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Programme
Module Name Business Law
Assignment Number 1
Surname Kapena
First Name/S Barnabé
Student Number 12241412
Date Submitted 15 May 2023
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that the assignment submitted herein is my own original work.
Date: _____15_May_2023_______________
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1. Companies are a type of business enterprise developed to raise large amounts of capital
that simply could not be raised by other types of enterprises, such as sole proprietorship,
guilds, or partnerships.

All companies are classified as their own separate legal persons in the law. Thus, they are
responsible for their own debts and their own management. This means that the
shareholders of a company have limited liability, so they can only lose up to as much as
they have invested in the company. The shareholders also are not directly tasked with or
held accountable for the management of the company.

Despite the benefits, the development of companies brought forth many new problems,
which created the need for new laws. Majority were made to protect the shareholders. For
example, the concept of separate legal personality of a company is set out by these new
laws. The laws were then put together to form The Companies Act 71 of 2008.

One of the major issues addressed in the Act is that all shareholders of a company have to
be kept informed of the proceedings, performance, and progress of the company. All
companies must disclose all key information to it’s shareholders.

Due to the fact that shareholder have limited liability in a company, there is a lot of
interest from members of the public to buy shares. According to the Companies Act,
companies that wish to sell shares have to produce a document of disclosure called a
prospectus, providing information regarding the stocks on offer and key information
about the company and its proceedings to prospective investors.

The Companies Act also requires companies to have a Memorandum of Incorporation

(MOI), a document that specifies the internal relationship within the company as well as
the external relationship with the public and other organisations. The Act also requires
the company to hold an Annual General Meeting (AGM), where voting shareholders can
vote on various resolutions. There are two types of resolutions, namely Ordinary and
Special.

• Ordinary resolutions are resolutions that only require 50% or majority of the share
holders to be approved.
• Special resolutions are resolutions on serious matters which require 75% of
shareholders, or at least 10% more than an ordinary resolution, to be approve.

The Act has many advantages, as one could probably already tell from the points already
discussed. However, it also has its disadvantages. One of these disadvantages affecting
minority shareholders, and coming in the form of a case law derived from the case Foss
vs Harbottle. In the case, the plaintiff, Foss, who was a minority shareholder, claimed that
the directors of the company had been misappropriation the property of the company and
he along with the rest of the minority shareholders wanted to sue on behalf of all the
shareholders. The defendant claimed that the plaintiff had no right to sue on behalf of the
company, as the company is it’s own legal person who can sue on its own name. The
issue raised in this case was whether or not members of the company can file suit on
behalf of the company. It was decided by the court that no individual shareholders or
outsider of the company can take any legal action against the wrong done to the
company, as the company is a separate legal entity and can sue or be sued in it’s own
name, as stated in section 21(1)(a) of its The Act. Therefore, the claim was rejected.
From this case, two rules were established.

1. The proper plaintiff rule: This states that if any wrong is done to the company of the
company suffers Amy loss due to negligent or fraudulent acts of the directors or
outsiders, only the company can sue to enforce its own rights.

2. Majority principal rule: This states that if a majority of members confirm or rectify
the alleged wrong in a general meeting , the court will not intervene.

These rules leave minority shareholders have to accept the decisions made by the
majority shareholders, and in the case of Foss vs. Harbottle, the majority shareholders
were unaware of the wrongs committed by the directors and the minority shareholders
had no means to inform them.

In my opinion, the Act is very important and effective in ensuring that companies operate
and are managed in a way that protects the company, its shareholders and anyone With
any relationship with the company. However, it would be ideal for the Act to be reviewed
and provide solutions for situations, such as the one in the case of Foss vs. Harbottle, to
ensure that in all situations legal actions can be taken to ensure that a company is
operating and being managed properly, and that there are no instances where any person,
be it a shareholder or any other member of the company, are not able to take actions to
help prevent the company unable to help prevent the company from suffering any wrong
or losses.
2. In the Companies Act, the shareholder is used in terms of a profit company and the term
member is used terms of is used in terms of a non-profit company, which does not have
shareholders. Section 57 of the Companies Act partly deals with Shareholders and their rights to
exercise voting rights.

In Section 57(1) of the Companies Act, a shareholder is defined as a person with the entitlement
to exercise voting rights in relation to the company, regardless of the form, nature, or title of the
securities to which those voting rights are attached.

A notice of every shareholders’ meeting must be delivered to all shareholders of the company by
the company, at least 15 days prior in the case of a public company and 10 days prior in Amy
other case. If a company provides less notice than is required, the Act states that every person
entitled to exercise voting rights must be present at the meeting.

Section 57(2) states that if a company has only one shareholder, that that shareholder may
exercise any or all of his voting rights at any given time without notice or compliance of any
internal formalities, except for those set out by the companies Memorandum of Incorporation
(MOI)

Section 57(4) states that in the event that all shareholders every shareholder of a company is a
director, matter that is required to be referred by the board to the shareholders
for decision may be decided by the shareholders at any time after being
referred by the board, without notice or compliance with any other internal formalities, as long as
it complies to the company’s MOI.

Subsections 5 and 6 provide that have securities of a second company may authorise any person
to act as their representative at any shareholders meeting of the second company and exercise the
same rights of that company at the meeting.

The one issue with this is that there is no reference to where evidence of voting right or of the
shareholding can be found. A suitable insertion would be that a shareholder should be entered ad
such in the securities register.
3.1. A contract is an agreement made between two or more parties which creates rights and
duties between them and can be enforced by law.

A contract can only be considered valid if it meets the following requirements:

• There has to be consensus between the parties. Each party must agree on the
objectives, terms and conditions of the contract. For example, if one party was not
made aware if their duties set out by a contract, it is invalid.

• Each party must have contractual capacity to act, meaning they’re legally able to
enter, or conclude the contract. For example, a minor is not able to enter a contract
without the assistance of a guardian to protect them from their own immature
judgement.

• The agreement, and all it entails, created by the contract must be permitted by law.
For example, if one of the duties created by the contract is to steal a car, the contract
is invalid as it is not legally possible.

• Contracts which are require to be reduced to writing and signed by parties have to
observe the necessary formalities. For example, all agreements of credit must be
recorded on paper, and the necessary formalities are prescribed in the Credit
Agreements Act 75 of 1980.

• The intentions, rights, and duties of each party must be definite, clear, just,
enforceable, and precise. For example, if a duty of one of the parties is set out in an
ambiguous way, the contract is invalid.
3.2. A partnership, or unincorporated joint venture, is the relationship between two or more
persons who agree to carry out a trade or business together. Partnerships have many advantages,
such as the following.

• Having a partner can help ease the financial burden, as costs can be split between the
partners. This would be especially helpful when starting a business, as more resources
can be purchased upfront and avoid debt.

• You benefit from an additional set of skills and knowledge that you may not have on
your own, as well as having more networking connections through your partnership.

• Starting a partnership is simple, as you don’t have to file any type special paperwork
to the government. To start a partnership, all the involved partnership agreement.

• There are no additional business entity taxes which means you won’t have to file any
business tax forms, as the taxes will be passed through the owners of the business.

However, there are also a number of disadvantages to a partnership, including the following:

• The fact that you can’t make the decisions on your own. You always have to work
with your partners and make decisions with them, which can be difficult, because
sometimes you may disagree with them.

• Relating to the last point. If one partner acts alone and makes a wreck less decision,
they won’t be held solely responsible for the results. Instead all partners will be held
responsible.

• Different from a company, a partnership is not it’s own legal person, thus the partners
are responsible for the management of the business, as well as it’s debts. If your
business is faced with legal trouble or unplayable debts, you are held accountable for
them.

• The fact that you are taxed individually means that you won’t be charged at a lower
rate like most business are, meaning you will reap a lower profit percentage than if it
were a company.

So as one can see, there is a lot to think about when considering starting a partnership, so one
must access carefully before making a decision.
4. The business judgement rule is a doctrine of company law made by judges in American courts
to protect company directors from facing civil liabilities for the choices they make on behalf of
the company. The business judgement rule states that it should be presumed that the directors
make decisions in good faith, and in what they believe to be they believe to be the best interest of
the company. This is in Section 76 (4) of the Companies Act.

Directors will be regarded as acting in the best interest of the company if they do the following:

• Take reasonable steps to be informed of the matter.

• Have no personal financial interest in the matter, and also know of no one with
financial interest in the matter.

• Made, or support, a decision in the belief that it was the best decision to benefit the
company.

If it is found that a director failed to do any of these in the process of making a decision on
behalf of the company, they can be held accountable for any wrongs that come from said
decision.

However, there is a possibility in which a director can still do all these steps and still
purposefully make a decision that will have negative results, or result in only themselves
benefiting. In cases like this, it will be left to the Shareholders to decide on whether or not to
remove the director and appoint a new one.
References

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hp tales. (2022). Company Law Case- Foss vs. Harbottle ||For CS, CA, CMS, Lawyers||
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Bill Bernard. (2014). The BUSINESS JUDGEMENT RULE. [Online Video]. 17 December
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