the remaining partner’s decision regarding the partnership.

When a partner contracts on behalf of the partnership that partner acts as a principal in relation to him- or
herself, and as a representative of the other partners. He or she acts as an agent and binds all the remaining
partners, provided he or she acts within the scope of his or her authority. The partner is acting as both an
agent to the partnership and a principal in one and the same transaction.

Each partner is jointly and severally liable for partnership debts. During existence of the partnership,
creditors of the partnership cannot sue the partners individually but must sue all of them.

1.1. Example

An example of the duty of a partner to prevent a conflict of interest between himself and the partnership can
be seen in De Jager v Olifants Tin ‘B’ Syndicate 1912 AD 505. In this case, a partnership prospected to farm
for tin. One of the partners discovered tin on a property outside of the property that the partnership had been
interested in. Instead of the partner informing the other partners of his discovery, he proceeded to obtain for
himself an option in respect of that property. The court found that the relationship between the members of a
partnership is one of mutual trust and confidence and that no partner could acquire and retain for himself any
benefit or advantage which was within the scope of the partnership business.

1.2. Activity

Distinguish between a creditor’s right to claim against a partner before dissolution of a partnership and after
dissolution of a partnership.

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