MRL2601/102/2/2022

Tutorial Letter 102/2/2022

Entrepreneurial Law
MRL2601

Semester 2

Department of Mercantile Law

This tutorial letter contains important information

about your module.

BARCODE

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 CONTENTS

Page

1 INTRODUCTION TO LECTURERS .............................................................................................. 3

2 FORMAT OF THE EXAMINATION PAPER.................................................................................. 3
3 GENERAL COMMENTS REGARDING THE EXAMINATION ...................................................... 4
4 CONCEPT EXAMINATION PAPER FOR PURPOSES OF REVISION......................................... 5

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 MRL2601/102/2/2022

Dear Student,

You should have received:

• Tutorial Letter MRL2601/101/3/2022 which contains among other things details

concerning the assignments for this module.

1 INTRODUCTION TO LECTURERS
The module coordinator for MRL2601 for 2022 is:

Prof J Geldenhuys
Tel. (012) 429 8472
e-mail: geldej@unisa.ac.za

The other lecturers involved in this module are:

Prof M Sigwadi

Tel. (012) 429 X8479

e-mail: sigwam@unisa.acza

Prof R Cassim

Tel. (012) 429 6780

e-mail: cassir@unisa.ac.za

Dr V Madlela

Tel. (012) 429 8476

e-mail: madlev@unisa.ac.za

2 FORMAT OF THE EXAMINATION PAPER

The examination is an online, non-venue based examination.

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The examination paper counts out of 100 marks and you are allowed to use your prescribed
material in answering the questions. You will be granted 4 (four) hours to complete and submit
your examination answers. The law relating to partnerships and business trusts are not included.

PLEASE NOTE THAT THIS MODULE IS ONLY OFFERED IN ENGLISH IN ACCORDANCE

WITH THE NEW LANGUAGE POLICY WHICH IS APPLIED. UNFORTUNATELY, THIS MEANS
THAT THE EXAM PAPER IS SET IN ENGLISH ONLY AND ALL STUDENTS WILL BE
REQUIRED TO ANSWER THE QUESTIONS IN ENGLISH.

You will be required to identify problems, discuss and explain the legal principles and come to a
conclusion relating to the facts provided. You can also expect some direct questions (“list” or
“name”). Please note that you may be required to refer to authority. In other words, you will need
to refer to relevant sections of legislation and relevant case law. You would have noticed that
there is no prescribed case book for this module. You are only required to know the cases that
are discussed in the prescribed segments of the text book and/ or the study guide to the extent
that they are discussed therein.
The exam paper also contains true and false questions, counting two (2) marks each. Please read
the instructions carefully. You will be required to indicate whether a statement is true or false and
to provide a properly substantiated reason for your answer.
Remember that you need to get a subminimum of 40% in the examination for your year mark
(your results for your assignments) to be taken into account. The examination counts 80% and
the year mark counts 20% towards your final mark for the module.

3 GENERAL COMMENTS REGARDING THE EXAMINATION

The Companies Act 71 of 2008 came into force on 1 May 2011. For the most part it repealed
and replaced the Companies Act 61 of 1973. Questions in the examination will only deal with
the provisions of the Companies Act 71 of 2008 and not those contained in its predecessor.
Students often forfeit marks as a result of the fact that questions are not properly read and/ or
misinterpreted. Please note that the abbreviation of the name of an enterprise (for example: ZET
(Pty) Ltd for a private company and ZET CC for a close corporation) provides an indication of the
type of business in question. The same applies where terms like “shares” “member’s interest” and
“directors” are used. If you use the term “shares” instead of “member’s interest” in a question
dealing with close corporations, it would be incorrect and you will forfeit the marks.
Read all the tutorial letters. These are part of your prescribed study material. Please also
consult myUnisa where discussion notes and a copy of the updated Companies Act 71 of 2008
can be accessed under Additional Material.
There are no essay-type questions in the examination. Please ensure that you prepare for
shorter type questions and that your answers are short and to the point. In this regard, kindly
consult the guidelines to answering the assignment questions and the concept exam in the
Tutorial Letter 201 that you will receive in due course.
You are not expected to cite sections from legislation. However, you should briefly set out the
contents of what are mentioned in sections. We have included a summary of the important
sections of the legislation with a brief description in Annexure A.
You must know the cases as they are discussed and explained in the text book and the study
guide. It is unnecessary to include the full references to the cases for purposes of the examination.
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You may refer to a case by using an abbreviation of the name (one of the parties) that you can
remember easily, for instance “the Robinson-case.”
Please note that although it will definitely provide a good indication of the types of questions
that you can expect in the examination, it will not suffice to prepare for the examination by just
working out the answers to the activities in the study guide.
Previous exam papers are available on myUnisa. Please note that lecturers are not allowed to
publish the memoranda for the questions.
Please note that no dissemination of notes in aide of preparation for the examination has been
authorised by UNISA save for the questions and activities that have been placed on myUnisa
under Additional Resources for the module. Kindly refrain from using notes that are not
disseminated by or copyrighted to UNISA to avoid possible disappointment.
Be warned that previously there have been scams where falsified examination scripts have
been offered for sale to students. Please do not be fooled. Strict controls have been implemented
in order to ensure the integrity of this module’s exam.
4 CONCEPT EXAMINATION PAPER FOR PURPOSES OF REVISION
PLEASE NOTE THAT YOU DO NOT HAVE TO STUDY THE WORK PRESCRIBED FOR
PARTNERSHIPS AND TRUSTS IN YOUR STUDYGUIDE FOR PURPOSES OF THE EXAMINATION.

We include a concept examination paper for purposes of revision. This should provide you
with an indication of the way in which the questions are asked in this module. We shall
provide you with guidelines for answering these questions in Tutorial Letter 201.
However, please note that you will not pass if you merely work out the questions to this
concept paper. The prescribed work for this module must be thoroughly studied to master
the work.

SECTION A

QUESTION 1

1.1 Sipho aspires to start a business and believes that entities such as companies do not enjoy
rights since they are not natural persons but juristic persons. Explain to him how the
concept of separate legal personality works, give him two implications of being a juristic
person and correct his wrong view by citing relevant authority. (5)

1.2 Thato and Sam are the only directors of a manufacturing company. It is discovered that
they have been stealing money from the company unnoticed for many years, causing it to
go bankrupt. Advise the creditors of the company on how they can hold Thato and Sam
personally liable for their conduct by referring to provisions of the Companies Act 71 of
2008. (5)

1.3 Patience would like to establish a company that can generate profit for her, but whose
shares are not transferable to the public. Advise patience on the type of company suited
to her wishes and highlight three characteristics of this company. (4)

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1.4 Tito and Mosa desire to incorporate a company and have read somewhere that to do so
they must submit a notice of incorporation, memorandum of incorporation and a prescribed
registration fee to the Companies and Intellectual Property Commission. Explain to them
why they are required to submit the notice of incorporation and the memorandum of
incorporation. Also explain to them whether they have to make use of the standard form
for the memorandum of incorporation or not. (6)

1.5 Sally was recently appointed secretary of Vuma Ltd. She wishes to familiarise herself with
the provision of the Companies Act 71 of 2008 regulating the use of a company’s name
and registration number. Advise Sally on how the company’s name and registration
number ought to be used. (5)

[25]

QUESTION 2

2.1 Steven and Mark are planning to start a new company which they will name Two Frames
(Pty) Ltd. After identifying premises, they want to rent for the company, they are told the
premises are highly sought and could be leased in a few days. Mark has heard about a
mechanism in the Companies Act 71 of 2008 that can help prevent loss of business
opportunities by companies because they have not yet been incorporated. Explain to
Steven and Mark what this mechanism is, the formal requirements they must comply with
for the mechanism to be binding and the two common law alternatives to the mechanism.
(6)
2.2 Billy used to work for Paper bag (Pty) Ltd restaurant as a cook. He has resigned from
Paper bag (Pty) Ltd and wants to start his own restaurant. Billy plans to name his new
company Paper brag (Pty) Ltd. He is concerned that Commission may decline the
proposed name because it is similar to the name of his former employer, Paper bag (Pty)
Ltd. Advise Billy whether the Commission will accept the proposed name using relevant
authority. (6)

2.3 Elaborate on the meaning of the following:

- Proxy (1)
- Codification (1)
- Executive director (1)
(3)

2.4 Both Mandla and Peter hold 40% of the shares in Furniture manufacturing company,
Yellow Woods (Pty) Ltd. They want to raise more capital in order to expand the company’s
business abroad and have decided to issue 20% additional shares for this purpose.
Mandla, who founded the company, wants to offer the shares to his niece Mary, but Peter

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is concerned that this will dilute his shareholding. Explain to Mandla the mechanism that is
provided for in the Companies Act 71 of 2008 aimed at avoiding dilution of shares held by
existing shareholders upon the issuing of new shares.
(5)

2.5 Explain the distinction between shares and debentures. (5)

[25]

QUESTION 3

3.1 Name and distinguish between the two types of resolutions provided for in the Companies
Act 71 of 2008 that may be taken shareholders. Also explain the meaning of a quorum. (6)
3.2 Thando was recently appointed a director of Lower Case (Pty) Ltd. He was previously a
director of Rubber Band (Pty) Ltd. When Thando was appointed as a director of Lower
Case (Pty) Ltd, he failed to disclose that he was an unrehabilitated insolvent and as such
disqualified from acting as a director. A few months after Thando was appointed, a
shareholder of Lower Case (Pty) Ltd finds out that Thando is an unrehabilitated insolvent.
Advise the shareholder on the court order he can apply for with reference to the Companies
Act 71 of 2008, indicate the two grounds on which the order can be awarded and the
relevant section of the Companies Act 71 of 2008 providing for the order. (4)

3.3 Neon CC is in the business of manufacturing lamps. The association agreement of Neon
CC provides that, out of the eight members of the close corporation, only Percy and Nico
are authorized to bind the close corporation contractually. John, another member of the
close corporation, decides to buy a second-hand scooter from his friend in the name of the
close corporation. The remaining members of the close corporation refuse to honour the
contract, arguing that it is invalid since, firstly, John lacks the capacity to conclude contract
on behalf of the close corporation and, secondly, the contract falls outside the scope of the
close corporation’s business, which is to manufacture lamps. With reference to relevant
authority, explain to the members of the close corporation whether or not the contract is
valid. (6)

3.4 Following their graduation from university, Maggie and Joyce wish to buy an existing close
corporation to generate income. They intend to make some changes to the CC including:
- increasing the number of members to 15;
- making the members’ interest of the CC to be out of 150%;
- allowing two of their friends to jointly hold 15% of the members’ interest since they
have insufficient funds to acquire member’s interest individually
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 Advise Maggie and Joyce on whether the changes they propose to make to the CC are
permissible and give reasons for the advice. Your answer should address each of the
proposed changes. (4)

3.5 The Brown Leaf (Pty) Ltd would like you to give them advice on legal status of the
Memorandum of Incorporation and the rules of the board. Advise the board accordingly.
(5)

3.6 Stix is one of several members of Tasco CC and he is migrating to Australia. The other
members of the close corporation wish to acquire Stix’s member’s interest and come to
you for advice on the requirements they must comply with before the close corporation can
acquire Stix’s member’s interest. Advise the members accordingly. (5)

[30]
TOTAL FOR SECTION A: 80

SECTION B

QUESTION 4

4.1 Indicate whether the following statements are true or false. Please provide a reason for
your answer.

4.4.1 Hamid is the auditor of Moonblue Ltd. Hamid requests certain company documents from
Barney Moonblue Ltd’s financial director. Barney can legally refuse to furnish Hamid with
the documents. (2)

4.4.2 Once a domesticated company is registered in South Africa, it no longer enjoys registered
status in the foreign jurisdiction. (2)

4.4.3 A proxy may delegate authority to act on behalf of the shareholder to another person.
(2)

4.4.4 Not all payments made by a close corporation to its members are subject to compliance
with the solvency and liquidity criteria. (2)

4.4.5 A company is the only business form that offers South African entrepreneurs the benefits
attached to juristic personality. (2)

[20]

TOTAL FOR SECTION B: 20

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Please note that the questions in the exam will deal only with the law relating to companies and
close corporations.
For purposes of revision for the exam, we also suggest that you access the activities and
questions for the various study units on myUnisa under Additional Resources.

Good luck with your studies!

YOUR LECTURERS

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Annexure A

IMPORTANT SECTIONS OF LEGISLATION FOR PURPOSES OF COMPANIES:

COMPANIES ACT 71 OF 2008:

Section 1 Definitions

Section 4 Solvency and liquidity test (used for purposes of distributions)

Section 7 Purposes of the Companies Act

Section 8 Categories of company

Section 13 Right to incorporate a company

Section 14 Registration of a company

Section 15 Memorandum of Incorporation, shareholder agreements and rules of company

Section 16 Amending the Memorandum of Incorporation

Section 19(1) Legal status of companies same as natural person except in as far as it is
impossible

Section 19(3) Personal liability companies

Section 19(4) Abolishing doctrine of constructive notice and exceptions

Section 20 Validity of company actions

Section 20(7) Statutory presumption of compliance with formal and procedural requirements
(Similar to common law Turquand Rule)

Section 20(9) Disregarding of juristic personality (Similar to common law piercing corporate
veil)

Section 21 Pre-incorporation contracts

Section 38 Issuing shares

Section 44 Financial assistance for subscription of securities (requirements for validity)

Common law tests laid down in Lipschitz and Gradwell cases to see if
transaction qualifies as financial assistance.

Section
Distributions
46 Must be authorised by board. Requirements for valid distributions (declaration
of dividends, payment in lieu of capitalization shares, share buy-backs,
company incurring a debt, waiver of a debt to the company).

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Section 48 Acquisition of company’s own shares

Section 57 Expanded definition of ‘shareholder’ for purposes of Part F of Chapter 2

Section 58 Shareholder right to be represented by proxy

Section 60 Shareholders acting other than at meeting

Section 61 Shareholders meetings

Section 62 Notice of meetings

Section 64 Meeting quorum and adjournment

Section 65 Shareholder resolutions

Section 66(7) Consent to serve as a director required for appointment

Section 67 First director or directors

Section 69 Ineligibility and disqualification of persons to be director or prescribed officer

Section 71 Removal of directors

Section 76 Standards of directors’ conduct

Section 76(4) Business Judgment Rule

Section 77 Liability of directors and prescribed officers

Section 78 Indemnification and directors’ insurance

Section 90 Appointment of auditor

Section 91 Resignation of auditors and vacancies

Section 92 Rotation of auditors

Section 93 Rights and restricted functions of auditors

Section 94 Audit committees

Section 158 Remedies to promote purpose of Companies Act

Section 160 Disputes concerning reservation or registration of company names

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Section 161 Application to protect rights of securities holders

Section 162 Application to declare director delinquent or under probation

Section 163 Relief from oppressive or prejudicial conduct

Section 164 Dissenting shareholders appraisal rights

Section 165 Derivative actions

Section 166 Alternative dispute resolution

Schedule 1 Non-profit companies

Schedule 2 Conversion of close corporations to companies

Close Corporations Act 69 of 1984

Section 65 Abuse of separate juristic personality of corporation

IMPORTANT SECTIONS FOR PURPOSES OF CLOSE CORPORATIONS:

CLOSE CORPORATIONS ACT 69 OF 1984

Section 34(1) Mandatory procedure for disposal of an insolvent member’s interest

Section 36 Disposal of a member’s interest and cessation by order of court

Sections 38 Acquisition of a member’s interest by the close corporation

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Section 40 Financial assistance by corporation in respect of the acquisition of a member’s
interest

Sections 42 The fiduciary duties of members towards the close corporation

Section 43 Personal liability of member for negligence (not acting with reasonable skill and
care)

Section 44 Association agreements

Section 49 Statutory personal action

Section 50 Statutory derivative action

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Section 51 Payments to members

Section 52 Prohibition for the making of certain loans or provision of security

Section 54 Representation in close corporations

Section 56 Personal liability for not keeping proper accounting records

Section 58(2) Accounting requirements in close corporations

Section 62 Duties of accounting officers

Section 62A Application of accountability provisions of Companies Act

Section 63 Joint liability for failure:

- To use “CC” after corporation’s name (section 22)
- To contribute the agreed contribution (section 24)
- To qualify as a member.
- To comply with the rules relating to giving of financial assistance -
section 39
- To fill a vacancy of auditor for longer than 6 months or for managing
the close corporation when disqualified to do so.

Section 64 Liability for reckless and fraudulent trading

Section 65 Gross abuse of the legal personality of a close corporation

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