Forms of Business Enterprise 2604 (FBE2604)

Examination

Student number: 64767655

Name: Karabo Tshegofatso

Surname: Mooketsi

June 2021
Question 1

1.1.1 The seperate legal personality of a company may be disregarded in the following
two ways; (1) in terms of the common-law principle that has been developed in the case
law, which has to do with the piercing of the corporate veil, (2) it can be by means of the
statutory provisions, which are on section 20(9) of the Companies Act, for purposes of
companies;and section 65 of the Close Corporations Act, for close corporations.

1.1.2 Courts have made it very clear that they will not be allowing the use of any legal
entity to justify wrongdoings, to conceal fraudulent activities or to defend or hide crime.
In cases like this, the courts may have to pierce or lift the corporate veil and hold
directors and others personally liable for acts committed in the name of the company. In
Cape Pacific v Lubner Controlling Investments (Pty) Ltd and others 1995 (4) SA 790 (A),
the conception of piercing the corporate veil was described as disregarding the
dichotomy between a company and the natural person behind it who controls its
activities, and attributing liability to a person who misused or abused the principle of
corporate personality for their benefit. In other words, the reality of the circumstances
and substance, rather than the form, must prevail. This measure is used in exceptional
circumstances where there is evidence of fraud, dishonesty or improper conduct that
was going on.

1.2 A personal liability company (Inc or Incorporated comes after the name of the
association) is the best company for Tshepo,Joel and Mike and their law practice. This
type of company requires that; it must meet the criteria for a private company,it is mainly
used by professional associations such as attorneys(like Tsheo,Joel and Mike); the
memorandum of incorporation must state that it is a personal liability company; the
directors are jointly and severally liable – along with the company – for debts and
liabilities
contracted during their term of office; it can be formed by one person; it is a must to
have at least one director and the doctrine of constructive notice applies in terms of
section 19(5) of the Companies Act.

1.2.1 A notice of incorporation is the notice to be filed in terms of section 13 (1), by

which the incorporators of a company inform the Commission of the incorporation of
that company and for what purposes the business is registered. The matters Maite
must include in the Notice of Incorporation is:(1)the type of company;(2)its incorporation
date ;(3)the financial year end;(4) the registered address(main office); (5)the number of
directors; (6)the company name.

1.3.1 Formal requirements that must be adhered to in terms of section 21 of the

Comanies Act 71 of 2008 in order for a contract to be binding on the company are and
will be binding if ; (1) it is concluded by a person in the name of or purporting to act in
the name of or on behalf of a company yet to be incorporated in terms of the
Companies Act; (2) the contract was concluded in writing; and (3) the board of that
company ratifies the transaction or does not reject the contract within the stipulated
three-month period after its incorporation. In other words, if the above two formal
requirements are complied with and after the company’s incorporation, the board does
nothing about the transaction (for example, neither ratifies nor rejects it), the contract
will become binding on the company.

1.3.2 According to section 21,it provides for joint and several liability of the person or
persons who concluded the contract on behalf of the company for liabilities created in
terms of the pre-incorporation contract if the company is not incorporated; or the board
rejects the contract partially or in full. In such a case, the person who acted on behalf of
the company may claim any benefit from the company that it receives in terms of the
contract, but may apparently not claim any benefit from the other contracting party.

1.4 According to section 12 of the Companies Act, in order to reserve a name, a form
CoR 9.1 must be filled in and completed,a filing fee must be paid. Section 11 of the
Companies Act ristricts a company name as far as to; protect the public from misleading
names, which falsely imply an association that does not exist; protect the interest of the
owners of names and other forms of intellectual property (such as trade marks) from
other persons passing themselves off, or coat-tailing, on the owner’s reputation and
good standing; and to also protect the public from names that would fall within the ambit
of expression that does not enjoy constitutional protection because of its harmful or
other negative nature. Where, according to the Commission, there is a possibility that
the name is similar to the name of another company or another business undertaking or
trademark, or that the name gives an impression that there is a connection between the
company that is applying and another entity or state organ, the Commission may
compel the applicant to inform parties that may be interested by serving them with a
copy of the application and name reservation. If the company’s name is to be
associated with another existing business, the Commission will request proof from the
applicant company that the associated company was thus made aware before
registration of a similar name is to be allowed.
Effect of a name reservation is when a name reservation is valid for six (6) months. It is
possible to apply for an extension of a name reservation for an additional sixty (60)
business days by lodging a form CoR 9.2 and paying a filing fee. In section 12 of the
Companies Act, a name may be reserved for use at a later stage, to be used for a newly
incorporated company or to be used as a replacement for an existing name of a
company.Somebody who has applied for reservation of a name may transfer the
reserved name to another person by lodging a form CoR 11.1.

Question 2

2.1.1 Yes the contract of purchase and sale will be valid because the company’s
memorandum of incorporation may limit the legal capacity of the company in terms of
section 19(1)(b)(ii),but such restrictions would not render any contract invalid that
conflicts with these restrictions section 20 (1) (a). Thus the contract remains valid and
binding upon the company and the other party to the contract.

2.1.2 If the board of directors has not yet completed the transaction, one or more of the
shareholders, directors or prescribed officers of the company may obtain a court order,
preventing the company or directors from doing so.Section 20 (6) of the Companies Act
provides that each shareholder has a claim for damages against any person who
fraudulently or due to gross negligence causes the company to do inconsistent actions
with the Companies Act or a limitation,restriction or qualification on the powers of the
company as stated in its memorandum of incorporation, unless ratified by special
resolution in terms of section 20(2). This is in addition to the remedy provided in section
165.

2.2.1 A company cannot participate in the legal sphere as a legal subject on its own; it
depends on its agents to conclude contracts on its behalf. When a company gives an
agent authority to act on its behalf, the agent possesses actual authority and will bind
the company in acts that fall within the scope of the mandate given to him or her as the
agent that holds actual authority.The agent has the consent to act on behalf of the
principal, however,should the agent acts outside his or her mandate, the principal is not
bound by that action/contract. The three sources of actual authority is (1)the
memorandum of incorporation;(2) rules of the board and (3)the express mandate.

2.3 Peter is a memorandum of incorporation appointed director.

Joan was an elected director.
Cathy is an ex officio director.
Steven was a temporary director.

2.3 a.)Preference shares; preference shares provide their holders with a preference
over other shareholders to dividends,and the right of return of capital on winding-up. In
return for the preferential right to dividends, the right of preference shareholders to vote
is usually curtailed in the memorandum of incorporation. However, even if the
memorandum of incorporation states that preference shareholders do not have the right
to give their vote, the Companies Act provides that they have an irrevocable right to vote
on any proposal to amend the preferences, rights, limitations and other terms
associated with their shares.
b.)Ordinary shares; ordinary shareholders will have the right to vote at meetings of
shareholders. With accordance of the Companies Act, this right may be curtailed so that
one class of ordinary shareholders will not have the right to vote. However, it is a must
that there should always be at least one class of shareholders that have the right to
vote, and if there is only one class of shareholders, then all the shareholders must have
the right to vote.
c.)Deferred shares; these shares are issued to the founders of a company; these
shares entitle them to dividends only if the dividend amount exceeds a certain threshold
and after the ordinary shareholders have been paid.Deferred shareholders receive their
dividends payments last.
2.4.1 (1)election of directors to the extent required by the Companies Act or the
company’s memorandum of incorporation;
(2) appointment of an auditor for the following financial year;
(3) appointment of an audit committee ;and
(4) presentation of the directors’ report.

2.4.2 A shareholder may appoint someone including someone who is not a shareholder
to act, speak or vote on his or her behalf at a shareholders’ meeting or to provide or
withhold consent,this can be done by representation of proxy.Requirements for
representation of proxy are that; the appointment must be in writing and signed by the
shareholder. The appointment is valid for one year.The appointment may be for a
specific period of time.The appointment may be for two or more persons concurrently
exercising voting rights for different shares.A proxy may delegate authority to act on
behalf of the shareholder to another person.A copy of the proxy appointment form must
be delivered to the company before the shareholders' meeting.A shareholder is not
compelled to make an irrevocable proxy appointment.A shareholder may alter a proxy
by cancelling it in writing, appointing another proxy and delivering a copy of the
revocation to both the proxy and the company.

Question 3

3.1.1 It depends on which grounds Glen has been declared delinquent, he will be
either unconditionally disqualified from being a director for the rest of his life, or
disqualified for a period of at least seven years, and subject to any conditions that the
court considers appropriate.An order of probation, on the other hand, may not really
exceed a period of five years and may be made subject to any conditions the court
considers appropriate, such as a designated remedial programme, performance of
community service or the payment of a fine.Glen may be declared delinquent or under
probation in terms of section 162 of the Companies Act.

3.1.2 a)Served as a director while disqualified,

b)acted as director while under probation in a manner that contravened order of
probation,
c) grossly abused position of director,
d) took personal advantage of information/an opportunity,
e) intentionally/by gross negligence caused harm to company/subsidiary,
f) acted in a manner that amounts to gross negligence, wilful misconduct or breach of
trust.

3.2 Section 93 of the Companies Act states that the company auditor has a right to
access, at all times, the accounting records and all books and documents of the
company. Mike may request from the directors or officers such information and
explanations as are necessary for the performance of his or her duties.Mike is further
entitled to apply to court for an order to enforce the above mentioned rights
and the court may make any order that is just and reasonable to prevent frustration of
Mikes duties by the company, directors, prescribed officers or employees. The
court may further make a costs order against Bernice whom the court would find to have
wilfully and knowingly frustrated, or attempted to frustrate,the performance of Mikes
functions as an auditor.Mike is therefore entitled to have access to the documents
requested from Bernice and may, if necessary, apply to court for an order that the
documents be furnished to him. The court may also make a costs order against Bernice
in her personal capacity.

3.3.1 Wane,Theo and Nolene are obliged to appoint a company secretary for their
company, Mitchells Ltd.The company secretary is the principal administrative officer of a
company.Public companies or state-owned enterprises must appoint a company
secretary who is knowledgeable or experienced in the relevant laws.

3.3.2 Duties of a company secretary entail:

-providing the directors of the company collectively and individually with guidance as to
their duties, responsibilities and powers;
- making the directors aware of any law relevant to or affecting the company;
- reporting to the company’s board any failure on the part of the company or a director
to comply with the Companies Act;
- ensuring that minutes of all shareholders' meetings, board meetings and the meetings
of any committees of the directors, or of the company’s audit committee, are properly
recorded in accordance with the Companies Act;
- certifying in the company’s annual financial statements whether the company has filed
required returns and notices in terms of the Companies Act, and whether all such
returns and notices appear to be true, correct and up to date;
- ensuring that a copy of the company’s annual financial statements is sent, in
accordance with the Companies Act, to every person who is entitled to it;
- carrying out the functions of a person designated in terms of section 33(3) (i.e. person
responsible for filing the company’s annual return).

3.4.1 A demand may be delivered by a shareholder or a person who is entitled to be

registered as a shareholder; a director; a prescribed officer; a registered trade union
that represents employees, or another representative of the employees; or any person
who is granted leave by the court to do so.

3.4.2 Pat alone,by himself does not qualify to deliver such a demand to his
company,unless he is represented by a registered trade union or a representative of the
employess, to be able to put his demand to the company forward.

Question 4

4.1.1.1 Yes, Cindy a minor can becom a member of a close corporation,in this instance
its Deli Nuts CC. A minor may become or remain a member of a close
corporation with the necessary assistance from a guardian, trustee or the court.

4.1.1.2 Nuts Gallore (Pty) Ltd. can not become become a member od Deli Nuts
CC.Juristic persons are excluded from membership of close corporations and, apart
from a few very specific exceptions, a company or another close corporation may not be
a member of a close corporation.

4.1.1.3 Tristan, a trustee of the Van Zyl Family Trust may become a member of Deli
Nuts CC. Trustees in their own capacity as trustees of testamentary trusts or trusts inter
vivos may become members of a close corporation.

4.1.2 A close corporation does not need to appoint an auditor.However,an accounting

officer must be appointed for the close corporation. Accounting records of the close
corporation must be kept and approved by members annually.The accounting records
do not need to be submitted to the Commission.The accounting officer must account for
the financial state of the corporation in accordance with generally accepted accounting
practice. He or she also performs a very important reporting function in the CC. If an
accounting officer becomes aware of irregularities in the accounting policies or practices
of the corporation, this must immediately be disclosed to the members. The
Commission must also be informed if the accounting officer is removed, the corporation
is not carrying on business or its liabilities exceed its assets at the end of the financial
year.

Bibliography
Department of Merccantile Law, Forms of Business Enterprise,Study Guide for
FBE2604. University of South Africa. Pretoria.