Question 1 Jack wants to incorporate a private company and asks you to draft the memorandum of incorporation for the prospective company. State the two essential statutory requirements that the memorandum of incorporation must comply with for the company to constitute a private company. (2)
• Prohibition against the offering of securities to the public
• Restrict the transfer of securities.
Question 2 The memorandum of incorporation of Hatfield Estates Homeowners Association NPC provides that a member is only allowed to keep one dog on each property owned by that member. There is a need to change the memorandum of incorporation to read that a member is allowed to keep one dog and one cat on each property owned by that member.
2.1 Who may propose the amendment to the memorandum of incorporation in terms of the Companies Act 71 of 2008? (2)
The Board (or 10% of the holders of voting shares) can propose a resolution to amend the MOI. Note: Some students referred to shareholders instead of members. Although the correct term in this context is members, a mark for shareholders may be awarded.
2.2 What type of resolution is required to amend the memorandum of incorporation
of Hatfield Estates Homeowners Association NPC and, considering your answer in 2.1, who must take this resolution?
A special resolution of 75% is required, taken by the members.
Note: If it is stated that the board must adopt a special resolution, the mark cannot be awarded. The amendment must be by formal or informal special resolution (unless the amendment to the name is by court order, in which case a board resolution would suffice).
Question 3 John wants to incorporate World Travel (RF) (Pty) Ltd and asks you to draft the memorandum of incorporation for the prospective company. Explain when a company will be regarded as a 'RF' company. (2)
s 15(2)(b) • MOI contains restrictive condition + additional requirements apply for the amendment of such condition (1) s 15(2)(c) • MOI contains a prohibition against the amendment of any particular provision of the MOI. (1)
Question 4 To supplement the company’s income the directors of the company decided to expand the company’s business to include game farming. Advise the board on the statutory requirements and procedure that must be followed to include game farming as a purpose of the company in the company’s existing MOI. NB: At first the company’s business as per its MOI did not include game farming. (3)
• The MOI must be amended (1)
• Amendment can be proposed by board (1) • Proposed amendment must be accepted by a special resolution (1) • Notice of amendment must be filed with CIPC (1) Notes: • Some students confused board of directors and shareholders (some did not understand the board proposed the resolution and shareholders adopted special resolution). • A few students used section 17 and not section 16. • One or two students mentioned subsidiaries and a few distributions.
Question 5 Anri, Chris, Noma and Tshepiso are the directors of Supreme Beef Butchery (Pty) Ltd (‘the company’). In terms of the company’s memorandum of incorporation, Chris may conclude a contract on behalf of the company to a maximum value of R50 000, but for any contract that exceeds the value of R50 000 Chris needs to obtain the approval of the shareholders by ordinary resolution. Chris purchased a freezer for the company from James for R100 000. The company failed to pay James the R100 000 owed for the freezer. When James demanded payment from the company, the company’s legal representatives argued that Chris did not have the authority to conclude the contract on behalf of the company as he did not obtain the necessary approval from the company’s shareholders. Advise James whether there are any legal grounds on which the company can be held liable in terms of the contract. (3)
• Turquand / s 20(7) and (8) – internal requirement
• James bona fide assume that ordinary resolution has been obtained. • Chris has actual authority to bind the company • Therefore, James can hold the company liable in terms of the contract. (max 3 marks) S20(7) & (8): A person dealing with a company in good faith, other than a director, prescribed officer or shareholder of the company, is entitled to presume that the company, in making any decision in the exercise of its powers, has complied with all of the formal and procedural requirements in terms of this Act, its Memorandum of Incorporation and any rules of the company unless, in the circumstances, the person knew or reasonably ought to have known of any failure by the company to comply with any such requirement. (8) Subsection (7) must be construed concurrently with, and not in substitution for, any relevant common law principle relating to the presumed validity of the actions of a company in the exercise of its powers.
Turquand common law rule: Simply put, the common law Tarquand rule means that an outsider contracting with a company in good faith is entitled to assume that the internal requirements and procedures have been complied with. This means that the company will be bound by the contract even if the internal requirements and procedures were not complied with. The rule in a way protects an outsider that contracts in good faith. Question 6 Sibanda Inc, an auditing firm, entered into an agreement with CopyKatz CC to print all the annual financial statements prepared and audited by the firm. Since the conclusion of the contract, one of Sibanda Inc’s directors, Mr Mabunda, has resigned, leaving Mr Malatji and Ms Modiba as the only remaining directors of Sibanda Inc. Sibanda Inc has now defaulted on the account rendered by CopyKatz CC. Advise whom CopyKatz CC can hold liable for Sibanda Inc’s outstanding account. Also state the nature of the liability. (5)
• S19 (3) (1): If a company is a personal liability company the directors and past directors are jointly and severally liable, together with the company, for any debts and liabilities of the company as are or were contracted during their respective periods of office. • Company (1) • Mr Malatji and Ms Modiba (1) • Mr Mabunda (1) • Jointly and severally liable (1) for contractual debts contracted during the directors’ period of office (1)
