QUESTION 1

At common law, a company had limited legal capacity, and the common law ultra vires doctrine
decreed that, where a company entered into a transaction that was outside the scope of the
objects clause in its memorandum of association, the act was void and unratifiable. In the light of
– and in comparison, with – that historical concept of a company’s legal capacity, –YOU ARE
REQUIRED TO –

(a) Explain what the legal capacity of a company is in terms of the Companies Act 71 of
2008;
(b) Explain the legal position of the doctrine of constructive notice in terms of the
Companies Act
(c) Explain the legal consequences where a company enters into a transaction that infringes
a limitation on its capacity set out in its memorandum of incorporation, for example,
where it enters into a contract of a kind that the company’s memorandum of
incorporation forbids it from entering into;
(d) Give a detailed explanation of the Turquand rule with reference to the specific provisions
of the statute and case law.
(e) Explain the concept of a so-called "RF" company and the legal implications for an
outsider who enters into a contract with a company whose name includes the abbreviation
"RF".

(No specific marks are allocated to parts (a), (b) and (c) of the question and your answer
will be marked as a whole.)

QUESTION 2

Discuss the concept of the gross or unconscionable abuse of juristic personality as a ground for
piercing the corporate veil as envisaged in section 65 of the Close Corporations Act 69 of 1984
and section 20(9) of the Companies Act 71 of 2008 and the manner in which this concept was
explained and applied in Airport Cold Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C) and in
the judgment of the Supreme Court of Appeal in this case and also in Ex parte Gore NO [2013]
ZAWCHC 9. Include in your answer a discussion of the remedy, under section 20(9), mentioned
above, of piercing the veil as articulated in the judgment in Ex parte Gore.

(Do not discuss any of the common law grounds for piercing the veil and do not discuss the
piercing of the veil in terms of section 424 of the Companies Act 61 of 1973).

QUESTION 2
Discuss the circumstances in which, at common law, the courts will "lift or pierce the veil of
incorporation"; include in your answer a full discussion of the decision in Cape Pacific Ltd v LCI
(Pty) Ltd 1995 (4) SA 790 (A). Compare and contrast the judgment in this case with the
judgment in Botha v van Niekerk 1983 (3) SA 513 (W) and include in your answer a discussion
of any other judicial decisions involving a lifting or piercing of the corporate veil in terms of
common law principles. (Do not discuss any of the statutory grounds for lifting the veil under the
Companies Act 61 of 1973 or the Companies Act 71 of 2008, nor under the Close Corporations
Act 69 of 1984.)
QUESTION 3
Write short notes on the following:

2.1Turquand rule. [5]

2.2 Doctrine of ultra vires. [5]
2.3 Pre-incorporation contracts. [5]
2.4 Alte-ego doctrine [5]
2.5 Doctrine of Constructive Notice. [5]
2.6 Ordinary share. [5]

(30 marks)

QUESTION 4
Jameela is the owner of a timber estate. He sold the timber estate to a company for R1 million.
This amount was paid to him in the form of one million fully paid shares in the company. The
company does not issue any further shares to anyone else. Jameela then insured the timber
against fire by means of insurance policies that were taken out personally in his name. A month
later the timber was destroyed by fire. Is the insurance company liable to pay Jameela on the
insurance policies? Explain fully?
(20)
QUESTION 6
Bently and Benz wish to form a company to conduct a panel-beating business. Bently and Benz
will be the sole shareholders and directors of the company. They do not wish to offer the shares
of the company to the general public. It is important to them that it be stated in the company’s
Memorandum of Incorporation that if either of them wishes to sell his shares, the shares may be
sold and transferred to any purchaser he chooses.

(a) Advise Bently and Benz of the type of company that would be most suitable to meet their
particular requirements. (10)
(b) Advise Bently and Benz of the additional legal requirements that they would have to comply
with if the company is structured as a public company rather than a private company. Explain the
impact that this would have on the costs and regulatory burden. (10)
(25) Marks)

QUESTION 7
The Memorandum of Incorporation of Infinity Ltd provides that the management and control of
the company are vested in the board of directors, which has the power to delegate its authority to
any director of the company. This power of delegation is never exercised by the board but Eager,
a director of Infinity Ltd, enters into a contract on behalf of the company with Janet.
(a) Under what circumstances, if any, will Infinity Ltd be bound by the contract? (10)
(b) Explain the extent to which the legal capacity of Infinity Ltd would be relevant to your
answer in (a) (10)
(c) Is the ultra vires doctrine dead and buried? Explain fully. (10)
(30) marks)
QUESTION 8

Discuss the advantages and disadvantages of the five established legal forms of business
structures. (25) Marks)

QUESTION 10
Alpha, Beta, Gamma, Delta, Kappa and Omega wish to set up a Greek restaurant business
called ‘Zorbas’. They enter into an oral agreement in terms of which it is agreed that:
 Alpha will be the head chef of the restaurant, and will be entitled to 20 per cent of the
profits of the business.
 Beta will be the manager and restaurant host, and will also be entitled to 20 per cent of
the profits of the business. Beta will not share in net losses of the business.
 Gamma will allow the use of his property, rent-free, as business premises, and will
receive 20 per cent of the profits of the business.
 Gamma will also receive a salary of R10 000 per month for accounting services rendered
to the partnership.
 Delta will finance the business by contributing an amount of R1 million, but will not
participate in the management of the business. She will receive 30 per cent of the profits
of the business, and her liability for partnership debts will be limited to a maximum
amount of R1 million.
 Kappa will loan a further R2 million to the business, which is repayable with interest in
the form of 10 per cent of the profits of the business.
 Omega will be the head waiter of the restaurant, and will be remunerated at a rate of R10
000 per month.
In light of the above scenario, answer the following questions
1. Has a valid partnership agreement been established, and if so, between which of the
above parties?
2. Assume that a partnership has been formed. Alpha, without informing his partners or
obtaining their consent, enters into an agreement with X (Pty) Ltd for the purchase of
new furniture for the restaurant and signs the agreement of sale as ‘Alpha on behalf of
Zorbas’. Discuss whether the partners will be bound by the agreement.
3. Would your answer to (b) differ if the partners had discussed whether they should
purchase new restaurant furniture and the other partners, disapproving of the idea, had
instructed Alpha not to do so? Explain fully.
4. Zorbas fails to pay X (Pty) Ltd the purchase price for the furniture of R200 000. X (Pty)
Ltd wishes to institute legal proceedings for payment of the amount of R200 000. Advise
X (Pty) Ltd whether legal proceedings may be instituted against the partnership in its own
name or whether the legal proceedings must be instituted against the partner.
5. Zorbas eventually goes insolvent. Explain how creditors of Zorbas would be paid the
debts owing to them.

Question 11
Kingsley entered into a contract with Charlotte in terms of which Kingsley sold his beach house
to Charlotte. Before the beach house had been transferred to Charlotte, Kingsley changed his
mind and decided that he no longer wanted to sell his beach house to Charlotte. He asked
Charlotte to release him from the contract, but she refused, and informed him that if he refused to
transfer the beach house to her she would approach the court for an order of specific performance
to compel Kingsley to sell his beach house to her in terms of the contract. Kingsley subsequently
formed a new company, of which he and his brother were the sole shareholders and directors.
Kingsley then transferred the beach house to the company. Charlotte was informed by Kingsley’s
attorney that the beach house had been transferred to a company and that registration of the
beach house had already taken place. She was informed further that the only remedy open to her
was one for the damages she had suffered and that she would not have a remedy of specific
performance against Kingsley as he could not transfer the beach house to her since he was no
longer the owner of the beach house. Advise Charlotte.
(25 Marks)

Question 12

Morgan decides to go into a partnership with his brother, Stanley, to sell goods in a general store
near a squatter camp. In terms of the arrangement, Morgan will contribute R5 000 and Stanley
will run the shop. After a while Morgan notices that Stanley is taking some of the goods home
with him for personal use. They fought; Morgan doesn’t want to continue the business with
Stanley that he is going to a lawyer. Advice Morgan.

(20 Marks)

Question 13

You are acting on behalf of a client who wants to incorporate a company and plans to name it A
Pick and Pay Stores (Pty) (Ltd) @. Advise your client whether or not he will be able to do so. In
your answer discuss the case of Lucky Star Ltd v Lucky Brands (Pty) Ltd 2017 (2) SA 588
(SCA), Peregrine Group (Pty) Ltd v Peregrine Holdings Ltd 2000 (1) SA 187 (W), Asiza (Pty)
Ltd v Azisa Media CC 2002 (4) SA 377 (C).
(15 Marks)