Study unit 2.

4 – Chapter 5
1. Capacity of a company
 From the date and time that the incorporation of a company is registered, as stated in
its Registration Certificate, the company is a juristic person
 It exists continuously until its name is removed from the Companies Register in
accordance with the Companies Act
 It has all the legal powers and capacity of an individual, except to the extent that a
juristic person is incapable of exercising such powers, or having such capacity, or to
the extent that the MOI limits, restrict or qualifies the purposes, powers or activities of
the company
2. Doctrine of constructive notice
 Subject to s19(4) a person is not deemed to have notice or knowledge of the
contents of any documents relating to a company merely because:
- the document has been filed
- is accessible for inspection at an office of the company
 Ito s19(5) person is deemed to have notice and knowledge of any provision of a
company’s MOI understand s15(2)(b) and (c)(RF’-company), if the company’s NOI
or a Notice of Amendment has drawn attention to the provision, as contemplated in
s13(3)
 The person is also deemed to have knowledge of the effect of s19(3) on a personal
liability company
3. Validity of company action: ultra vires
 S20(1)(a), an act of a company is not void solely because:
- The company didn’t have the capacity to perform the act because the MOI limits,
restricts or qualifies the purposes, powers or activities of the company
- The directors didn’t, as consequence of a limitation, restriction or qualification, have
the authority to perform that act on behalf of the company
 S20(1)(b) no person may rely on a limitation, restriction or qualification in any legal
proceedings to claim that the company’s action is void, except proceedings
- Between a company and its shareholders, directors or prescribed officers
- Between the shareholders and directors or prescribed officers
 No person could include a mala fide person who has knowledge that the act was
beyond the capacity of the company
 If the company’s capacity is restricted and it is marked as an RF company, imputed
knowledge of the restriction on the capacity should likewise not void the contract
What happens if an action was taken ultra vires, i.e. inconsistent with the limits,
restrictions or qualifications on the company, or where a director acts outside the
scope of his authority?
 If a company’s MOI limits, restricts or qualifies the purposes, powers, or activities of
the company, the shareholder may ratify any action by the company that is
inconsistent with these limits, restrictions or qualification (except for act in
contravention of any provision of the Act) by a special resolution
 This ratification will only have an effect internally as the contraction is valid (not void)
under all circumstances in respect of third parties to the outside, irrespective if that
third party is also an insider
Is it possible to stop a company from acting ultra vires?
 One or more shareholders, directors or other interested persons may apply to the HC
for an appropriate order to restrain the company from doing anything inconsistent
with any of these limits, restriction or qualifications, without prejudice to any rights to
damages of a third party who;
- Obtained those rights in good faith
- Didn’t have actual knowledge of the limit, restriction or qualification
 Good faith would obviously imply an absence of knowledge; therefore, the
conjunctive and in respect of actual knowledge is confusing
 If it si accepted that there is a contract, the contract is valid until declared void or
voidable by a court
 A contract with an insider, such as a shareholder who obviously knows about limits,
restriction or qualifications, can be still be restrained, but that person can’t be bona
fide and assert that the/she didn’t have knowledge of the limit, restriction or
qualification and therefore can’t claim damages
Is there any recourse if a company acts ultra vires or contrary to the Act?
 Each shareholder of a company has claim for damages against any person who
intentionally, fraudulently or due to gross negligence causes the company to do
anything inconsistent with the Act or with a limit, restriction or qualification, unless
that fraudulent act or act with gross negligence (in respect of a limit, restriction or
qualification0 has been ratified by the shareholders
 If the ultra vires act was ny a director of the company, the directors delictual liability
would be in terms of s77 of the Act
4. Statutory Turquand
 S20(7) a person dealing with a company in a good faith, 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 the Act, the company’s MOI
and any rules of the company unless, in circumstances, the person knew or
reasonably ought to have known of any failure by the company to comply with any
such requirement
 This provision must also be constructed concurrently with, and not as a substitution
for presumably, the common law Turquand rule, or for any other rules, because
s20(8) provides that subsection (7) must be constructed concurrently with and not in
substitution for any relevant common law principles relating to the presumed validity
of the actions of a company in the exercise of its powers’ which would include the
Turquand rule
 The common law Turquand rule applies only if it is clear that person has actual
authority, but for a particular act a prerequisite applies
 This means that if the MOI provides that the board can appoint a person to conclude
a contract for the company the common law Turquand rule can’t be used by the bona
fide third party accept that the particular person was appointed as the rule only
applies if the person has actual authority – was confirmed in Nieuwoudt v Vrystaat
Mielies
 S20(7) makes it possible for a third party to accept that the requirement for actual
authority has been complied with
 S20(7) also only states that the third party can presume that the action is proper, but
it apparently doesn’t preclude the company from using it as a defence and therefore
it can be argued that it only cover part of the present common law Turquand rule and
is merely a rebuttable presumption