MRL2601/201/2/2022

Tutorial Letter 201/2/2022

ENTREPRENEURIAL LAW
MRL2601

Semester 2

Department of Mercantile Law

This tutorial letter contains important information

about your module.

BARCODE
 CONTENTS

Page

1 FEEDBACK ON ASSIGNMENT 01 .............................................................................................. 3

2 FEEDBACK ON ASSIGNMENT 02 .............................................................................................. 6
3 CONCEPT EXAM PAPER ............................................................................................................ 8
4 GENERAL COMMENTS REGARDING THE EXAMINATION .................................................... 15

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Dear Student,

By now you should have received Tutorial Letter 101 and Tutorial Letter 102. Tutorial Letter 101
contains information about the format of the examination paper. Tutorial Letter 102 contains the
names and contact details of your lecturers and a concept examination.

The aim of this tutorial letter is to provide you with guidelines on answering the compulsory
assignments, Assignments 01 and 02 and the concept examination paper. Please consult the
relevant sections of the study guide referred to in the guidelines for further details.

Please note that the concept examination paper merely serves as an example of how questions
will be asked in the actual examination.

1 FEEDBACK ON ASSIGNMENT 01
General comment regarding answers received from students:
In general students did well in the assignment. This assignment was supposed to be a bit more
tricky as you ‘wrote off’ the components of the work dealing with partnerships and trusts in this
assignment. You will not be examined on these enterprises at all.

A startling number of students submitted the incorrect document (either assignment 2 or answers
to the assignments for another module). Please be very careful not to make this mistake in the
exam. There is no possibility to resubmit your answers or to replace the incorrect document on
myExams.

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ASSIGNMENT 1 SEMESTER 2 QUESTIONS AND ANSWERS

QUESTION 1

Petrus cannot create a valid partnership by including the stipulation in his will. A partnership is
created by agreement. There must be consensus between his two sons to create a partnership
before a valid partnership would come into operation

A married woman and a juristic person may conclude a valid partnership agreement. Yes, a
partnership can come into existence between Lenta and Maxfed (Pty) Ltd.

The pharmacists will not conclude a valid partnership agreement as the object, ie selling stolen
medication is not lawful.

Dobby is eleven and a minor with limited contractual capacity, but he is assisted by his guardian.
He can conclude a valid partnership agreement with Playco CC, a close corporation.

Refer to page 106 and 107, and page 116 of the studyguide.

QUESTION 2

One of the naturalia of a partnership is that partners are co-owners of the assets of the partnership
in joint undivided shares. The relevant remedy is the Actio communi dividend. This is an action
for the physical division of things held in co-ownership. The effect of the actio communi dividundo
has been extended to intangible things such as copyright, patents and goodwill by means of
utilising the actio communi dividundo.

Conclusion: Yes, there is a remedy to Susan’s disposal. (1)

Refer to page 111 of the studyguide

QUESTION 3

• Mutual agreement
• Expiration of term
• Completion of partnership business
• Change in membership
• Death of a partner
• Retirement
• Admission of a new partner

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• Order of court
• Breach of fiduciary relationship
• Changes in personal circumstances
• Sequestration

Refer to page 108 of the studyguide

QUESTION 4

• Death of all the beneficiaries

• In terms of the trust deed
• Termination by the Master
• Trust assets destroyed or all benefits transferred to beneficiaries
• Objectives of the trust have been realized.
• Court order.

Refer to Delport New Entrepreneurial Law Ch 14 para 5 ‘Termination of the trust’

QUESTION 5

• If trust beneficiaries have not accepted trust benefits, deed may be amended by agreement
between founder and trustee. If benefits have been accepted, beneficiaries must agree to
amendment.
• If beneficiary is under guardianship or curatorship, guardian or curator can agree to
amendment if it is in the best interest of the beneficiary.
• In terms of provisions in the trust deed;
• By agreement between all beneficiaries.
• May be amended by court if provisions are contrary to the aims of the founder, are contra
the interests of the beneficiaries or against the public interest.

Refer to Delport New Entrepreneurial Law Ch 14 para 2.3 ‘Variation of the trust document’

QUESTION 6

A business trust, is a trust that carries on business.

A business trust is defined as a trust where the trustee does not simply protect, manage and apply
the trust assets, but uses them primarily for carrying on a business for profit in order to benefit the
trust beneficiary or to further the aims of the trust.

The requirements are for the formation of a valid trust:

The founder must intend to create a trust.

The founder must express his intention in such a way that a legally binding trust obligation is
created.

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This obligation either consists of a duty on the trustee to administer the trust property in terms of
the trust document or, in the case where a trustee has not yet been appointed, of a duty on the
founder to ensure that the trust assets are administered by a trustee.

In order to create a legally binding obligation, the will or agreement which gives rise to the
obligation must be legally valid.

The trust property must be defined with sufficient certainty. It must be possible to ascertain which
property is subject to the trust.

The object of the trust must be certain. The object can either be –
i. to benefit named or ascertainable persons or a class of persons; or
ii. to further one or more impersonal objects, for instance sports or culture.

The trust object must be lawful.

Legally, no general formalities are attached to the creation of a trust.

Certain formalities must, however, be complied with before a person may act as a trustee. One
of these requirements is the lodging of the trust instrument or a copy thereof with the Master of
the High Court.

The practical effect of this requirement is that modern trusts are created in writing or, if the trust
agreement is concluded orally, that the terms of the agreement are put into writing in order to
enable the trustee to meet the requirements of the Trust Property Control Act.

Refer to page 98 of the studyguide

TOTAL: 40

2 FEEDBACK ON ASSIGNMENT 02
General comment regarding answers received from students:

Many students misinterpreted question 1. The question did not require a discussion of the
potential remedy that could be used against Roger, but asked whether there were grounds
mentioned in the set of facts for holding him accountable.

In question 2, many students just mentioned characteristics of a close corporation. The question
required of students to identify the distinctive characteristics (ie, what makes this form of business
enterprise different from a partnership, a trust or a company).

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ASSIGNMENT 2 SEMESTER 2 QUESTIONS AND ANSWERS

QUESTION 1

• A director must exercise his or her powers and functions in good faith and in the best interest
of the company.
• Directors may not abuse their position or information and must act in a specified way where
he or she may have a financial interest.
• In this case it can be argued that Roger breached his duty of good faith due to the fact that
he failed to prevent a conflict of interest.
• A director must disclose any financial interest that he or she may have in a transaction before
conclusion of the contract. If a director fails to do so, the contract will be voidable at the
choice of the company.
• The company may claim any profits that Roger made as a result of the contracts on the
basis of breach of his fiduciary duties.
Case Law: One mark awarded for any one of the following:
• Regal Hastings Bpk v Gulliver (1942) 1 All ER 378 (HL)
• Robinson v Randfontein Estates Gold Mining Co Ltd 1921 AD 168
• Industrial Development Consultants Bpk v Cooley (1972) 2 All ER 162
• Atlas Organic Fertilisers (Pty) Ltd v Pikkewyn Ghwano (Pty) Ltd (1981) (2) SA 173 (T) 193
• Sibex Construction (SA) (Pty) Ltd v Injectaseal CC (1988) (2) SA 54 (T)
• Phillips v Fieldstone Africa (Pty) Ltd (2004) 1 ALL SA 150 (HHA) 160-161

Refer to page 74 to 75 of the studyguide

QUESTION 2

• A close corporation is a juristic person distinct from its members (separate juristic
personality).
• It is granted the capacity and powers of a natural person.
• A single person can form a close corporation
• It need not be an undertaking for gain.
• No shares are issued and there is no share capital.
• Members are allowed the greatest possible flexibility in arranging their internal relationships
and the management of the close corporation.
• Its formation and administration is subject to a minimum number of formalities.
• It is allowed to use its capital as it pleases, as long as it maintains solvency and liquidity.
• All members have an equal say in the management of the business. (section 54 of the Close
Corporations Act 69 of 1984).
• Members run a risk of being personally liable should it appear that they have contravened
the provisions of the Close Corporations Act 69 of 1984.
• The common-law principles relating to fiduciary duties and duties of care and skill in
managing the affairs of the corporation are codified, thus a member knows exactly what is
expected of him/her.
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• The accounting and disclosure provisions are less extensive than in companies.

Refer to the table on page 126 of the study guide.

TOTAL: 10

3 CONCEPT EXAM PAPER

PLEASE NOTE THAT YOU DO NOT HAVE TO STUDY THE WORK PRESCRIBED FOR
PARTNERSHIPS AND TRUSTS IN YOUR STUDYGUIDE FOR PURPOSES OF THE
EXAMINATION.

We have included a concept examination paper in Tutorial letter 102 for purposes of
revision. This should provide you with an indication of the way in which the longer (written)
questions are asked in this module. What follows are guidelines for answering these
questions.

NB: Please note that you will not pass if you merely work out the questions to this concept
paper and memorise it. The prescribed work for this module must be thoroughly studied
to master the work.

SECTION A

QUESTION 1

1.1
Also known as “juristic personality”. To be acknowledged in law as a person or bearer of its own
rights, with liability for its own debts. The registration or incorporation of a company (by the
issuance of a Registration Certificate) confers legal personality on the new entity. This means that
the new entity can acquire its own rights and duties separate from its shareholders or members.
It can enter into contracts in its own name and sue and be sued. Its shareholders or members are
not liable for its debts and enjoy limited liability. You must also mention two of the implications in
the block on page 25 of the studyguide and refer to at least one of the cases indicating that
companies enjoy the right to dignity, privacy and a reputation on page 25 of the studyguide.

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1.2
A company enjoys the benefits attached to legal personality, which means that the directors
usually have limited liability (page 25 of the studyguide). However, in terms of section 20(9) of
the Companies Act 71 of 2008, a company’s separate legal personality can be disregarded if the
company is used to justify wrongs, fraud or crimes (page 27 of the studyguide). The creditors
can use section 20(9) to hold the directors liable and claim payment under section 77(2) of the
Companies Act 71 of 2008.
1.3
Patience can register a private company. It is a type of profit company that restricts the transfer
of its securities in its Memorandum of Incorporation (page 25 of the study guide). You must also
mention any three of the following characteristics:
Its Memorandum of Incorporation prohibits the offering of any securities to the public and restricts
the transferability of its securities.
􀁸 Private companies are no longer limited to 50 shareholders, as was the case under the
Companies Act of 1973.
􀁸 In terms of section 8(2)(b) of the Companies Act, a private company’s Memorandum of
Incorporation must contain a prohibition against the offering of its securities to the public and
must restrict the transferability of its securities.
􀁸 It can be formed by one person.
􀁸 It must have at least one director. (page 31 of the study guide).

1.4
A Notice of Incorporation is the document filed with the Companies and Intellectual Property
Commission with the Memorandum of Incorporation in order to show the company’s intention to
register as a business. (page 29 of the studyguide). The 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, for the purposes of having it registered’ (section 1 of the
Companies Act 71 of 2008).
The Notice serves as notification to the Commission of the incorporation of the company.
Therefore, it is the way in which promoters of a company let the Commission know about the
company being formed, and the fact that they wish to register the company. The Memorandum
of Incorporation is the document that sets out the rights, duties and responsibilities of
shareholders, directors, and others within the company, and in relation to the company and other
matters (page 34 of the studyguide).
The Companies Regulations of 2011 contain standard-form (pro forma) examples of the
Memorandum of Incorporation of the different types of company. Use of a pro forma form is
optional. Companies may draft their own unique Memorandum of Incorporation so long as it
includes the required information. (page 35 of the studyguide).

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1.5
Section 32 of the Companies Act 71 of 2008 requires that a company furnish its full name or
registration number to any person on demand. It further prohibits the misstating of the name or
registration number, and the stating of the name in such a way that it may mislead or deceive a
person. A company must use its registered name at all times, and not a modified version of such
name. In the case of a profit company, the name may consist of a registration number only,
followed by the words ‘South Africa’. Where the Registration Certificate is issued with an interim
name by the Commission, the company is obliged to use its interim name. The interim name is
used until the company’s name has been amended. (page 46 of the studyguide).
[25]

QUESTION 2

2.1 The mechanism is a pre-incorporation contract.

In terms of section 21 of the Companies Act, a pre-incorporation contract will be binding on a
company 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 (i.e. neither ratifies nor rejects it),
the contract will become binding on the company.) (page 43 of the studyguide).
You also have mentioned (not discussed) two common-law alternatives:

• Cession and delegation

• Option
• Contract to the benefit of a third party
• Nomination (page 42 of the studyguide).
2.2 To avoid deception of the public, the name of a company may not
􀁸 be the same as the name of another company, external company, close corporation or
cooperative; or the name of a business which has already been registered in terms of the

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Business Names Act 27 of 1960; or a trademark which has been filed for registration in terms of
the Trade Marks Act 194 of 1993; or a mark, word or expression protected in terms of the
Merchandise Marks Act of 1941 or be
􀁸 be confusingly similar to such a name (page 40 of the studyguide)

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 the
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 require proof from the applicant
company that the associated company was made aware before registration that a similar name
would accordingly be allowed. (page 45 of the studyguide)
In Peregrine Group (Pty) Ltd & others v Peregrine Holdings Ltd & others the applicants sought an
order directing the first eight respondents to change their names by excluding the word
“Peregrine” and restraining them from passing off their businesses as that of, or associated in the
course of trade with that of, the applicant.
The Registrar of Companies indicated that his office did not ‘allow the monopoly of an ordinary
generic word’. The court looked at the activities that the companies engaged in in order to decide
whether the similarity in the names would cause confusion. In addition, the client bases of the
respective companies were considered so as to see whether there was an overlap. It was made
clear that a court may direct a company to change its name if the name is undesirable and
calculated to cause harm to the applicant.
It was held that the court enjoyed a wide discretion to hold that a company’s name is undesirable.
Where the names of companies are the same, or substantially similar, and where there is a
likelihood that members of the public would be confused in their dealings with the competing
parties, these would be important factors to be taken into account in deciding whether or not a
name was undesirable. However, the mere fact that the names of companies are the same or
similar is not a conclusive factor in determining whether or not a name is objectionable.
The date of registration of the companies would also play a role. The company that registered the
name first would enjoy preference over companies that later changed their names. (page 46 of
the studyguide).
Application to facts: in this case the names of the companies are very similar, the business (two
restaurant) is the same and there is likely to be confusion as it is the same chef.
Conclusion: Unless the other company has given consent for the use of the name, the chances
are good that the Commission will say that it is undesirable.

2.3 A proxy is a person who is appointed to represent a shareholder at a meeting of

shareholders. (page 63 of the studyguide).

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Codification is a systematic and comprehensive compilation of the entire body of law. (page 66
of the studyguide).

An executive director A director who participates in the day-to-day management functions

within a company. (Usually, such a director is also an employee of the
company.) (page 70 of the studyguide).

2.4 In terms of section 39 of the Companies Act 71 of 2008, every shareholder in a private
company (and a personal liability company) has the right, before any other person who is
not a shareholder of the company, to be offered and to subscribe (within a reasonable
time) for a percentage of any shares issued or proposed to be issued equal to the voting
power of that shareholder’s general voting rights immediately before the offer was made.
However, a company’s Memorandum of Incorporation may limit, negate or restrict this right
with respect to any or all classes of shares of that company. A company’s Memorandum
of Incorporation may, however, restrict or exclude this right in respect of any or all classes
of shares in the company. (page 59 of the studyguide)

Application: Yellow Woods (Pty) Ltd is a private company. Therefore, Peter probably has a right
of pre-emption to avoid dilution of his shareholding.

2.5
A shareholder of a company has the right to a share in the profits of that company (provided that
a dividend is declared by the company), and a right to a share in the net assets of the company
if it is wound up. However, a shareholder is also under a duty to abide by the company’s
Memorandum of Incorporation.
􀁸 As a debenture is a debt instrument, the holder of a debenture has effectively loaned a sum of
money to the company on certain terms.
􀁸 Accordingly, the debenture holder is entitled to repayment of the sum of money loaned to the
company and is, therefore, a creditor of the company. A debenture is a document issued by a
company acknowledging that it is indebted to the debenture holder in the amount stated therein
(Coetzee v Rand Sporting Club 1918 WLD 74).
􀁸 Debenture holders may have a right to attend and vote at general meetings and to appoint
directors, and have special privileges regarding the allotment of securities, unless the
Memorandum of Incorporation provides otherwise (section 43(3) of the Companies Act 71 of
2008). This was, however, not previously the case under the Companies Act 61 of 1973. (page
60 of the studyguide).

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QUESTION 3

3.1 Section 65(7) and (9) of the Companies Act 71 of 2008 provides for two types of resolution
that may be taken by shareholders: an ordinary resolution, requiring more than 50% of the
votes exercised, and a special resolution, requiring at least 75% of the voting rights
exercised. A company is allowed to stipulate a higher percentage for approval of an
ordinary resolution (except for the removal of a director) or a different percentage (i.e.
higher or lower) for special resolutions in its Memorandum of Incorporation, on condition
that there must always be a difference of at least 10% between the highest percentage
required for an ordinary resolution and the lowest percentage required for any special
resolution. (page 68 of the studyguide).
A quorum is the number of persons needed to be present at a shareholders’ meeting for the
meeting to begin. (page 59 of the studyguide).
Section 64 of the Companies Act 71 of 2008 provides that a meeting may not begin until sufficient
persons holding at least 25% of all the voting rights in respect of at least one matter to be decided
on at the meeting are present. The percentage (25%) may be increased or reduced in the
Memorandum of Incorporation. However, if a company has more than two shareholders, at least
three shareholders must be present. (page 66 of the studyguide).
3.2
Application to declare Thando delinquent under section 162 of the Companies Act 71 of 2008.
Relevant grounds for the order:
Thando
􀁸 served as a director while disqualified, and/or
􀁸 acted in a manner that amounts to gross negligence, wilfull misconduct or breach of trust
(page 74 of the studyguide)

3.3
Section 54 of the Close Corporations Act 69 of 1984 states that every member has the authority
to conclude contracts on behalf of the close corporation in relation to a person who is not a
member (an outsider or third party).
The doctrine of constructive notice does not apply to close corporations. This means that, even if
the association agreement (which is in any event not a public document) states otherwise, every
member can conclude contracts on behalf of the corporation. It does not matter whether or not
the transaction falls within the scope of the main business of the corporation.
In J&K Timbers (Pty) Ltd v GL&S Furniture Enterprises CC, the court confirmed that a member of
a close corporation is an agent, even though no authority, express or implied, has been conferred
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upon him or her by the corporation. The corporation is bound by an act performed on its behalf
by a member, unless the third party knew, or reasonably ought to have known of the absence of
the required power. Therefore, a close corporation will be bound by most agreements concluded
on its behalf by its members. Corporations will, however, not be held liable if the outsider or third
party knew or reasonably ought to have known that the member who concluded the contract on
behalf of the close corporation lacked authority. (page 122 of the studyguide).
Application and conclusion: The contract will be valid and most likely binding as there is no
indication on the facts that John’s friend (an outsider/ third party) was aware of John’s lack of
authority.
3.4
Increasing the number of members to 15:
Not permissible: The number of members is limited
to ten. (page 111 of the studyguide)
Making the members’ interest of the close corporation to be out of 150%:
Not permissible. Member’s interest is expressed as a percentage (out of a total of 100%) (page
112 of the study guide).
Allowing two of their friends to jointly hold 15% of the members’ interest since they have
insufficient funds to acquire member’s interest individually
It is not permitted for more than one person to hold a member’s interest jointly. (page 111 of the
studyguide).

3.5
The Memorandum of Incorporation and the rules are binding

􀁸 between the company and each shareholder

􀁸 between or among the shareholders of the company

􀁸 between the company and each director or prescribed officer of the company

􀁸 between the company and any other person serving the company as a member of a committee
of the board

The relationship created in terms of section 15 of the Companies Act 71 of 2008 seems to be of
a contractual nature. (page 33-34 of the studyguide).

3.6

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Sections 38-40 of the Close Corporations Act 69 of 1984 is relevant.

Requirements for acquisition of member’s interest by a close corporation:
􀁸 the corporation must have at least one other member
􀁸 the aggregate members’ interest must remain 100%
􀁸 written consent from all members is required prior to payment
􀁸 the corporation must be solvent after payment for the acquisition and liquid both before
and after payment. (page 121 of the studyguide).

TOTAL FOR SECTION A: 80

SECTION B

QUESTION 4

4.1.1 False. Section 93 of the Companies Act 71 of 2008 provides that the company auditor
has a right to access, at all times, the accounting records and all books and documents
of the company. (page 84 of the studyguide).

4.4.2 True. A domesticated company is a company whose registration has been transferred to
South Africa (page 29 of the studyguide).

4.4.3 True. In terms of section 60 of the Companies Act 71 of 2008 a proxy may delegate
authority to act on behalf of the shareholder to another person. (page 60 of the
studyguide).

4.4.4 True. Section 51 of the Close Corporations Act 69 of 1984, which requires compliance with
the solvency and liquidity requirement only applies in respect of payments made to
members in their capacity as members and not to payments made to them in the capacity
of creditors. (page 123 of the studyguide)

4.4.5 False. A close corporation also confers the benefit of juristic personality. (page 110 of the
studyguide)
[10]

TOTAL FOR SECTION B: 10

Total: [90]

4 GENERAL COMMENTS REGARDING THE EXAMINATION

The examination paper is open-book (you can use all your prescribed study material) and will
count out of 100 marks. The exam will comprise out of short and medium length questions (mainly
5 marks per question, with one 10-mark question). Read the questions carefully before attempting
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to answer them. Always identify what has been asked and consider whether the question deals
with either companies or close corporations. Let the mark allocation of each question guide you
regarding the required length of the answer. Always re-read your answer and ensure that you
have answered what was asked.

You should practise answering short and medium length questions of this kind by revising the
discussion questions and answers available on myUnisa. Please take note of our suggested
answers.

Do not hesitate to contact us if you experience any problems with the study material.

All the best with the examination.

YOUR LECTURERS

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