1 October/ November 1999...............................................................................................................................

1
2 May / June 2002...........................................................................................................................................1
3 October / November 2002..............................................................................................................................3
4 October / November 2003..............................................................................................................................4
5 October / November 2004..............................................................................................................................5
6 October / November 2005..............................................................................................................................6
7 October / November 2006..............................................................................................................................8
8 October / November 2007..............................................................................................................................9

1 October/ November 1999

1. 1 a) List the essentialia of the partnership agreement.
1. each partner must make a contribution to the partnership (e.g. money, labour, etc)
2. the partnership business must be carried on for the joint benefit of the partners
3. the partnership must have the objective of making a profit

b) Explain how the naturalia of a partnership agreement differs from the essentialia of a
partnership agreement (10)
Naturalia:
1. partners can alter the naturalia
2. partners share in the profits and losses of a partnership
3. each partner has the power to represent the partnership in transactions falling within the scope of partnership
business unless the partners agree to the contrary (mutual mandate)
4. partners will not receive compensation for their contributions: their compensation lies in profit sharing
5. partners hold the assets of a partnership as co-owners because a partnership is not a legal entity

1.2 Mary and Cindy are partners in the décor business, trading as “Stars”. Mary is the is the manager of the
business and has employed her mother on a part- time basis to work in their shop in peak periods Mary and
Cindy have decided that the unanimous consent of the partners must be obtained at the formal meeting
before a contract exceeding the value of R10 000 may be concluded on behalf of the partnership.
Discuss whether Stars will be bound by the following contract concluded in the name of the
partnership: Cindy purchased paintings to the value of R120 000 on behalf of the partnership
from an art dealer for the decorating contract without he necessary consent. Mary’s mother did
not like the paintings and sent them back to the shocked art dealer.(5)
A partner who acts in terms of his or her mutual mandate can only bind the partnership to transactions which fall
within the scope of the partnership business.
Each partner has the implied authority to perform all acts which are incidental to the proper conduct of the
business.
Thus: third parties who wish to hold the partnership liable for a contract that was concluded by a partner have to
prove that the specific contract fell within the scope of the partnership business. They do not need to prove that the
partner had the necessary authority to conclude the agreement on behalf of the partnership.
In this case the parties agreed that no partner had the authority to conclude contracts of more than R10 000.
However, this restriction on the authority of the partners will have no consequence if the transaction fell within the
scope of the partnership business.
If it does, the partnership is bound by the contract even though Cindy concluded the contract without the
necessary authority. It is important that the supplier acted in good faith. If he/she knew that Cindy did not have the
authority to conclude the agreement, the agreement will be void.

2.1 Section 64 of the Close Corporations Act makes provision for special liability where the
corporate form is abused. Discuss(5) (Think of piercing the corporate veil in companies)

Hmm, I think the question is wrong: section 64 deals with reckless or fraudulent trading, where 65 deals with
abuse of the corporate juristic personality… So here goes with Section 65:
Section 65 grants the court certain powers in the case of the abuse of the corporation's separate juristic
personality.
This section gives the court the power to pierce the corporate veil.
The court may find a corporation not to be a juristic person if it finds that the incorporation of the corporation or
any act by or on behalf of it constitutes a gross abuse of its juristic personality as a separate entity.
The members of the corporation can be held personally liable for any debts the corporation may have.

2.2 Towers CC is a construction corporation. Johnnie a member of Towers CC attends an auction and
buys a mixer at a bargain price. He now wants to sell the mixer to Towers CC at a profit. One of
the other members, Peter feels unhappy about this. Advise Johnnie.(10)
 Section 42 provides that each member stands in a fiduciary relationship to the corporation.
The fiduciary duties of a member entail that a member:
1. must act honestly and in good faith towards the close corporation
2. must avoid any material conflict between his own interests and those of the corporation
3. may not derive unwarranted personal economic benefit from the corporation
4. may not compete with its business activities
Where a member fails to give notice of the nature and extent of any personal interest in a contract, the contract
will be voidable at the instance the close corporation becomes aware of the facts.
If the corporation chooses not to be bound, the court may make an order that the contract will be binding on the
parties. This happens when the court, on the application of any interested person, is of the opinion that in all the
circumstances it is fair that the contract should be binding.
A member who has breached his fiduciary duty is liable to the corporation for any loss suffered by the corporation
as a result thereof or for any economic benefit derived by him as a result of the breach.
Breaches may be ratified by the members provided they are fully aware of all the material facts.

3.1 (a) Discuss Dhlomo v Natal Newspapers where the Appellate (now SCA) held that a legal person
might sue for defamation(5)
A trading corporation has the right to sue for defamation for injury to its business reputation and it is not
necessary for it to prove special damages.
Proof of damage is not required because natural persons do not have to provide proof.
The ruling applies to both trading and non-trading (churches, voluntary) organisations.
Also mentioned in Fichardt case.

(b) An association of persons complying with certain requirements can be incorporated in terms
of Section 21 of the Companies Act as a company limited by guarantee. What are those
requirements? (5)
Requirements with which the organisation must comply are that it:
1. is or is to be formed for lawful purposes
2. has the main object of promoting religion, arts, sciences, education, charity, recreation or any other cultural or
social activity or communal or group interests,
3. intends to apply its profits (if any) or other income in promoting that main object
4. prohibits the payment of any dividend to its members.
5. provides in its memorandum that
a. the income shall be applied solely to the promotion of its main object
b. upon its winding up, its assets shall be transferred to some other association having object similar to its
main object, to be determined by its members, or if they fail to do so, by the court

(c) Name the duties of the company secretary in terms of Section 268 of the Companies Act(6)
1. Guiding directors as to their duties
2. Making directors aware of the law and legislation affecting the company and reporting to meeting of directors
and of shareholders any failure to comply with the law.
3. ensuring the recording of all minutes of all meetings of shareholders, directors and committees of directors
4. certifying in the company’s annual financial statements that the returns required of a public company by law
have been lodged up to date in true and correct form
5. ensuring a copy of the company’s annual financial statements is duly sent to every person entitled thereto by
law

(d) How does voting take place at the general meeting of a company? (5)
Regulated by section 197 and the articles.
Table A provides that on a show of hands, every member has one vote, while on a poll every member has a vote
as set out in section 195 which is to the effect that his votes must be in proportion to the share capital represented by
his shares.
Unless the articles provide otherwise, a person has only one vote on show of hands even though he is also the
representative of other shareholders.
At common law a poll provides the only conclusive method where by a meeting can pass a resolution. A show of
hands is merely a rough and inconclusive manner in which to gauge the opinion of a meeting and every member
consequently has the right to demand a poll.
The only restraint on demanding a poll that may be stated in the articles is that the demand must be made by five
members having the right to vote or by a member or members representing at least 10% of the voting rights or
holding in the aggregate at least 10% of the issue d share capital.
A poll must be conducted in the manner prescribed by the articles. On a poll every member or his proxy is entitled
to exercise all his voting rights but he is not obliged to exercise these or even to use all his votes in the same way.
3.2 Amy holds 22% of the shares in Helphand, she is concerned about the fact that the company has not shown
any profit during the last few years, while other businesses seem to be prospering. Amy feels that the
problem lies with the management of the company. She alleges that the directors spend very little time
attending to the affairs of the company, that they are receiving excessive salaries, and that they are using
company funds to travel abroad with their families. Amy wishes to institute action against the directors on
behalf of the company, but is concerned she may incur personal expenses. Discuss(10)
Relevant case: Rule in Foss v Harbottle: defines an action on behalf of the shareholders and other members of a
company against its directors, attorney and architect for damages which the company allegedly suffered as a result of
the joint irregular conduct of the defendants.
The rule in this case is based upon two company-law principles:
1. principle of majority rule: states that minority shareholders are bound by the decisions of members who hold
the majority of the votes in the company. Court will not interfere in the company management at the instance
of a member or members who hold the minority of the votes, as long as the majority acts lawfully.
2. principle of the proper plaintiff: in cases where unlawful acts have been committed against the company, it is
the company itself that must institute the action. This principle stems from the fact that the company is a
separate legal entity with its own rights and obligations.
Amy can institute a Statutory Derivative Action under Section 266. This entails the following:
Without getting personally involved in litigation against wrongdoers, the member can initiate proceedings for the
appointment of a provisional curator ad litem by
1. requesting the company, in writing, to institute proceedings against the wrongdoer(s) within one month and,
2. informing the company that if the company fails to institute proceedings, then the court will be asked to
appoint a provisional curator ad litem.
If the company fails to institute such proceedings, the member may make application to court for an order
appointing a curator ad litem for the purpose of instituting proceedings on behalf of the company against the
wrongdoer.
The court has to be convinced that
1. the company has not instituted such proceedings,
2. there are prima facie grounds for such proceedings and
3. an investigation is justified.
The court then has discretion to appoint the curator.
The provisional curator:
1. investigates whether such a wrong has indeed been committed
2. whether it is desirable to involve the company in proceedings against the wrongdoer
3. reports to the court on the return date
If the court deems it necessary, it may appoint a curator ad litem to institute proceedings against the wrongdoer
and also issue such directions as it may think necessary with regard to instituting and conducting such proceedings.
A statutory derivative action may be instituted:
1. if a company has suffered damages or loss or has been deprived of any benefit as a result of a wrong, breach
of trust or breach of faith that has been committed;
2. if the company has not instituted proceedings to re dress the wrong;
3. if the wrong, breach of trust or breach of faith has been committed by a director or officer of that company or
by a past director or officer while he was a director or officer of that company; and
4. irrespective of whether the wrong was ratified

3.3 Dave and Eric, directors of Yoyo, have been appointed for a period of 5 years. Dave was appointed in terms
of the articles of the company and Eric in terms of a separate contract between Eric and Yoyo

Advise Yoyo:

(a) Whether or not the two directors may be removed from offices before the expiry of their
period in office and if this possible the procedures that must be followed.
Section 220 enables a company to remove a director from office by ordinary resolution of the general meeting
before the expiration of his period of office.
This power is given to the company “notwithstanding anything in its memorandum or articles or in any agreement
between it and him”. This means that provisions in the company's constitution or in an agreement between the
company and its director, in terms of which the director is appointed for life or under which he may only be removed
by special resolution, cannot be relied upon by the director to prevent his removal in terms of section 220.
Before the director can be removed by simple majority:
1. the proposer must serve special notice of 28 days on the company.
2. a copy of the notice of such resolution must forthwith be sent by the company to the director concerned, who
is entitled to make personal representations at the meeting.
3. the director may also submit written representations to oppose the proposal which the company must send to
members or, if these we re received too late, permit them to be read out at the meeting.
 (b) The legal implications, if any, of such action by the company
A person holding his office purely in terms of the provisions of the articles of association usually has no claim for
damages against the company on removal from office, while a person who occupies the office in terms of a separate
contract with the company does, by virtue of his removal, have a claim for damages against the company in terms of
ordinary rules relating to breach of contract.

2 May / June 2002

1. (a) Koos, Piet and Tsepo have entered into a partnership for farming purposes. Koos contributed the use of
his farm, Piet contributed capital to buy seed and Tsepo contributed the use of her farming implements,
amongst which is a tractor. Piet wants to use the tractor on his own farm to gather fire wood, but it is the
height of the planting season. Advise the other partners under what circumstances Piet may use the
tractor for his personal purposes and which remedies they have available should he wrongfully
use the tractor for his own purposes. (6)
A partner may use a partnership asset for his personal purposes if
1. the limited use of the asset will not conflict with the interests of the partnership OR
2. if the other partners have consented to the use.
If a partner misapplies any partnership assets for his own purposes:
1. his co-partners can obtain an interdict to prevent him from continuing his abuse of the assets
2. the partnership will be able to hold him liable for damages

(b) May a testator establish a partnership between his heirs by means of his will? Give a
reason for your answer. (2)
A partnership is formed by means of a contract for which the consent of all the parties is required. For this reason,
a partnership cannot be formed by a testator in a will.

(c) Name two specific actions with which a partner can enforce his rights as a partner against
his co-partners. (2)
1. actio communi dividundo
2. actio pro socio

2. (a) Triple CC has ten (10) members. One of the members, Lerato, wants to bequeath her member’s interest
to her two adult children. Advise Lerato which of the undermentioned solutions will be possible in terms of the
Close Corporations Act 69 of 1984, and which would not. Give full reasons for each answer:
(i) Lerato bequeaths her member’s interest to her children as joint holders in equal shares. (2)
Not possible: even though a natural person will qualify if he is entitled to a member’s interest in Section
29(2)(a), a CC cannot have more than 10 people in it.
(ii) She creates a trust inter vivos to be the holder of the member’s interest with herself and her
two children as beneficiaries. (1)
Possible.
(iii) She creates a trust in her will to inherit the member’s interest. Her children are appointed as
the beneficiaries of the trust. (1)
Possible.
(iv) Lerato’s children register a new close corporation, Prefax CC, in which each of the children
holds a 50% member’s interest. Lerato bequeaths her member’s interest to Prefax CC. (2)
Not possible: Close corporations may not become members of a close corporation. If they do, they risk
personal liability for the debts of the close corporation.

(b) Derek wants to acquire a member’s interest in ASINU CC, but he does not have the money available
immediately. He approaches the members of ASINU CC and asks them if they could assist him in acquiring
the member’s interest. All the members are keen to have Derek as a member, but Susan, one of the
members, is worried about the overall debt situation of the corporation. Advise Susan on the question
whether ASINU CC may assist Derek in acquiring the member’s interest and whether she could be held liable
if the requirements are not met. (6)

(c) Under which circumstances may a member of a close corporation institute proceedings in terms of
section 50 of the Close Corporations Act 69 of 1984 on behalf of the corporation against a fellow member? (3)

3. (a) Discuss briefly how voting takes place at the general meeting of a company. (4)

(b) Name three instances where the legislature disregards the separate existence of the corporate entity. (3)
 (c) Mike and his friend, Jabulani, want to form a section 21 company, but they are not sure of the
requirements such a company has to comply with. Advise them about the requirements of this type of
company. (6)

(d) The articles of association of Babcock (Pty) Ltd provide that Mrs Modise will act as an attorney of the
company until she reaches the age of 55. The directors and members of the company would like to amend
the articles of association to provide that the company may refer legal matters to any attorney of their choice.
Will Mrs Modise be able to claim damages from the company on the basis of breach of contract if the articles
of association are amended in this way? (5)

(e) Name two differences between pre-incorporation contracts in terms of section 35 of the Companies
Act 61 of 1973 and pre-incorporation contracts in terms of section 53 of the Close corporations Act 69 of
1984. (2)

4. (a) On the strength of the financial statements of Quicksure(Pty)Ltd, a manager of SMLBank approves a loan
of R100 000 to that company. It later appears that the financial statements incorrectly reflect a credit of R200
000 instead of a debit of R200 000. SML-Bank wishes to institute action against the auditor of
Quicksure(Pty)Ltd. It is alleged on behalf of the bank that the auditor was grossly negligent in the preparation
of the financial statements of the company. Advise SML-Bank. (6)

(b) The memorandum of association of Gateway (Pty) Ltd states that the main object of the company is to
manufacture packaging materials. In terms of the articles of association of the company only the managing
director may enter into contracts on behalf of the company. Andy, an ordinary director, signs an agreement
on behalf of the company to buy a crate of cardboard for the manufacture of packaging containers.
(i) Briefly discuss whether the contract is inside or outside the capacity of the company. (2)
(ii) Discuss whether section 36 is applicable to the contract entered into by Andy. Give reasons for
your answer. (2)
(iii) Explain whether the Turquand rule applies to this set of facts. (2)

(c) Charles is the holder of preference shares in Windsor Ltd. He has recently discovered that the articles
of Windsor Ltd provide that preference shares do not confer the right to vote at a general meeting on the
holders thereof. Briefly advise him whether there are circumstances under which he will have voting rights as
the holder of preference shares. (3)

(d) In terms of section 85 of the Companies Act 61 of 1973 it is now possible for a company to acquire its
own shares. Explain how shareholders are protected by the Act when a company acquires its own shares. (5)
5. Name five (5) of the general duties of a trustee of a trust. (5)

3 October / November 2002

1.1 Sandra, Sarah and Sebo want to enter a partnership for the purpose of running a nursery school. Sandra will
contribute the use of her house as the venue for the nursery school and Sebo will contribute her expertise as
a nursery school teacher.
Sarah will contribute R30 000 to the partnership on the condition that the amount will be paid back to her,
with interest, should the business fail. Discuss whether this is a valid partnership agreement, referring only to
the requirement of contribution. (5)

1.2 Explain the principle of mutual mandate. (3)

1.3 Name two grounds for the dissolution of a partnership. (2)

2.1 Discuss the liability of a member of a close corporation in his personal capacity due to the gross abuse of the
corporate juristic personality of the close corporation. (3)

2.2 A creditor of Cape Fruit CC finds out that the close corporation has not had an accounting officer since 1
December 2001. If the debt was incurred on 3 June 2002, will Andrew as the sole member be liable for the
debt in his personal capacity? (3)

2.3 Lesedi is a member of Lightyear Technologies CC, a close corporation that develops computer software. He
acquires information that a big company needs software development. However, he does not share this
information with the other members of Lightyear Technologies CC, but tries to win the contract for the
development of the software for his own gain. The other members are unhappy with his actions and want to
know from you whether such behaviour is allowed by the Close Corporations Act 69 of 1984 and if not, if
there is a remedy available to them in terms of the Act. (6)
2.4 Name three provisions of the Close Corporations Act 69 of 1984 that are unalterable by the association
agreement. (3)

3.1 In terms of section 20 of the Companies Act 61 of 1973 the articles of association of a company must comply
with certain requirements to qualify as a private company. Name these requirements and explain the
consequences of failure to comply with these requirements. (4)

3.2 You are an attorney acting on behalf of Bonsave Group (Pty) Ltd. Your client wishes to apply to court for an
order directing that another company, which has recently been registered with the name Bonsave Holdings
(Pty) Ltd, change its name. On what grounds could your client apply to court for such an order and what are
the factors which the court will consider in deciding whether to grant such an order. (5)

3.3 The directors of Grace and Hope (Pty) Ltd have proposed that the company should amend the articles of
association of the company. Advise the directors on the requirements for the amendment of the articles. (5)

3.4 Discuss, with reference to case law, on which grounds an alteration to the articles of association of a
company may be impeached. (3)

3.5 Name three duties of the company secretary. (3)

4.1 Mathu wants to acquire shares in Time-Zone (Pty) Ltd, but she cannot afford to pay for the shares. Time-
Zone (Pty) Ltd intends to buy an old warehouse from her at twice its market value, although the company
already has enough warehouse space. Mathu will then use the proceeds of the sale to purchase the shares in
Time-Zone (Pty) Ltd. Advise Time-Zone (Pty) Ltd whether this transaction is lawful. (6)

4.2 The memorandum of association of Super Tooth Ltd states that the main object of the company is to
manufacture toothpaste. Daisy, the managing director of the company, concludes a contract in the name of
Super Tooth Ltd for the purchase of a holiday home. The seller of the holiday home knew what the main
object of Super Tooth Ltd is, since the company is one of the largest manufacturers of toothpaste in the
world. Advise the seller whether the contract will be binding on Super Tooth Ltd. (6)

4.3 You are the legal advisor of Hyperdome Ltd. The company decided to make a fresh issue of ordinary shares.
It plans to invite its existing ordinary shareholders to subscribe to the new shares. Advise Hyperdome Ltd on
whether the offer needs to be accompanied by a prospectus. (6)

4.4 What are the requirements in terms of section 90 of the Companies Act 61 before a company may make a
payment to a shareholder in his capacity as a shareholder? (2)

5. Name five advantages of a business trust. (5)

4 October / November 2003

1.1 Zeba, Mpumi and Dolly want to start a business of mobile libraries. They plan to use caravans to take library
services to communities that do not have access to libraries. They want to run their business as a partnership.
Advise Zeba, Mpumi and Dolly on the requirements which are essential to partnership agreements. (5)

1.2 Name three grounds for the dissolution of a partnership. (3)

1.3 Name the two actions that a partner can use to enforce his rights as a partner against his co-partners. (2)

2.1 Name the three requirements for entering into a binding pre-incorporation contract in terms of section 53 of
the Close Corporations Act 69 of 1984. (3)

2.2 Moseki wants to sell her member’s interest in Bright Star CC, but she cannot find a suitable person to buy the
member’s interest from her. The other members of Bright Star CC decide that it will be best if the close
corporation buys the member’s interest from Moseki. However, Moseki is worried about the overall debt
situation of the close corporation. Advise Moseki on the requirements for the acquisition of a member’s
interest by a close corporation. (3)

2.3 Muthu and Jane are members in Moto Spares CC. The close corporation’s association agreement states the
following: “no contract concluded on behalf of the close corporation shall be binding unless the prior consent
of all the members has been obtained.” Muthu enters into a lease contract with Paul to rent new premises for
 Moto Spare CC. Jane was away and is unaware of this contract. Discuss whether the lease contract is binding
on Moto Spares CC. (4)

2.4 Johan, Walter and Mpho are members of Food Service CC, which does business as a caterer. Walter and
Mpho are brothers and they hold 35% each of the member’s interest in Food Service CC. The relationship
between Johan, Walter and Mpho disintegrate to such an extend that Johan withdraws from the management
of Food Service CC. Meanwhile, Chrystal offers to buy the movable assets of Food Service CC. Walter and
Mpho refuse to consent to the sale. Johan feels that the refusal by Walter and Mpho is unfair to him, because
it would give the close corporation enough funds to acquire his member’s interest. Advise Johan whether it is
possible for the court to order the sale of the assets of Food Service CC so that the close corporation may
acquire his member’s interest. Refer to relevant case law. (5)

3.1 Name three instances where the legislature disregards the separate corporate personality of a company. (3)

3.2 Maite is the holder of preference shares in Prefax Ltd. The articles of association of the company provides
that the holders of preference shares shall have no voting rights. A resolution is proposed at the annual
general meeting for the winding-up of the company. Advise Maite under what circumstances she will have
voting rights. (3)

3.3 Name the three requirements set out in section 20 of the Companies Act 61 of 1973 which must be included
in the articles of association of private companies. (3)

3.4 You are the legal advisor of Sibex Ltd. The company decides to make a fresh issue of ordinary shares. The
company plans to invite its existing ordinary shareholders to subscribe for the new shares. Sibex Ltd has
applied to have the shares listed on the JSE Securities Exchange, SA. Advise Sibex Ltd on whether the offer
needs to be accompanied by a prospectus. (3)

3.5 Letsatsi wants to acquire shares in Come-Duze (Pty) Ltd, but he cannot afford to pay for the shares. Come-
Duze (Pty) Ltd intends to buy a delivery truck from Letsatsi at twice its market value, although the company
already has a delivery truck. Letsatsi will use the proceeds of the sale to purchase the shares in Come-Duze
(Pty) Ltd. Advise Come-Duze (Pty) Ltd whether this transaction amounts to the giving of financial assistance
for the purchase of shares in contravention of section 38 of the Companies Act 61 of 1973. (3)

4.1 Wilma was the managing director of Hospitium Ltd, a construction company. During her term of office at
Hospitium Ltd she unsuccessfully tried to obtain a building contract for the company. The client was not
prepared to do business with Hospitium Ltd. The client approached Wilma to form her own company to take
up the contract, which Wilma then did. Advise Hospitium Ltd whether Wilma has breached any of her duties
towards the company. (5)

4.2 The main object of Lenox (Pty) Ltd is to manufacture telephones. Nonhlanhla, the managing director of Lenox
(Pty) Ltd, enters into a contract with Tristan. In terms of this contract Nonhlanhla purchases a new Mercedes
Benz SLK from Tristan on behalf of Lenox (Pty) Ltd. Tristan is aware of the main object of Lenox (Pty) Ltd.
Discuss whether Lenox (Pty) Ltd is bound by this contract. Refer to the position before and after the
enactment of section 36 of the Companies Act 61 of 1973. (5)

4.3 Dina, one of the members of Blue Tooth (Pty) Ltd, wants to institute an action against Louis, one of the
directors of the company, because Louis breached his fiduciary duty owed to the company. Dina does not
want to get personally involved in litigation against Louis. Advise Dina on the applicable action that may be
instituted in terms of section 266 of the Companies Act 61 of 1973, as well as the circumstances under which
this action may be instituted. (5)

5. Name five requirements for the creation of a valid trust. (5)

6. Indicate whether the following are correct or incorrect. Provide a good reason for your answer:

6.1 Mapakwana is a partner in a business that sells dried fruit on street corners. If the partnership estate is
sequestrated, Mapakwana’s personal estate will be sequestrated simultaneously but separately. (2)

6.2 Fine Art Ltd may be a member of Porcelain Work CC. (2)

6.3 Greenleaf (Association incorporated under section 21) may be a private company. (2)
6.4 Lightstrider (Pty) Ltd wants to amend its articles of association in order to force Mr Chetty to sell his shares in
the company to Mr Naidoo. The amendment is proposed because the majority of members like Mr Naidoo
more than Mr Chetty. The Court will find such an amendment invalid. (2)

6.5 A trust can offer the benefit of perpetual succession. (2)

5 October / November 2004

1.1 Amos, Thabo and Jane are partners in a partnership business. Amos contributed R100, Thabo R500 and Jane
R1000 to the partnership fund. In terms of the partnership agreement, Amos shall not be liable for any losses
incurred by the partnership. The partnership incurs a net loss of R2000. Advise the partners on how this loss
will be shared between them. (5)

1.2 Michael and Clark are partners in a partnership called Clay Construction. In terms of the partnership
agreement, Michael contributed a car and Clark contributed construction equipment to the partnership fund.
Clark wants to know whether he can use the car to go to a funeral in Polokwane. Advise Clark. (3)

1.3 Name two instances in which a partnership is treated as a separate entity. (2)

2.1 Davy contracts with Lynn on behalf of Super Holidays CC, a close corporation which is not yet in existence.
List three requirements that must be met before such a contract can bind Super Holidays CC after its
incorporation. (3)
2.2 Alex, Beatrix and Cleo are members of Magic Days CC. The assets of the close corporation are valued at
R10000. The close corporation owes its creditors an amount of R20000. According to the close corporation’s
income statement for the current financial year, it has made a profit of R3000. Cleo wants to know whether
the close corporation can distribute this income amongst its members. Advise Cleo. (5)

2.3 Joseph, Victoria and Mary are members of Queen Pie CC. Victoria and Mary are sisters and they each hold a
40% member’s interest in the close corporation. The relationship between Joseph, Victoria and Mary
deteriorates to such an extent that Joseph withdraws from the management of the close corporation.
Meanwhile, Charlie offers to buy the movable assets of the close corporation. Victoria and Mary refuse to
consent to the sale. Joseph feels that the refusal by Victoria and Mary is unfair to him, because it would give
the close corporation enough funds to acquire his member’s interest. Advise Joseph whether it is possible for
a court to order the sale of the assets of the close corporation so that it may acquire his member’s interest.
Refer to relevant case law. (5)

2.4 Name two grounds on which a court, in terms of section 36 of the Close Corporations Act 69 of 1984, may
order that any member shall cease to be a member of the close corporation. (2)

3.1 In the light of Salomon v Salomon & Co Ltd [1897] AC 22 and Dadoo v Krugersdorp Municipal Council 1920
AD 530 it is apparent that our courts will not lightly disregard the separate legal existence of a company.
Briefly discuss three instances where our courts might disregard the separate legal existence of a company.
You must refer to relevant case law. (3)

3.2 Name the three requirements set out in section 20(1) of the Companies Act 61 of 1973 which must be
included in the articles of association of private companies. (3)

3.3 Mike, Peter, Jeff, Lindiwe, Sue, Malesela and Jabulani want to form a section 21 company, but they are not
sure what the requirements are with which the company must comply. Advise them on these requirements.
(4)

3.4 Briefly discuss how voting takes place at a general meeting of a company. (4)

3.5 The articles of association of Six Mix (Pty) Ltd provide that Zandile will act as attorney of the company and
that for the next five years all legal matters pertaining to the company will be referred to her. Prior to the
expiration of five years the articles of association of the company are amended to provide that the company
may refer legal matters to any attorney of its choice. Discuss whether Zandile will be able to claim damages
from the company on the basis of breach of contract. Refer to case law. (4)

3.6 Briefly discuss the distinguishing features of participating preference shares. (2)

4.1 On the strength of the financial statements of Skycor Ltd, a manager of Note Bank Ltd approves a loan of
R100000 to Skycor Ltd. It later appears that the financial statements incorrectly reflect a credit of R200000
instead of a debit of R200000. Note Bank Ltd wishes to institute action against the auditor of Skycor Ltd. It is
 alleged on behalf of Note Bank Ltd that the auditor was grossly negligent in the preparation of the financial
statements of Skycor Ltd. Advise Note Bank Ltd. (5)

4.2 The memorandum of association of X Range (Pty) Ltd states that the main object of the company is to bake
and sell a wide range of pies and cakes. The articles of association of the company provide that any contract
which is to be concluded by the managing director on behalf of the company and exceeds the value of
R10000, must first be authorized by the general meeting, by means of an ordinary resolution. Herbert, the
managing director of the company, concludes a contract on behalf of the company with Jason, the managing
director of Dough 4 You (Pty) Ltd, without the authorization of the general meeting of X Range (Pty) Ltd. The
contract is for the purchase of dough to the value of R12000. Discuss whether this contract will bind X Range
(Pty) Ltd. (5)

4.3 Cordel Ltd decides to make a fresh issue of ordinary shares. The company plans to invite its existing ordinary
shareholders to subscribe for the new shares. Cordel Ltd has applied to have these shares listed on the JSE
Securities Exchange, SA. Advise Cordel Ltd on whether the offer needs to be accompanied by a prospectus.
(4)

4.4 Gladys is a member and minority share holder of Coolteq (Pty) Ltd. In spite of good business, the profits of
the company are not increasing. Gladys suspects that the directors, who are also the majority shareholders,
are wasting company money on unnecessary business trips and other luxuries for themselves. Gladys would
like to institute an action to redress the situation, but is worried about the costs which she might incur in a
court action. Advise Gladys whether she could institute an action on behalf of Coolteq (Pty) Ltd and whether
she risks paying the costs of such an action. (6)

5. Name the requirements that must be met in order to create a valid trust. (5)

6 October / November 2005

1.1 Will and Grace are partners in a partnership called ‘We Deliver’. Grace wants to use the delivery vehicle of the
partnership over the weekend to move her furniture to her new house. However, the partnership needs the
delivery vehicle in order to make a very important delivery over the weekend. Are there any
circumstances under which Grace will be able to use the delivery vehicle even though her use of
it will conflict with the interests of the partnership and if so, under which circumstances? (2)
A partner may use a partnership asset for his personal purposes if
1. the limited use of the asset will not conflict with the interests of the partnership OR
2. if the other partners have consented to the use.
If a partner misapplies any partnership assets for his own purposes:
1. his co-partners can obtain an interdict to prevent him from continuing his abuse of the assets
2. the partnership will be able to hold him liable for damages

1.2 Alex, Soekie and Tshepo established a partnership for the purpose of making and selling children’s tracksuits.
In terms of their partnership agreement, only Alex may conclude contracts on behalf of the partnership.
Tshepo concludes a contract in the name of the partnership for the purchase of a sewing machine without the
consent or knowledge of the other partners. Explain whether the partnership will be bound by this
contract. (3)
A partner who acts in terms of his or her mutual mandate can only bind the partnership to transactions which fall
within the scope of the partnership business.
Each partner has the implied authority to perform all acts which are incidental to the proper conduct of the
business.
Thus: third parties who wish to hold the partnership liable for a contract that was concluded by a partner have to
prove that the specific contract fell within the scope of the partnership business. They do not need to prove that the
partner had the necessary authority to conclude the agreement on behalf of the partnership.
In this case the parties agreed that no partner had the authority to conclude contracts of more than R10 000.
However, this restriction on the authority of the partners will have no consequence if the transaction fell within the
scope of the partnership business.
If it does, the partnership is bound by the contract even though Tshepo concluded the contract without the
necessary authority. It is important that the supplier acted in good faith. If he/she knew that Tshepo did not have the
authority to conclude the agreement, the agreement will be void.

1.3 Eddie, Roger and Michele are partners. In terms of their partnership agreement Roger undertook to
contribute R20 000 to the partnership. Roger has failed to pay the R20 000. Discuss what action can be
instituted against Roger and who should institute this action. (3)
1.4 Francois and Zelda want to establish a partnership for the purpose of farming. Francois undertakes to
contribute his tractor and Zelda undertakes to contribute R50 000 to the partnership. According to the
partnership agreement the R50 000 will be returned to Zelda if the business of the partnership fails. Explain
whether Zelda’s contribution meets the necessary requirements for a valid contribution in terms of the
essentialia of a partnership agreement. (2)

2.1 The personal estate of Isaac, a member of See See CC, is about to be sequestrated. Explain to him the effect
that this sequestration will have on his involvement in the close corporation. [Do not discuss the transfer of
his member’s interest.] (2)

2.2 Alec, Ronnie and Ivy are members of Alasko CC. In terms of the founding statement, the principal business of
the close corporation is to make and sell ice cream. The association agreement provides that only Ivy has the
authority to represent the close corporation and that she may not conclude contracts on behalf of the close
corporation which exceed the value of R200 000, without the permission of Alec and Ronnie. Without the
permission of Alec and Ronnie, Ivy concludes a contract with Cars Galore (Pty) Ltd on behalf of the close
corporation for the purchase of a sports car at R400 000. Discuss whether Alasko CC will be bound by this
contract. (4)

2.3 Name the two circumstances under which juristic persons qualify to hold a member’s interest in a close
corporation. (2)

2.4 Richard, a member of Sonny CC, wants to know whether the income of the close corporation may be
distributed amongst the members. Explain to him the requirements for distribution of a close corporation’s
income amongst its members. (3)

2.5 Name any four matters concerning close corporations that require the written consent of each member of the
close corporation. (4)

3.1 Busi wants to conclude a contract for the purchase of property on behalf of a company which she intends to
incorporate in the future. Advise Busi on the requirements that need to be complied with in terms of section
35 of the Companies Act 61 of 1973 in order for the contract to be binding on the company after its
incorporation. (5)

3.2 Name the duties of a company secretary that are imposed by section 268G of the Companies Act 61 of 1973.
(5)

3.3 The members of Marmarus (Pty) Ltd have passed a special resolution at a general meeting that was held on 3
October 2005. Advise the members of Marmarus (Pty) Ltd on the procedure to be followed in order for the
special resolution to take effect and explain to them what will happen to the special resolution if this
procedure is not followed. (3)

3.4 Ray is a director of Supertyres (Pty) Ltd. The main object of Supertyres (Pty) Ltd is to manufacture and sell
tyres. Ray obtains information that a limited quantity of rubber for use in the manufacturing of tyres is being
sold very cheaply by a foreign company. Ray resigns as director of Supertyres (Pty) Ltd and incorporates
Speedytyres (Pty) Ltd, a company with the same main object as Supertyres (Pty) Ltd. Ray then concludes a
contract with the foreign company on behalf of Speedytyres (Pty) Ltd for the purchase of the entire stock of
rubber. Advise Ray whether he has breached his fiduciary duties towards Supertyres (Pty) Ltd. (5)

3.5 The Companies Act 61 of 1973 lays down the quorum for meetings of various kinds of companies while at the
same time providing that a company may require a larger quorum in its articles. Briefly explain what the
quorum is in the case of a private company in terms of section 190 of the Companies Act 61 of 1973. (2)

4.1 The memorandum of association of Yoop (Pty) Ltd states that the main object of the company is to
manufacture and sell perfume. The articles of association of the company provide that any contract which is
to be concluded by the managing director on behalf of the company and which exceeds the value of R10 000,
must first be approved by the board of directors. Joost, the managing director of Yoop (Pty) Ltd, concludes a
contract on behalf of the company with Sibongile, without the approval of the board of directors. The contract
is for the purchase of chemicals to be used in the manufacturing of perfume. The purchase price of these
chemicals is R15 000. Discuss whether this contract will bind Yoop (Pty) Ltd. (5)

4.2 Name any three of the conditions prescribed by section 81 of the Companies Act 61 of 1973 for the issue of
par value shares at a discount. (3)
4.3 Rebecca is a member and minority shareholder of Ginosar (Pty) Ltd. Despite good business, the profits of the
company are not increasing. Rebecca suspects that the directors, who are also the majority shareholders, are
wasting the company’s money on unnecessary business trips and other luxuries for themselves. Advise
Rebecca whether she could have proceedings instituted on behalf of Ginosar (Pty) Ltd without getting
personally involved in litigation against the directors. (5)

4.4 Name three instances (exceptions) where a company may in terms of section 38(2) of the Companies Act 61
of 1973 provide financial assistance for the purchase of its own shares. (3)

4.5 Jacob, one of the members of Zet (Pty) Ltd, wants to know whether the shares of Zet (Pty) Ltd may be listed
and dealt with on a stock exchange. Explain to him whether this is possible or not. (2)

4.6 Section 98 of the Companies Act 61 of 1973 makes provision for redeemable preference shares. Name the
two possible sources out of which such preference shares can be redeemed. (2)

5.1 Name the three main parties to a trust. (3)

5.2 A trust may be created for one of two possible objects. Name these two possible objects. (2)

7 October / November 2006

1.1 Section 53(b) of the Companies Act 1973 provides for a special type of private company that regulates the
liability of its directors. Discuss the distinctive features and purpose of this type of company. (3)
Purpose: Section 53(b) of the Act makes specific provision for a private company wishing to effect liability of its
directors, singuli in solidum for the contractual debts and liabilities of the company.
Features:
1. The last word in the name of such a company must be "Incorporated"
2. This provision permits a private company to incorporate a provision in its memorandum that directors and
former directors shall be jointly and severally liable for the debts and liabilities of the company which are or
were contracted during their periods of office.
3. This liability of a director is limited to a company's contractual debts and liabilities. Hence it does not include
delictual liability or statutory liability.
4. The provision creating joint and several liability may be included in the memorandum at any time by way of
special resolution and with the written consent of the directors concerned, but it may only be amended or
removed by special resolution if the court is satisfied that this is just and equitable.
5. Such a private company is mainly intended for professional association, although this does not mean that only
members of professions may make use of this special kind of company.

1.2 Name four documents that must be lodged with the Registrar of Companies in order to obtain
registration as a company. (4)
1. Memorandum of association.
2. Notice of the situation of the company's registered office and its postal address
3. Articles of association.
4. Form by which the company’s name and, if required, its translated and shortened forms of name have been
reserved

1.3 Name the three office-bearers of a company who are regarded as "officers" of a company in
terms of section 1 of the Companies Act 61 of 1973. (3)
1. secretary
2. manager
3. managing director

1.4 Capricorn Constructions (Pty) Ltd is a construction company. The company wants to purchase a crane, and
one of its directors, Michael, is instructed to buy one on behalf of the company. However, Michael cannot
reach an agreement on behalf of Capricorn Constructions (Pty) Ltd with the owner of the crane. Michael then
buys the crane for himself for R50 000 and sells it to Capricorn Constructions (Pty) Ltd at a fair price of
R70000.
Discuss the question whether Michael's conduct is a breach of his fiduciary duties towards
Capricorn Constructions (Pty) Ltd. (5)
At common law directors have two main duties, namely
1. the fiduciary duty to exercise their powers bona fide (in good faith) and for the benefit of the company, and
2. the duty to exercise their powers with care and skill.
A great variety of acts may amount to a breach of the fiduciary duty to exercise powers bona fide and for the
benefit of the company. This duty primarily entails that directors:
1. should prevent a conflict arising between their own interests and those of the company
 2. may not exceed the limitations of their powers
3. must maintain an unfettered discretion
4. should exercise their powers for the purpose for which they were conferred
Robinson v Randfontein Estates Gold Mining Co Ltd is relevant:
A director is not allowed to obtain any advantage from his office other than that to which he is entitled by way of
directors’ remuneration.

1.5 The main object of Lenox (Pty) Ltd is to manufacture telephones. Nonhlanhla, the managing director of
Lenox, enters into a contract with Tristan. In terms of this contract Nonhlanhla purchases a new Mercedes
Benz SLK from Tristan on behalf of Lenox.
Tristan is aware of the main object of Lenox. Discuss whether Lenox is bound by this contract in
terms of section 36 of the Companies Act 61 of 1973. (5)
Section 36 will only apply if:
1. the capacity or power of the company has been exceeded or
2. the authority of the directors has been exceeded only by reason of the fact that the capacity or power of the
company has been exceeded.
In such a case (as above) the company will be bound by the contract, irrespective of the fact that the contract is
ultra vires.
Section 36 provides that a contract, despite the fact that it is beyond the capacity of the company and therefore
falls outside of the authority of the directors, is no longer void.
The contract may, however, not be binding due to some other reason, i.e. the articles state that director A and B
must sign all contracts and only A signs. In this instance the company will still be able to escape liability by using the
doctrine of constructive notice.

1.6 Briefly explain the Turquand rule and also refer to the exceptions to the rule. (5)
According to the Turquand rule, each outsider contracting with a company in good faith is entitled to assume that
the internal requirements and procedures have been complied with.
The company will consequently be bound by the contract even if the internal requirements and procedures have
not been complied with.
The exceptions are:
1. if the outsider was aware of the fact that the internal requirements and procedures have not been complied
with (acted in bad faith); or
2. if the circumstances under which the contract was concluded on behalf of the company were suspicious.

2.1 Burton Beer Ltd plans to issue cumulative, participating and redeemable preference shares.
Explain what is meant by these different types of shares. (3)
Preference shares: enjoys a preferential right to dividends.
Redeemable preference shares: A share that can be redeemed by the company under certain circumstances.
Redeemable either at the option of the company or on or before a given date. Redemption may be prescribed by the
articles.
Participating shares: carry the right to both a fixed percentage preference dividend as well as to a share in the
residual distributable profits.
Cumulative shares: a characteristic of preference shares: implies that preference shares are entitled to a dividend
in respect of each financial year if the financial position of the company is such that it can pay dividends. Unpaid
dividends thus accumulate.

2.2 Explain the differences between a debenture and a share as well as the differences between the
rights of a debenture holder and the rights of a shareholder. (5)
1. A share represents a complex of rights and duties which flow from the special legal relationship between the
shareholder and the company, while a debenture holder is only a particular kind of creditor.
2. A shareholder participates in the profits of the company in the form of dividends, while a debenture holder does
not participate in the profits of the company, but receives interest at a predetermined rate which is payable at
fixed times.
3. A shareholder only has a right to dividends if these are declared, while a debenture holder receives interest
irrespective of whether the company earns sufficient profits.
4. A share usually confers voting rights, while a debenture does not confer voting rights.

2.3 Extreme Adventures (Pty) Ltd holds 25% of the shares in Holiday Adventures Ltd and it wishes to sell these
shares to the public. The board of Extreme Adventures (Pty) Ltd has been advised that the sale would have to
be effected in accordance with section 141 of the Companies Act 61 of 1973 which requires that the offer be
accompanied by a written statement. They have also heard that there are certain circumstances when such a
written statement will not be required.
Explain when a written statement would NOT be required under section 141. (4)
 The written statement need not be issued where the circumstances are such that disclosure, in terms of section
141 , will not effectively assist the offeree.
This is the case where:
1. the shares are listed, or
2. the offer is only made to existing shareholders or to persons whose ordinary business is to deal in shares.
Exception is also made for offers made by an executor, administrator, liquidator or trustee of an insolvent estate,
and in respect of sales in execution or by public auction or tender.
If the offer is accompanied by a registered prospectus, the statement is obviously not required.

2.4 Serene Products (Pty) Ltd is a small company which is involved in the business of selling beauty products.
Melody, one of the original subscribers to the memorandum, wishes to retire from the business and sell her
shares. However, she has not been able to find a buyer for her shares. It has now been proposed that Serene
Products (Pty) Ltd buy her shares.
Advise Serene Products (Pty) Ltd under what circumstances it may be possible for the company
to purchase the shares of Melody. (4)
A buy back of shares can only happen if the articles of association allow for it. If this is not the case, a general
meeting can be called to amend the articles.
A company is not allowed to make payment for the purchase of its shares if there are reasonable grounds for
believing that the liabilities exceed the assets or that the company is, or would after the payment, be unable to pay its
debts as they become due in the ordinary course of business.

2.5 Menzie is the auditor of Automated Hoppers Ltd. He has become aware that the company has been involved
in an irregular transaction. Advise Menzie whether he can resign as auditor, and if so, what he must
state in his notice of resignation. (4)
An auditor may resign at any time during his period of office by delivering written notification to the Registrar and
the company to the effect that he has no reason to believe that, in the conducting of the affairs of the company, a
reportable irregularity has taken place involving financial loss to the company or to any of its members or creditors,
has taken (or is taking) place, other than an irregularity which has been reported to the IRBA.
He must thus first report the irregularity before he can resign.

2.6 KZN Properties (Pty) Ltd owns a building in the central business district of Ethekwini. At a meeting of the
company a resolution is proposed to sell the building because the area in which the building is situated is
becoming run down. The majority of the shareholders vote in favour of this resolution. Subsequently the
building is sold for a fair price.
Siyabonga, a minority shareholder now wishes to bring an application under section 252 of the Companies Act
61 of 1973 to have the transaction set aside.
Explain what Siyabonga would have to prove to the court and whether you think he would be
successful. (5)
In terms of this section a member may, under certain circumstances, seek relief from the court if he or she has
been prejudiced by the company. Section 252 is designed to provide relief for the oppressed shareholder without
necessarily overruling the majority's decision.
A member can approach the court for relief under the following circumstances:
(a) If he complains that a particular act or omission of a company, or
(b) the affairs of the company, are being conducted in a manner which is
(c) unfairly prejudicial, unjust or inequitable
(d) to him or to some part of the members of the company.
The court may then:
(a) If it is satisfied of the above,
(b) and if it considers that it is fair and equitable,
(c) make such order as it thinks fit,
(d) with a view to bringing to an end the matters complained of.

3.1 Name the constitutive documents of a close corporation and indicate whether they are optional
or not. (3)
Founding statement: not optional.
Association agreement: optional.

3.2 Name four matters that cannot be altered by an association agreement between members of a
close corporation. (4)
1. The manner in which an insolvent member’s interest may be disposed of.
2. Persons who are disqualified from taking part in the management of the corporation
3. The power of a member to call a meeting of members.
4. A blanket approval of a member’s breach of duties in terms of section 42 and 43 of the Act.
While we’re busy…
Matters that may be regulated by association agreement:
1. Participation of members in the management of the corporation.
2. Settling of disputes between members.
3. Voting at meetings and proxy votes.
4. Repayment of contributions.
5. Procedure at meetings.
6. Sale or transfer of a member's interest by a member.
7. Financing of the corporation.
8. Any other matter which would ordinarily be dealt with in a shareholders' agreement in respect of a company.

3.3 Johan contracts with Lepaku on behalf of Match 10 CC, a close corporation which is not yet in existence. List
three requirements that must be met before such a contract can bind Match 10 CC after its
incorporation. (3)
1. The contract must be in writing
2. The contract must have been entered into by a person professing to act as an agent or trustee for a
corporation not yet formed.
3. The contract must be duly ratified or adopted by the corporation after its incorporation.

3.4 The principal business of Blast CC, as set out in its founding statement, is the building of houses. Mr
Makhubela, a member of the close corporation, buys a motorcycle on behalf of Blast CC. Explain whether
the close corporation will be bound to this contract. (5)
Section 54 provides that each and every member of the corporation is an agent of the corporation in relation to a
person who is not a member of the corporation and who is dealing with the corporation. Any act of a member binds
the corporation to such a third party, irrespective of whether the act was performed for the carrying on of t he
business of the corporation or not. If the member so acting in fact had no power to act for the corporation in the
particular matter, he will still bind the corporation in respect of a third party dealing with the corporation, unless the
outsider has, or ought reasonably to have, knowledge of the fact t hat the member has no such power.

3.5 Alex, Beatrix and Cleo are members of Magic Days CC. The assets of the close corporation have a value of
R10 000. The close corporation owes its creditors an amount of R20 000. According to the close corporation's
income statement for the current financial year, it has made a profit of R3000.
Cleo wants to know whether the close corporation can distribute this profit amongst its members. Advise
Cleo. (5)
Any payment by the corporation to a member whether by way of a distribution or a repayment of the members'
contribution, may only be made provided such payment does not impair the solvency and liquidity of the corporation.
The solvency and liquidity requirements are as follows:
1. The solvency criterion postulates that after any distribution of income to members has been made, the assets
of the corporation fairly valued must exceed its liabilities.
2. The liquidity criterion imposes two further strict constraints, in that after such distribution to members is made:
a. the corporation must be able to pay its debts as they become due in the ordinary course of business;
b. conversely, such payment must in the particular circumstances not in fact render the corporation unable
to pay its debts as they become due in the ordinary course of business.

8 October / November 2007

1.1 An association of persons or an organised body can acquire legal personality in three (3) ways.
Name these three (3) ways and discuss each briefly. Refer to private law bodies only. (6)
1. Separate Act: Legal personality may be acquired by way of a separate Act, such as the legislation relating to
Eskom.
2. General enabling Act: Legal personality may also be acquired by way of a general enabling Act, such as the
Companies Act. Acts such as these prescribe the general ways and means in which a body can be incorporated
as a legal person.
3. Conduct: An association of persons may also acquire legal personality by conducting itself as a legal person in
compliance with certain requirements. This is only possible if the association is not carrying on business that
has, as its object, the acquisition of gain.

1.2 Mr Nkosi and Mrs Botha want to incorporate a public company, called Speedy Cars Ltd. Which
legal requirements of the Companies Act 61 of 1973 do they have to comply with in order to
achieve this goal? (5)
A public company should have at least seven members and two directors.
It may raise capital from the general public and its shares are freely transferable. Mr Nkosi and Mrs Botha’s
company only has two members (instead of seven). They can overcome this problem by involving five other persons
to hold shares in the company.
1.3 John, Vuzi and Peter plan to purchase and manage a guest house. They intend to incorporate a company for
this purpose. They want to purchase a specific guest house close to the Vaal River. However, they do not
want to incorporate the company if they cannot acquire this specific guest house. For this reason they need
to conclude a contract with the owner of the guest house before they incorporate the company. Advise
them on the requirements that must be complied with in order to conclude a valid
preincorporation contract in terms of section 35 of the Companies Act 61 of 1973. Refer to
relevant case law. (6)
The following requirements need to be met:
1. The contract must be made in writing.
2. The contract must be entered into by a person professing to act as an agent or trustee of a company yet to be
formed.
3. The memorandum of association of the company must, on its registration, contain as an object the ratification
or adoption of the contract.
4. The contract must be lodged with the Registrar, together with the lodgement for registration of the
memorandum and articles.
The case of Nine Hundred Umgeni Road (Pty) Ltd v Bali dealt with Section 35.

1.4 The chairperson of the annual general meeting of XYZ Ltd rejected the vote of Mr Kruger. Advise
Mr Kruger on the right of a member to vote at a meeting of the company. You need to refer to
relevant case law. (5)
Every member of a company has the right to vote.
1. The following exceptions are permitted to the principle of equal voting rights:
a. The voting rights of a member of a private company must be determined by the articles (each share
must carry a right to vote, but not necessarily in the same proportion).
b. The chairman may have a second or casting vote.
c. The articles may specify that, above a stated number, a member’s votes will no longer increase in direct
proportion to the number of shares held by him, but in some lower proportion.
d. The articles may provide that preference shares shall not confer the right to vote, except in the two
instances (when the preference dividend or any redemption payment remains in arrears or when any
resolution is proposed directly affecting the rights attached to the shares) where the vote cannot be
denied.
e. Companies existing in term of the previous Act which have issued non-voting shares.
2. The right to vote is an important membership right and a shareholder may institute a personal action to enforce
his or her rights.
3. The decision of Pender v Lushington (1877) 6 CHD 70 is important.
a. First, it confirms that the shareholders, unlike directors, do not have to exercise their voting rights for
the benefit of the company and can act in their own interests.
b. Secondly, it shows that a shareholder has a right to have his or her vote recorded, even if the vote
makes no difference to the final results of the voting.

1.5 List the requirements of the doctrine of estoppel. (3)

A company will be prevented (estopped) from denying liability if the third party can prove that:
1. the company represented (by words or conduct), intentionally or negligently, that the agent concerned had the
necessary authority to represent the company;
2. the representation must have been made by the company and not merely by the agent;
3. the representation by the company must have been in a form that the company should reasonably have
expected that an outsider would act on the strength of it;
4. the third party was induced to deal with the agent because of the misrepresentation;
5. the reasonableness of the reliance on the representation;
You could have referred to the Freeman and Lockyer v Buckhurst Park Property (Mangal) Ltd

2.1 Joseph, a shareholder and director of Goodwill (Pty) Ltd, agrees to sell his shares in the company to Susy for
R20 000. In order to enable Susy to acquire the shares, Goodwill (Pty) Ltd agrees to lend Susy the sum of
R20 000. Explain whether this loan constitutes a contravention of the Companies Act 61 of 1973.
Motivate your answer. (6)
A company is prohibited from giving, whether directly or indirectly and whether by means of a loan, guarantee, the
provision of security or otherwise, any financial assistance for the purpose of, or in connection with, the purchase or
subscription made or to be made by any person of, or for, any of the company’s shares.
In analysing the prohibition against the provision of financial assistance, the court pointed out in Lipschitz v UDC
Bank that it comprised two elements, namely:
1. the giving of financial assistance and
2. the purpose for which it is given.
 It is clear from the question that Goodwill (Pty) Ltd intends to give financial assistance to Susy in the form of a
loan and that the purpose of this financial assistance is to enable Susy to acquire Joseph’s shares in Goodwill (Pty)
Ltd.
This loan therefore constitutes a contravention of the Companies Act.
Section 38 was, however, amended by section 9 of the Corporate Laws Amendment Act 24 of 2006.
A company is no longer prohibited from giving financial assistance for the purchase of or subscription for shares in
that company if:
1. subsequent to the transaction, the consolidated assets of the company fairly valued will be more than the
consolidated liabilities;
2. subsequent to providing the assistance, and for the duration of the transaction, the company will be able to pay
its debts as they become due in the ordinary course of business.
The terms upon which the assistance is to be given must be sanctioned by a special resolution.

2.2 EasyMoney (Pty) Ltd wants to acquire some of its own shares in terms of section 85 of the Companies Act 61
of 1973. Describe the procedure which must be followed by this company. Assume, further, that there are
more offers to sell than the company initially wanted to repurchase. Advise the board of directors how it
should deal with this oversupply when implementing the repurchase. (5)
The procedure for a repurchase entails that
1. there should be a special resolution by the shareholders of the company.
2. the company will then have to send out an offering circular to every shareholder who holds shares of the class
that the company wants to repurchase.
3. the company will also have to lodge a copy of the circular with the Registrar.
a. The circular must contain certain prescribed information and set out the terms of, and reasons for, the
repurchase.
4. In certain instances a circular is not necessary. As a private company, Easy Money (Pty) Ltd can avoid the need
for a circular if the initial special resolution does not require it.
In this case, the company has issued the circular and the reaction has been overwhelming. In order to treat
shareholders fairly, it is required that the repurchase should be implemented proportionately. The company should
repurchase shares as near as possible on a pro rata basis. (It will not always be possible to do it exactly pro rata,
because the company cannot acquire fractions of shares.)

2.3 Is it possible for a company to remove an auditor from office by way of an ordinary resolution?
(4)
An auditor may be removed by the company through an ordinary resolution (of which special notice has been
given to the company) if she or he has been appointed by the directors or the Registrar in one of the exceptional
circumstances. These circumstances include:
1. a first auditor appointed by the directors or the Registrar in terms of Section 269,
2. an auditor appointed by the directors or Registrar in terms of Section 271 on failure of the annual general
meeting to do so and
3. an auditor appointed by the directors in terms of section 273 to fill a casual vacancy.
An auditor appointed by a company at its annual general meeting may NOT be removed in this way. Such an
auditor will be removed if the general meeting decides, by special resolution, not to appoint him (or her).

2.4 List three (3) differences between shares and debentures (or shareholders and debenture
holders). (3)
5. A share represents a complex of rights and duties which flow from the special legal relationship between the
shareholder and the company, while a debenture holder is only a particular kind of creditor.
6. A shareholder participates in the profits of the company in the form of dividends, while a debenture holder does
not participate in the profits of the company, but receives interest at a predetermined rate which is payable at
fixed times.
7. A shareholder only has a right to dividends if these are declared, while a debenture holder receives interest
irrespective of whether the company earns sufficient profits.
8. A share usually confers voting rights, while a debenture does not confer voting rights.

2.5 Distinguish between authorised share capital and issued share capital. (2)
Authorised share capital: The amount of capital a company is legally allowed to raise through the issuing of
shares.
Issued share capital: The total of the share capital account (equal to the par value of all issued par value shares)
and the stated capital account (reflecting the consideration received for no par value shares).

2.6 Anneli is a member and minority shareholder of Techno (Pty) Ltd. In spite of good business, the profits of the
company are not increasing. Anneli suspects that the directors, who are also the majority shareholders, are
wasting company money on unnecessary business trips and other luxuries for themselves. Anneli would like
 to institute an action to redress the situation, but is worried about the costs which she might incur in a court
action. Advise Anneli on the requirements/elements to succeed with a derivative action in terms
of section 266 of the Companies Act 61 of 1973. (5)
Anneli can make use of the statutory derivative action in terms of section 266 of the Companies Act 61 of 1973.
This action may be instituted:
1. if a company has suffered damages or loss or has been deprived of any benefit;
2. as a result of a wrong, breach of trust or breach of faith that has been committed;
3. if the company itself has not instituted proceedings to redress the wrong;
4. if the wrong, breach of trust or breach of faith has been committed by a director or officer of the company or
by a past director or officer while he was a director or officer of the company;
5. irrespective of whether the wrong, breach of trust or breach of faith has been ratified.
Anneli can initiate proceedings for the appointment of a provisional curator ad litem by requesting the company, in
writing, to institute proceedings against the wrongdoer(s). If the company fails to institute proceedings, then the
court may be asked to appoint a curator ad litem for the purpose of instituting proceedings on behalf of the company
against the wrongdoer(s).
Anneli only needs to show that the company has not instituted such proceedings, that there are prima facie
grounds for such proceedings, and that an investigation is justified.

3.1 Phomolo and Mothae want to start a business, but cannot decide whether they should form a company or a
close corporation. Advise them on five (5) of the advantages of a close corporation. (5)
The main relative advantages of a close corporation over a company include any of the following:
1. Its management structure is simpler. For example: there is no separate board of directors and the members
are directly responsible for the corporation’s management.
2. Its decision-making structure is simpler. For example, an annual general meeting is not a requirement and
most decisions can be made informally between members.
3. It is possible for a close corporation to acquire the interest of a member or to provide financial assistance to a
member to acquire an interest in the corporation.
4. Stamp duty is not required for the transfer and acquisition of a member’s interest.
5. No transfer or stamp duties are payable upon conversion of a company into a close corporation in respect of
the transfer of property registered in the name of the company.
6. Only the annual return needs to be submitted to the Registrar of Close Corporations on a regular basis.
7. A close corporation can hold shares in a company, while a company cannot hold a member’s interest in a close
corporation.

3.2 Three friends, Sello, Tokelo and Bonang want to form a close corporation. Sello and Tokelo are adults, but
Bonang is still a minor. The friends want to know if Bonang can be a full member of the close corporation in
his own name. Advise them on membership of minors. (5)
It is possible for a minor to become a member of a close corporation. However, such a minor must be assisted or
represented by his or her legal guardian, legal representative or trustee in concluding the membership contract.
Despite the minor’s membership, he or she is disqualified from taking part in the management of the close
corporation and must be represented in the corporation by the guardian or legal representative. It is the minor’s
name, and not that of the guardian or legal representative, however, that must appear in the founding documents.

3.3 Section 63 of the Close Corporations Act 69 of 1984 provides for various instances of personal liability of the
members of a close corporation for the debts of that close corporation. Name five instances where such
liability may arise. (5)
Members become personally liable for the debts of the company under the following circumstances:
1. Where the name of the CC is used without the abbreviation CC in English or its equivalent in any other official
language subjoined thereto.
2. Where a member fails to contribute his initial or additional contribution to the CC.
3. Where a juristic person or a trustee of a trust inter vivos purports to hold an interest (in cases other than those
provided for in section 29).
4. Any member who is aware of payment or transfer of property in contravention of section 39.
5. Any member who is aware of financial assistance being given without complying with the requirements of
section 40.
6. Any person taking part in the management of the CC while being disqualified to do so.
7. Any member who is aware that the office of accounting officer is vacant for a period of six months.

3.4 Stephen and Tumo are members of Kamohelo CC. They do not agree on what the fiduciary duties of a
member of a close corporation entail. Briefly explain the fiduciary position of the members of a close
corporation to Stephen and Tumo. (5)
The members of a close corporation owe their fiduciary duties not to each other, but to the corporation as a
separate entity.
 Unlike companies, where the fiduciary duties of directors are not codified in the Act, the Close Corporations Act
stipulates what the duties of the members are.
These include the requirement that each member must act honestly and in good faith and must exercise his or her
powers to manage or represent the corporation in its interests and for its benefit. A member is also under a duty not
to exceed his powers and must avoid a conflict between his interests and those of the corporation