Laes5111 Mo

IIE Learn Module Outline LAES5111
Law of Enterprise Structures

LAES5111
MODULE OUTLINE 2023
(First Edition: 2018)
This guide enjoys copyright under the Berne Convention. In terms of the Copyright Act, no 98 of
1978, no part of this document may be reproduced or transmitted in any form or by any means,
electronic or mechanical, including photocopying, recording or by any other information storage
and retrieval system without permission in writing from the proprietor.
The Independent Institute of Education (Pty) Ltd is registered with the

Department of Higher Education and Training as a private higher education
institution under the Higher Education Act, 1997 (reg. no. 2007/HE07/002).
Company registration number: 1987/004754/07.
© The Independent Institute of Education (Pty) Ltd 2023 Page 1 of 39

Table of Contents
Introduction ............................................................................................................................... 3
Using this Module Outline .......................................................................................................... 4
This Module on Learn ................................................................................................................. 5
Icons Used in this Document and on Learn ................................................................................ 6
Module Resources ...................................................................................................................... 8
Module Purpose ....................................................................................................................... 10
Module Outcomes .................................................................................................................... 10
Assessments ............................................................................................................................. 11
Module Pacer ........................................................................................................................... 14
Glossary of Key Terms for this Module .................................................................................... 33

Introduction
The purpose of this module is to introduce you to the South African law of business enterprises
and the different forms of enterprise structures commonly found in South Africa, i.e.
partnerships, companies, close corporations and business trusts.
After successfully completing this module, you should be able to match a prospective business’
objectives and area of operation with the most appropriate vehicle (legal entity) for that type of
enterprise.
This is a first-year module and is not intended to make you experts in the field of enterprise
law/corporate law. It will, however, provide you with more than just the basic background
knowledge with respect to the various entities with which business may be carried on in South
Africa.
The purpose of this module is two-fold: Firstly, to provide an entry-level view of the
fundamentals of South African corporate law, and secondly, to lay the groundwork for both law
modules (such as Corporate Governance) and non-law modules (such as Financial Accounting)
that you may encounter throughout the programme of your further studies.
Traditionally, company law has often been considered a demanding and complex subject. The
fact that the course is presented here as a first-year module should not make you think of it as
a walkover – that would be a mistake.
It is therefore important that you start working from the word get-go. The exercises, activities
on Learn and online quizzes in particular are very important: Both the test and examination
papers will, to a substantial degree, rely on the material covered in the various exercises,
activities ICE tasks and so forth.
We wish you all the best; we hope that you will enjoy this module; and we hope you learn a great
deal that will be useful to you in your future studies and careers.

Using this Module Outline

This module outline has been developed to support your learning. Please note that the content
of this module is on Learn as well as in the prescribed material. You will not succeed in this
module if you focus on this document alone.
● This document does not reflect all the content on Learn, the links to different resources,
nor the specific instructions for the group and individual activities.
● Your lecturer will decide when activities are available/open for submission and when these
submissions or contributions are due. Ensure that you take note of announcements made
during lectures and/or posted within Learn in this regard.

This Module on Learn

Learn is an online space, designed to support and maximise your learning in an active manner.
Its main purpose is to guide and pace you through the module. In addition to the information
provided in this document, you will find the following when you access Learn:
● A list of prescribed material;

● A variety of additional online resources (articles, videos, audio, interactive graphics, etc.)
in each learning unit that will further help to explain theoretical concepts;
● Critical questions to guide you through the module’s objectives;
● Collaborative and individual activities (all of which are gradable) with time-on-task
estimates to assist you in managing your time around these;
● Revision questions, or references to revision questions, after each learning unit.
Kindly note:
● Unless you are completing this as a distance module, Learn does not replace your
contact time with your lecturers and/or tutors.
● LAES5111 is a Learn module, and as such, you are required to engage extensively with
the content on the Learn platform. Effective use of this tool will provide you with
opportunities to discuss, debate, and consolidate your understanding of the content
presented in this module.
● You are expected to work through the learning units on Learn in your own time –
especially before class. Any contact sessions will therefore be used to raise and address
any questions or interesting points with your lecturer, and not to cover every aspect
of this module.
● Your lecturer will communicate submission dates for specific activities in class and/or
on Learn.

Icons Used in this Document and on Learn

The following icons are used in all your modules on Learn:
Icon Description
A list of what you should be able to do after working through the learning
unit.
Specific references to sections in the prescribed work.
Questions to help you recognise or think about theoretical concepts to be

covered.
Sections where you get to grapple with the content/ theory. This is mainly
presented in the form of questions which focus your attention and are
aimed at helping you to understand the content better. You will be
presented with online resources to work through (in addition to the
textbook or manual references) and find some of the answers to the
questions posed.
Opportunities to make connections between different chunks of theory in

the module or to real life.
Real life or world of work information or examples of application of

theory, using online resources for self-exploration.
REMEMBER:
You need to log onto Learn to:

• Access online resources such as articles, interactive graphics, explanations, video clips, etc.
which will assist you in mastering the content; and

• View instructions and submit or post your contributions to individual or group activities
which are managed and tracked on Learn.

Module Resources
Prescribed Davis, D., Geach, W., Mongalo, T. et al. 2021. Companies and other
Material (PM) business structures. 5th edition. Oxford University Press. ISBN:
for this Module 9780190758783.
Prescribed Readings:
• Sole Proprietorship | South African Revenue Service (sars.gov.za)

(ACCESSED 26 JANUARY 2023)
Recommended Please note that a number of additional resources and links to resources
Readings, are provided throughout this module on the Learn platform. You are
Digital, and Web encouraged to engage with these as they will assist you in mastering the
Resources various objectives of this module. They may also be useful resources for
completing any assignments. You will not, however, be assessed under
examination conditions on any additional or recommended reading
material.
Cassim, FHI, Cassim MF et al. 2012. The Law of Business Structures. 1st
edition. Juta. ISBN: 978-0-7021-9548-8.
Some useful web links:

● Jutastat legal-resource database accessible through your campus
library available at: www.jutastat.co.za.
● The Southern African Legal Information Institute publishes legal
information for free public access which comprises mainly of case
law and legislation from South Africa available at:
http://www.saflii.org/ [Accessed 07 December 2022].
● Companies and Intellectual Property Commission’s (CIPC’s) website
available at: http://www.cipc.co.za.
● Download the Companies Act, 2008 at http://www.info.gov.za/
[Accessed 07 December 2022].
● The South African Institute of Chartered Accountants’ (SAICA) guide
to the Companies Act 71 of 2008 https://calculusgroup.co.z
[Accessed 18 November 2013].
● Independent Regulatory Board for Auditors (IRBA) available at:
http://www.irba.co.za [Accessed 07 December 2022
● Download or view online the Grindrod Ltd.’s annual report for 2012
(alternatively, the most recent report is available at:
http://www.grindrod.co.za/ [Accessed 07 December 2022

● Find the Close Corporations Act 69 of 1984 You may locate the Act
directly on the internet, for example at:
http://www.justice.gov.za/legislation/acts/1984-069-ccorp.pdf
[Accessed 07 December 2022].
Find the Trusts Property Control Act 57 of 1988 at
http://www.justice.gov.za/legislation/acts/1988-57.pdf [Accessed 07
December 2022].
Module You will find an overview of this module on Learn under the Module
Overview Information link in the Course Menu.
Assessments Find more information on this module’s assessments in this document and
on the Student Portal.
IMPORTANT NOTE:
All references to the Companies Act are to the Companies Act 71 of 2008, unless specifically
indicated otherwise.

Module Purpose
This module serves to introduce students to the different forms of enterprise structures
commonly found in South Africa, i.e. partnerships, companies, close corporations and
business trusts. On successfully completing this module, students should be able to match a
prospective business’ objectives with the most appropriate vehicle (legal entity) for that kind
of business.
Module Outcomes
Demonstrate knowledge and understanding of the language, terminology,
MO1
concepts and principles of the law of enterprise structures.
Apply the principles of the law of enterprise structures to practical problem
MO2 situations commonly encountered in the management of various business
entities.
Evaluate the elements of the law of enterprise structures in the context of
MO3 matching the most appropriate enterprise structure with the most appropriate
vehicle (legal entity) for that kind of business.

Assessments
Integrated Curriculum Engagement (ICE)
Minimum number of ICE activities to complete 4
Weighting towards the final module mark 10%
Formatives Take Home Test 1 Take Home Test 2

Weighting 25% 30%
Duration 1 hour 1 hour
Write/Submit after LU 2 LU 4
Learning Units covered LU 1 -2 LU3 -4
Resources required Prescribed material Prescribed material
Summative Take Home Examination

Weighting 35%
Duration 2 hours
Total marks 120
Open/Closed book Open book
Resources required Prescribed material
Learning Units covered All

Assessment Preparation Guidelines

Format of the Assessment Preparation Hints
Take Home Test 1
The test for this module will ● Ensure that you work through all the relevant activities,
assess your understanding exercises, and revision questions on Learn and in your
of Learning Units 1 and 2 of textbook.
this module and will include ● Brainstorm possible questions based on the learning
a series of short and outcomes and objectives provided. Then complete
medium-length questions, these as practise-tests.
as well as one or more ● During both your preparation for the test and during
longer questions. You will the test itself, pay attention to the instruction words
be expected to apply, as (like list, apply, describe etc.) and to the mark
well as recall information as allocations of each question to ensure that you are able
per your objectives for to provide the correct depth and detail in your answers.
these learning units. ● Make sure that you have mastered the objectives in
Learning Units 1 and 2.
Take Home Test 2
The second test for this ● Ensure that you work through all the relevant activities,
module will assess your exercises, and revision questions on Learn and in your
understanding of Learning textbook.
Units3 and 4 of this module ● Brainstorm possible questions based on the learning
and will include a series of outcomes and objectives provided. Then complete
short and medium-length these as practise-tests.
questions, as well as one or ● During both your preparation for the test and during
more longer questions. You the test itself, pay attention to the instruction words
will be expected to apply, as (like list, apply, describe etc.) and to the mark
well as recall information as allocations of each question to ensure that you are able
per your objectives for to provide the correct depth and detail in your answers.
these learning units. ● Make sure that you have mastered the objectives in
Learning Units 3 and 4.

Take Home Examination

The examination will assess ● Make sure that you practise answering the sample
all learning units in this questions so that you become familiar with the kinds of
module and will include questions likely to appear in the examination itself.
both theory and ● Ensure that you work through all the activities, exercises,
application-type questions. and revision questions on Learn and in your textbook. You
must have completed close readings of your prescribed
You will be expected to material to ensure that you have prepared adequately for
respond to short, theory- your examination for this module.
based questions, as well as ● Pay close attention to the instruction words (like list,
to essay-type questions. apply, describe, analyse etc.) and to the mark allocations
of each question to ensure that you provide the correct
depth and detail in your answers.
● Make sure that you are comfortable in responding to all
the objectives for all learning units.
● Brainstorm possible questions based on the learning
outcomes and objectives provided.

Module Pacer
Code Programme Contact Sessions Credits
LAES5111 BAA2, BAC2 48 12
Learning Unit 1 Legal Personality, Types of Company, and Company Formation
Overview:
Any individual can embark on a business venture and engage in trade in their personal
capacity, in their own name. However, there are several reasons that an entrepreneur might,
instead, choose to form a company. Under South Africa law, there are multiple types of
companies that can be registered, each with different trading and governance conditions. An
entrepreneur will choose to register a company type that best suits the nature of their
business venture as well as their personal interests and capacity.
In this learning unit, we will look at the differentiating features of both a sole trader and a
partnership, and we will discuss the application of relevant legislation in each instance. The
concept of legal personality will be explained, specifically how some companies can operate
as independent legal entities to the entrepreneurs that formed them, and how entrepreneurs
have limited liability over the company’s trade and results thereof. The legal practices
governing different types of partnerships will be explored, including formation, authority,
representation, and dissolution.
Different types of companies and how these companies are incorporated and registered
under the Companies Act of South Africa will be investigated. Processes relating to company
formation will be discussed, with particular attention paid to notice of incorporation,
memorandum of incorporation, and pre-incorporation. Legal nuances pertaining to “ring-
fenced” companies will be explained.
Finally, this learning unit will discuss questions of capacity and representation, specifically in
relation to the concepts of ultra vires and the Turquand rule and will offer an explanation of
the Common Law principles that apply to companies registered under and governed by the
Companies Act.
Please work through Themes 1, 2, 3, 4 and 5 on Learn, together with the relevant sections of
your prescribed source/s. To ensure that you are working towards mastering the objectives
for this learning unit, please also ensure that you complete all the activities on Learn.
The challenge you may experience in this learning unit relates to the new legal concepts and
terminology you will encounter in this module.

Make sure you understand the language and terminology used in this course. A useful tip
would be to start your own glossary of new terms and to update it as you work through the
module.

Learning Unit 1: Theme Breakdown

Sessions: Theme 1: Sole Trader and Partnership Prescribed Material (PM)
1-7
LO1: Discuss the relevant factors to be PM: Chapter 2 para 2.1 and
taken into consideration when Chapter 17 para 17.1,
Related deciding on which business entity is 17.3 – 17.7 and 17.10
Outcomes: the most appropriate for a given
MO001 business purpose; Prescribed reading:
MO002 LO2: Define ‘sole trader’ and Sole Proprietorship | South
MO003 ‘partnership’; African Revenue Service
LO3: Apply the law as it relates to: how a (sars.gov.za) (ACCESSED 26
partnership is formed; the JANUARY 2023)
essentialia, as well as the naturalia
for a partnership; the requirement
that the partnership should be
carried on for the joint benefit of
the parties; the legal nature of the
partnership and the relationship
between partners;
LO4: Differentiate between the various
types of partnerships;
LO5: Discuss the authority of partners to
contract with third parties, the
authority of a partner to bind a
partnership and the personal
liability of partners;
LO6: Discuss the dissolution of a
partnership.
Theme 2: Legal Personality PM: Chapter 2 para 2.2, 2.4
LO7: Apply the law as it relates to the and 2.9
legal personality of business entities,
considering which entities have legal
personality and which not, the
meaning of ‘legal person’ and
‘limited liability’ and when a
company and a Close Corporation
become separate legal entities;
LO8: Explain what is meant by the
incorporation and registration of a
company;

LO9: Apply the concept of the

“piercing/lifting of the corporate
veil” in these instances:
● the directors are held
personally liable for debts;
● With regards to a restraint of
trade agreements; to a set of
facts;
LO10: Apply the key features of a
company’s juristic personality to a
set of facts.
Theme 3: Types of Companies PM: Chapter 2 para 2.5, 2.7 –
LO11: Discuss the various types of 2.8
companies that may be registered
in terms of the Companies Act;
LO12: Differentiate between the various
companies created by the
Companies Act and between an
‘external’ and a ‘domesticated’
company.
Theme 4: Company Formation PM: Chapter 2 para 2.9 –
2.11
LO13: Differentiate between the
processes of incorporation and
registration of a company;
LO14: Differentiate between the notice
of incorporation (NOI) and the
Memorandum of Incorporation
(MOI);
LO15: Discuss the importance of the
MOI, the constitutive documents
of a company (the MOI & Board
of Directors’ (BOD) rules), the
unalterable, alterable and
“default provisions” in the MOI;
LO16: Explain the meaning of “ring-
fenced/(RF) companies” and
when a company will be a ring-
fenced company;

LO17: Explain when and how a

company’s MOI may/must be
amended, including the
requirements for such
amendments;
LO18: Apply to a set of facts, when a
company may enter into a pre-
incorporation contract, as well as
the requirements for such entry
into a pre-incorporation contract;
LO19: Discuss the incorporation process
and when a company will be
bound to a pre-incorporation
contract;
LO20: Apply company law as it relates to:
o a company’s registration
number and registration
certificate;
o the pre-incorporation
contract;
o the considerations when
deciding on a prospective
company’s name;
o and the legal capacity of a
company.
Theme 5: Capacity and Representation PM: Chapter 2 para 2.12
LO21: Apply the following concepts: the

ultra vires doctrine, the doctrine of
constructive notice and the
Turquand rule to a set of facts;
LO22: Explain how the Companies Act
has changed the Common Law
position regarding the ultra vires
doctrine, the doctrine of
constructive notice and the
Turquand rule;
LO23: Explain when the Common Law
principles in respect of the above
concepts still apply after the entry
into force of the Companies Act.

Learning Unit 2 Corporate Finance: Equity, Debt Instruments, Distributions and

Securities Registration
Overview:
While corporate finance is used in multiple contexts to describe the financial practices of
business, it is important to consider this concept within the field of company law. Companies,
by their very nature, have complex financial needs. For the purposes of business it is therefore
important to know not only the basic elements of corporate finance but also to have an
understanding of the unique position of the business entity known as a company.
In this learning unit, we will look at the legal definitions of key concepts within Corporate
Finance, including securities, debt instruments, equity, and shares, and will explore how these
different concepts interact with one another. We will then consider the meaning of solvency
and liquidity, and why it is important to test for these two conditions when establishing the
rights of a company to engage in specific financial transactions.
This learning unit will further differentiate between share types, looking at where in the
corporate world each share type is found, as well as how the law and the company’s
Memorandum of Incorporation (MOI) governs the use, rights, function and behaviour of the
different share types. The issuing of shares, and the conditions thereof, will also be explained.
Finally, we will explore the concept of securities in further depth, with particular focus on the
subscription, distribution and transfer of securities, including how this is recorded on a
securities register and how share certificates are issued.
Please work through Themes 1 and 2 on Learn, together with the relevant sections of your
prescribed source/s. To ensure that you are working towards mastering the objectives for
this learning unit, please complete all the activities on Learn.
The Terminology and concepts engaged within this Learning Unit can be very confusing for
someone who is encountering this topic for the first time. You are urged to read and re-read
your textbook and consult other (re)sources so as to familiarise yourself with this very
important part of the curriculum. Add new terms to the glossary you started in Learning Unit
1


Sessions: Theme 1: Corporate finance: Equity, debt Prescribed Material (PM)
8-12 instruments and distributions
LO1: Define the terms: “corporate PM: Chapter 4 para 4.1 –
finance”, securities, debt 4.2, 4.4 – 4.5
instruments and equity;
LO2: Differentiate between debt and
equity financing;
LO3: Apply the law as it relates to the
meaning and nature of shares and
the types of shares that are
commonly found in the corporate
world;
LO4: Apply the Solvency and Liquidity test,
considering the operation, function
and application of the test to a set
of facts.
Related Theme 2: Securities registration and PM: Chapter 4 para 4.6 -4.7
Outcomes: transfer Chapter 8 para 8.2
MO001 LO5: Differentiate between authorised,
MO002 issued and unissued shares as well
as certificated and uncertificated
shares by providing examples of the
rights attached to classes of shares
and which may not be altered by the
MOI;
LO6: Explain what is meant by the
‘consideration’ to be received by the
company in the context of the
issuing of shares and the conditions
under which the issuing of shares
will require shareholder approval.
LO7: List the conditions a company needs
to comply with in order to provide
financial assistance to persons
wishing to subscribe for its
securities;
LO8: List the forms a distribution may
take;

LO9: Explain what is meant by a securities

register, the application of pre-
emptive rights as it applies to shares
and how shares are transferred;
LO10: Discuss the nature of and the
requirements of a share certificate.

Learning Unit 3 Shareholder and Company Meetings
Overview:
Companies in South Africa are held accountable not only by legislation and regulatory bodies,
but also internally by their own shareholders. These internal “watchdogs” have both rights
and duties to act in ways that support the company, while ensuring that good governance and
best practices are implemented. There are also some business transactions that may only be
completed after authorisation by the company’s shareholders.
This learning unit explores the forum that allows for the duties and rights of shareholders to
be exercised: meetings. Shareholder meetings are regulated in terms of s 62 of the Companies
Act. Shareholders need not be physically present but can nominate a proxy to vote on their
behalf.
In this learning unit, we will examine the differences between different types of motions and
resolutions and will outline the requirements for shareholder meetings to be constituted in a
legal and valid manner. We will also look at the matters that must be discussed at an annual
general meeting (AGM), as well as the differences between general and special resolutions,
and under which circumstances each one is required.
prescribed source/s. To ensure that you are working towards mastering the objectives for this
learning unit, please complete all the activities on Learn.
The terminology and concepts engaged within this Learning Unit can be very confusing for
someone who is encountering this topic for the first time. You are urged to read and re-read
your textbook and consult other (re)sources so as to familiarise yourself with this very
important part of the curriculum. Include the new terminology and concepts in your glossary
of terms.


Sessions: Theme 1: Shareholder and Company Prescribed Material (PM)
13-20 Meetings
LO1: Define the terms: Share; PM: Chapter 5 para 5.1, 5.3,
Shareholder; AGM; Record date; - 5.5, 5.13, 5.15,
Quorum; Proxy and Casting vote;
LO2: Differentiate between a motion
(proposal)and a resolution.
LO3: Discuss the requirements to call a
valid meeting of a company.
LO4: Explain the importance of the record
date.
LO5: Describe under which conditions a
shareholders meeting must be
convened, the contents the notice
of the meeting must contain and
how shareholders may take a
decision without convening a
meeting.
LO6: Explain the matters that must be
discussed at annual general
meetings.
Related Theme 2: Ordinary and Special PM: Chapter 5 para 5.8,
Outcomes: Resolutions 5.15
MO001 LO7: Differentiate between ordinary and
MO002 special resolutions of the
shareholders in meeting.
LO8: List the circumstances where a
special resolution of the
shareholders in meeting is required.
LO9: Explain the quorum required for an
ordinary resolution and a special
resolution respectively, as provided
for in the Companies Act.
LO10: Assess the degree of flexibility a
company has (in its MOI) to allocate
voting rights in respect of shares or
classes of shares

Learning Unit 4 Directors and Board Committees
Overview:
A company, while a legal person in and of itself, still requires agents to act on its behalf. The
board of directors of the company fulfils this function. The Companies Act 71 of 2008, the
company’s memorandum of incorporation (MOI), and the King IV Report offer relevant
regulations that need to be adhered to when acting on behalf of the company.
In this learning unit we will explore what is meant by a director, and how directors can be
appointed to the board. The role and function of directors will be considered, particularly in
relation to their participation in board and audit committees. We will draw on the Companies
Act as well as the King IV Report to determine what constitutes good governance principles
and recommendations. We will also examine the importance of independence in relation to
the board of directors and the functions that they oversee.


Sessions: Theme 1: Directors and Board Prescribed Material (PM)
21-31 Committees
LO1: Define the concepts of a director and PM: Chapter 6 para 6.1 –
the board of directors (BOD); 6.9
LO2: Differentiate between the different
directors that one may encounter in
a company;
LO3: Briefly discuss the King IV
requirements regarding the
composition of the BOD;
LO4: Discuss the default position
regarding the minimum number of
directors that the various types of
companies may appoint and to what
extent, if allowed, may this default
position be amended by the MOI;
LO5: Apply the business judgement test
and the law as it relates to the all
duties of directors to a set of facts;
LO6: Discuss the instances where
directors may incur liability as
provided for in the Companies Act
and whether or not the company
may take out liability insurance on
behalf of its directors.
LO7: Explain the concepts ‘fiduciary duty’,
‘duty of reasonable care’ and
‘conflict of interest’ in the context of
a director’s responsibilities.
LO8: Differentiate between disqualified
person, an ineligible person and a
delinquent person insofar as it
relates to the appointment and
removal of directors.
LO9: Explain when a director may be
declared delinquent, placed on
probation and the effect of such a
declaration.

Related Theme 2: Board and Audit Committees PM: Chapter 6 para 6.15
Outcomes:
MO001 LO10: Describe board committees.
MO002 LO11: Explain the appointment and
function of the audit committee.

Learning Unit 5 Auditors and the Company Secretary
Overview:
Subjecting the financial statements of a company to the scrutiny of an auditor is an important

mechanism through which the interests of key stakeholders (such as the shareholders and
creditors) may be protected from harm caused by the ineptitude, dishonesty or mistakes of
the company’s officers. (Davis et al, 2013).
In this learning unit, we will explore the roles of auditors and the company secretary. The
rights and functions of an auditor and audits will be explained, and distinguished from an audit
review, and we will examine the importance of independence as it relates to the audit.
We will also investigate the role of a company secretary as chief administrative officer, as well
as the conditions of appointment of the company secretary. We will further identify which
companies are required to appoint a company secretary and the function of the company
secretary. Finally, we will look at the primary duties of the company secretary role.


Sessions: Theme 1: Auditors Prescribed Material (PM)
32-36
LO1: Differentiate the processes of audit PM: Chapter 13 para 13.1,
and audit review and between the 13.4 – 13.6
companies must have their financial Read only:
statements audited and which may Chapter 7 para 7.14 only
only have their statements reviewed.
LO2: Define an auditor as provided for in s
1 of the Auditing Profession Act 26 of
2005.
LO3: Define ‘audit’ in the context of
financial statements and company law.
LO4: Describe the rights and restricted
functions of an auditor.
LO5: Explain who may not be appointed as
an auditor of a company and the
concept of the “rotation of auditors”,
and why the Companies Act requires
this rotation.
LO6: Discuss the duties of an audit
committee.
Related Theme 2: Company Secretary PM: Chapter 13 para 13.9
Outcomes: LO7: Discuss the duties of the company
MO001 secretary.
MO002

Learning Unit 6 Remedies, Enforcement and Alternative Dispute Resolution
Overview:
The Companies Act 61 of 1973 relied heavily on criminal sanctions in order to ensure
compliance with its provisions. The Companies Act 71 of 2008, however, takes another tack
and largely (although not entirely) decriminalises company law (Davis et al, 2013). Criminal
sanctions are now replaced with civil remedies in the Companies Act 2008, in terms of which
the persons injured are given the opportunity to seek financial and other redress. One of the
reasons for the new approach is that the sanctions of the 1973 Act were seldom enforced –
and were therefore somewhat ‘toothless’ and ineffectual deterrents.
In this learning unit, we will explore some of the instances where disputes arise in companies,
including mergers and acquisitions, insider trading, and business rescue. We will outline who
the affected parties are in each instance and what recourse they have to resolve the dispute.
We will investigate different remedies and models of enforcement of those remedies.
We will also cover the basic principles of alternative dispute resolution, and differentiate
between arbitration, mediation, and conciliation.


Sessions: Theme 1: Remedies and enforcement Prescribed Material (PM)
37-43
LO1: Apply the following concepts to a set PM: Chapter 10 para 10.1,
of facts: Chapter 11 para 111, 11.3,
o Fundamental transaction Chapter 12 para 12.1 –
o Regulated company 12.2, 12.4 and 12.9 and
o Affected transaction Chapter 14 para 14.1 and
o Insider trading 14.3
o Insider
o Inside information
o Financially distressed
o Affected person
o Business rescue proceedings
o Compromise
LO2: Name the three fundamental

transactions and provide an
illustrative example of each.
LO3: Apply the shareholders’ appraisal
remedy to a set of facts.
LO4: Explain the application of business
rescue proceedings
LO5: Describe the new approach of the
Companies Act, which aims to
decriminalise company law.
LO6: Classify the non-criminal civil
remedies available under the
Companies Act.
LO7: Discuss the remedies available to
shareholders who are victims of
oppressive or unfairly prejudicial
conduct.
Related Theme 2: Alternative Dispute Resolution PM: Chapter 14 para 14.5
Outcomes:
MO001 LO8: Discuss Alternative Dispute
MO002 Resolution (ADR) in the context of
company law and the Companies Act.

Learning Unit 7 Close corporations and business trusts
Overview:
In addition to the more traditional company types that have been explored in previous
themes, close corporations and business trusts also serve as forms of business entity.
In this learning unit we will explore what characterizes a close corporation, and the rights and
responsibilities of the members of a close corporation. The impact of the Companies Act on
close corporations will also be explained.
We will further describe the different trusts that individuals are able to form in South Africa
and differentiate the processes of trust formation. We will also outline the roles of different
parties involved in setting up, maintaining, and benefiting from a trust.


Sessions: Theme 1: Close corporations Prescribed Material (PM)
44- 48
LO1: Describe the characteristics of a PM: Chapter 16 para 16.1 -
close corporation (CC). 16.3, 16.5, 16.8 – 16.9
LO2: Discuss the meaning of members,
the legal position of the individual
members of a CC, who those
members may be and what a
‘member’s interest’ in a CC is.
LO3: Explain why the ultra vires doctrine
does not apply to CCs.
LO4: Discuss the impact of the Companies
Act on CCs.
LO5: Apply the ‘fiduciary duties’ and ‘duty
of care and skill’ of members to a
set of facts.
LO6: Explain the internal relations
between members inter se.
LO7: Identify the constitutive document/s
of a CC.
LO8: Apply the members’ power to act
and contract on behalf of the CC,
the members’ potential liability
(personal, joint, and joint and
several) and the personal liability of
members to a set of facts.
Related Theme 2: Business trusts PM: Chapter 18 para 18.1,
Outcomes: 18.5 – 18.7, 18.9 – 18.10.
MO001 LO9: Define a trust.
MO002 LO10: Name the three parties to a trust
MO003 and explain each of their roles.
LO11: Apply the characteristics of a trust
to a set of facts.
LO12: Differentiate between the methods
of creating a trust.

Glossary of Key Terms for this Module

Term Definition My Notes
Agent Person (agent) authorised to
represent and legally bind another
person (the principal) in the
principal’s legal transaction with a
third party.
Alternative Resolution of disputes without
Dispute recourse to the courts (without
Resolution litigation). The private resolution of
(ADR) civil disputes utilising, for example,
mediation, arbitration or
conciliation.
Annual Annual meeting of the shareholders
General of a company at which certain
Meeting resolutions must be passed.
(AGM)
Appeal Application to a higher court from a
lower court for the setting-aside of
or the amending of a decision of the
lower court on the grounds that it
was wrongly decided with respect to
either the law or the facts or both.
Arbitration Decision by an impartial third party
and the settling thereby of a dispute
between two other parties. The
disputants are obliged to adhere to
the arbitrator’s decision as it is final
and binding. As such, one cannot
appeal against an arbitration award.
One may, however, take such an
award on review.
Audit A systematic examination of the
financial position and accounting
records of an enterprise by a
qualified auditor. An audit is held so
as to form an audit opinion on
whether the financial statements of

the company fairly represent the

firm’s performance and position.
Authorised Number and classes of shares that
shares the MOI of a company allows the
company to issue to investors.
Beneficiaries In the context of trusts, the
person(s) who benefits from the
trust object, usually by way trust
capital or income being distributed
to them.
Board of Collective of directors who have the
directors responsibility for the profitable
running of the company. The board
of directors is concerned with
overall strategy and responsible for
the direction and control of a
company.
Capacity The legal competency to perform an
act. Where a company acts beyond
its legal capacity (beyond for
example what the MOI would
permit) the company is said to act
ultra vires.
Consideration Something given or taken in return
for something else – a quid pro quo.
Ss sand s40(2) of the Companies Act
state that before a company issues
shares, the board of directors must
decide on the consideration for
which those shares will be issued.

Term Definition My notes

Constructive Knowledge that a person is deemed
notice (assumed) to have received.
Corporate Method by which company assets
finance are financed – usually a combination
of debt and equity (shares).
Debenture A long-term loan owed by a company
and reflected in a document issued
by that company wherein it
acknowledges that debt.
Deferred Class of shares often issued to the
shares founders of the company and which
defers payment of dividends until all
other shareholders have received
theirs.
Distribution Defined in ss1 of Companies Act. A
transfer of money or assets (not its
own securities) to its shareholders.
Equity In a non-company law sense it means
‘fairness’. In a narrower sense it
refers to the money value of
property left over after all debts and
liabilities have been subtracted in an
organisation. In the context of
company law, the amount left over
after all liabilities have been
deducted from the company’s assets.
Essentialia Essential elements of contract that
allows a particular contract to be
classified as of a certain type, for
example a contract of Sale or a
contract of Lease.
Ex officio Someone who is a director simply
director because that person occupies
another formal position or office.
Fiduciary Duty imposed by law on directors
duty and others to act in the best interests
of the company that they have
responsibility for.
Independent Regulatory board established by the
Regulatory Auditing Profession Act 26 of 2005.

Board for
Auditors
(IRBA)
Insolvency When a company’s liabilities exceed
its assets, the company is factually
insolvent.
Inter vivos Trust established when the founder
trust is still alive. Such a trust is created by
means of contract.
Issued share Share capital that has actually been
capital issued to its shareholders in the form
of shares. Issued share capital may
not exceed its authorised share
capital.
Juristic Where a non-human entity (such as a
personality company) is regarded as having legal
rights and duties similar to humans.
Limited Liability of a shareholder to be liable
liability for no more than the price the
shareholder paid for the shares.
Thus, if the company were to suffer
some misfortune, the shareholder
will lose no more than was paid for
the shares; the company carries its
own losses.
Liquidity Ability of a debtor to pay when debts
fall due.
Listed A company listed on the JSE Ltd.
company


Member’s Interest (‘share’) held by a person in
interest a close corporation and always
expressed as a percentage.
(Members’ interest cannot be more
than 100%.)
Minutes of a Written record of a meeting.
meeting
Merger When two or more company’s
combine to become one company or
to establish another company.
MOI Memorandum of Incorporation; a
company’s constitutive document,
together with the directors’ rules, if
applicable.
Nominee Person who is approved to act as the

holder of securities on behalf of
another person(s).
Naturalia Legal consequences of a contract
that flow automatically from a
particular type or class of contract.
Ordinary Residual category of a firm’s shares
shares that does not carry any special class
rights, such as special voting rights or
preferential rights to a dividend.
Participating A class of preference shares where
preference the shareholders share in the
shares distribution of the company’s surplus
profits (if there are any once the
company is liquidated) in addition to
their preferential dividend.
Par value Face value of shares when initially
offered by the company. The
distinction between par value and no
par value shares was abolished by
the Companies Act.
Perpetual Idea that a company or CC will
succession continue to subsist or exist once its
founders and even their successors
have moved on.

Principal Party for whom an agent acts.

Proxy Person authorised in writing to
represent another at a meeting when
the other person cannot be present.
Ratify To approve or allow something after
the event/fact. In agency,
ratifications is one of the methods in
which authorisation is established.
Securities Securities has a much wider meaning
than merely the shares of a company.
(See s 1 of the Companies Act.)
Share Bundle of personal rights that entitle
the holder to a defined interest in a
company as determined in a
company’s MOI.
Share The authorised share capital of a
capital company, both issued and unissued.
Special Resolution passed by a company’s
resolution shareholders with, unless the
company’s MOI specifies differently,
a 75% majority of the voting rights
exercised on that vote.


Uberrimae Utmost good faith (Latin).
fidei
Ultra vires Rules that apply when a company
doctrine acts outside of the scope of its
powers and competency.
Uncertificated Securities that are not evidence by
securities an actual (paper) document. Shares
that are held and traded
electronically. (See Strate above).
Voting rights Right of a shareholder to vote at
shareholder’s meetings.

Laes5111 Mo

Uploaded by

Copyright:

Available Formats

You might also like

Laes5111 Mo

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Laes5111 Mo

Uploaded by

Copyright:

Available Formats

IIE Learn Module Outline LAES5111

Law of Enterprise Structures

The Independent Institute of Education (Pty) Ltd is registered with the

© The Independent Institute of Education (Pty) Ltd 2023 Page 1 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 2 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 3 of 39

Using this Module Outline

© The Independent Institute of Education (Pty) Ltd 2023 Page 4 of 39

This Module on Learn

● A list of prescribed material;

© The Independent Institute of Education (Pty) Ltd 2023 Page 5 of 39

Icons Used in this Document and on Learn

Specific references to sections in the prescribed work.

Questions to help you recognise or think about theoretical concepts to be

Opportunities to make connections between different chunks of theory in

Real life or world of work information or examples of application of

You need to log onto Learn to:

© The Independent Institute of Education (Pty) Ltd 2023 Page 6 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 7 of 39

• Sole Proprietorship | South African Revenue Service (sars.gov.za)

Some useful web links:

© The Independent Institute of Education (Pty) Ltd 2023 Page 8 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 9 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 10 of 39

Formatives Take Home Test 1 Take Home Test 2

Summative Take Home Examination

© The Independent Institute of Education (Pty) Ltd 2023 Page 11 of 39

Assessment Preparation Guidelines

© The Independent Institute of Education (Pty) Ltd 2023 Page 12 of 39

Take Home Examination

© The Independent Institute of Education (Pty) Ltd 2023 Page 13 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 14 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 15 of 39

Learning Unit 1: Theme Breakdown

© The Independent Institute of Education (Pty) Ltd 2023 Page 16 of 39

LO9: Apply the concept of the

© The Independent Institute of Education (Pty) Ltd 2023 Page 17 of 39

LO17: Explain when and how a

LO21: Apply the following concepts: the

© The Independent Institute of Education (Pty) Ltd 2023 Page 18 of 39

Learning Unit 2 Corporate Finance: Equity, Debt Instruments, Distributions and

© The Independent Institute of Education (Pty) Ltd 2023 Page 19 of 39

Learning Unit 2: Theme Breakdown

© The Independent Institute of Education (Pty) Ltd 2023 Page 20 of 39

LO9: Explain what is meant by a securities

© The Independent Institute of Education (Pty) Ltd 2023 Page 21 of 39

Learning Unit 3 Shareholder and Company Meetings

© The Independent Institute of Education (Pty) Ltd 2023 Page 22 of 39

Learning Unit 3: Theme Breakdown

© The Independent Institute of Education (Pty) Ltd 2023 Page 23 of 39

Learning Unit 4 Directors and Board Committees

© The Independent Institute of Education (Pty) Ltd 2023 Page 24 of 39

Learning Unit 4: Theme Breakdown

© The Independent Institute of Education (Pty) Ltd 2023 Page 25 of 39

© The Independent Institute of Education (Pty) Ltd 2023 Page 26 of 39

Learning Unit 5 Auditors and the Company Secretary

Subjecting the financial statements of a company to the scrutiny of an auditor is an important

© The Independent Institute of Education (Pty) Ltd 2023 Page 27 of 39