CONFIDENTIAL

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MRL2601
Jan/Feb 2022

UNIVERSITY EXAMINATIONS

Entrepreneurial Law
100 Marks
Duration 24 Hours

First examiner: Prof J Geldenhuys

Second examiner: Dr V Madlela
MARKING INSTRUCTIONS
(1) Mark all the questions and always note the maximum mark allocations
(2) No half marks must be awarded! Please award a full mark if you feel that the
student has earned it
(4) Be lenient. Do not miss marks indicated on the memorandum.
(5) In case of uncertainty, phone me (Judith) at 0836502352 without delay or
email me at geldej@unisa.ac.za.

QUESTION 1 6 MARKS

Zingapi is a minority shareholder in Telemark (Pty) Ltd. In spite of good business the
company’s profits are not increasing. Zingapi suspects that the directors, who are
also majority shareholders are wasting the company’s money on unnecessary
business trips and luxuries for themselves. Zingapi is concerned about the costs that
she would incur in a court action. Advise her of the steps she should take in order to
institute a derivative action on behalf of Telemark (Pty) Ltd.
(6)

 Section 165 of the Companies Act 71 of 2008 (1)

 Zingapi must in writing request that the company institute legal action to protect
the interests of the company. (1)
 An independent person or committee must be appointed to investigate the
claim (1)
 The independent person or committee must then report to the board of
directors. (1)
 The company must within 60 days from receipt of the written request institute
the legal action or serve a reason for not doing so on Zingapi. (1)
 Zingapi can then approach the court to continue with the legal action or institute
the claim. (1)

QUESTION 2 6 MARKS
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Sarah is a shareholder in ABC (Pty) Ltd. She will be abroad for business when the
annual general meeting of shareholders of ABC (Pty) Ltd takes place. Sarah
approaches you for legal advice as she wants her brother John to attend the meeting
on her behalf to vote on several important matters that will be discussed and voted
upon at the meeting. Explain how this is possible in terms of the Companies Act 71
of 2008 and advise Sarah on the steps she must take in order to achieve this. (6)

MAX 6 marks

 Section 58 of the Companies Act 71 of 2008 (1)

 Sarah can appoint John as her proxy (1)
 The appointment must be in writing (1)
 Will be valid for one year (1)
 Or for a specified period of time (1)
 The same person may be appointed as a proxy for more than one shareholder
(1)
 The proxy can delegate the authority to act on the shareholder’s behalf to
someone else. (1)
 A copy of the appointment instrument must be available/ presented at the
meeting. (1)
 A shareholder can cancel a proxy in writing or withdraw the appointment in
writing. (1)

QUESTION 3 12 MARKS

Themba, who was a manager of the Men’s Club, approached the Commission for
Conciliation, Mediation and Arbitration (the CCMA) seeking severance pay after he
was retrenched. The trade union that he belongs to was informed that he was not
employed by the Men’s Club, but that he was in fact employed by a company named
Bad Boys (Pty) Ltd. The trade union duly cited Bad Boys (Pty) Ltd as the respondent
in a referral to the CCMA. The sole director and shareholder of Bad Boys (Pty) Ltd,
Tendai Munyai, during conciliation indicated that the Men’s Club was insolvent and
that Themba had been dismissed for operational reasons. The commissioner
advised Themba to refer an unfair dismissal dispute. When the matter was referred
for arbitration, both the Men’s Club and Bad Boys (Pty) Ltd were cited as
respondents. After hearing the matter, the commissioner ordered Bad Boys (Pty) Ltd
to pay Themba an amount of R250 000 for his unfair dismissal. However, it was
discovered that Bad Boys (Pty) Ltd had no assets. In fact, Tendai Munyai who also
participated in the running of the business had provided financial assistance to Bad
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Boys (Pty) Ltd and he had secured claims against the company for repayment of the
loan amounts.

Themba intends to seek an order from the Labour Court to the effect that Tendai
Munyai was his true employer and that he must pay him the amount of R250 000.
With reference to the relevant legislation and case law, indicate what Themba would
have to prove in order to hold Tendai Munyai liable.
……(12)

MAX 12 marks

 The separate juristic/legal personality of a company can be ignored in certain

circumstances. It is referred to as the lifting or piercing the corporate veil. (1)
 The common-law principle of the lifting or piercing of the corporate veil
developed in case law. (1) There are not strict rules when a court will lift the
corporate veil. However, the following principles have developed in case law:
 Botha v Van Niekerk & another 1983 (3) SA 513 (1)
 A party must have suffered an “unconscionable injustice” before the court could
lift the veil. (1)
 Cape Pacific v Lubner Controlling Investments (Pty) Ltd and others 1995 (4) SA
790 (A)
o The court confirmed that it has no general discretion simply to disregard a
company’s separate legal personality. (1)
o The court held that the separate legal personality of a company should not be
easily ignored. (1)
o However, circumstances do exist for example fraud, dishonesty or other
improper conduct where it would be justifiable to pierce the corporate veil. (1)
o The court held further that Botha v Van Niekerk was too rigid. (1)
o The court indicated that it would adopt a more flexible approach namely of
taking all the facts of each case into consideration when determining if the veil
should be pierced. (1)
o A balance must be struck between the need to persevere the separate legal
identity of the company against policy considerations in favour of piercing the
corporate veil. (1)
o The veil could also be pierced in relation to a specific transaction. (1)
 Hülse-Reutter v Gödde 2001 (4) SA 1336 (SCA): (1)
o The court agreed that it has no general discretion simply to disregard a
company’s separate legal personality. (1)
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o The corporate veil would only be lifted if there was evidence of misuse or abuse
of the distinction between the company and those who control it and this has
enabled those who control the company to gain an unfair advantage. (1)
o Therefore, a dual test was introduced: by adding the element of unfair
advantage. (1)
o The court further confirmed that much depended on a close analysis of the
facts of each case and considerations of policy. (1)
 Section 20(9) statutory lifting of the veil.(1)
 Ex parte Gore NO [2013] 2 All SA 437 (WCC) (1)
o The court held that the test of an unconscionable abuse is not as onerous to
prove as a gross abuse. (1)
o The remedy in s 20(9) can be available if a corporation is used as a sham or
device. (1)
o Section 20(9) of the Companies Act 71 of 2008 is not available as a remedy of
last resort only. (1)
o Conclusion: In order to succeed Temba would have to prove that Tendai had
abused the separate legal personality of the company in order to avoid
personal liability. (1)

QUESTION 4

4.1 8 MARKS
Green Developments (Pty) Ltd (‘the company’) was incorporated and registered on 2
January 2021. According to its Memorandum of Incorporation (MOI) the main
purpose of the company is property development. The company’s board consists of
five directors namely, Tanya, Johan, Moses, Samson and James.
Prior to the incorporation of the company, Tanya concluded a written contract with
Joe Foster in the name of the then to be incorporated company for the purchase of a
fixed property in Midrand (‘the Midrand property’) at a price of R1 million.
Since the company’s incorporation and registration, the company did not take any
action in relation to the contract concluded by Tanya for the Midrand property. With
reference to the Companies Act 71 of 2008 advise on the statutory requirements that
must be met for the contract concluded by Tanya and Joe Foster to be binding on
the company.
(8)
MAX 8 marks

 Section 21 of the Companies Act 71 of 2008 (1)

 Preincorporation contract (1)
 Definition in s 1 of the Companies Act 71 of 2008(1)
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 Written agreement (1)

 In the name of the company / on behalf of the company to be incorporated. (1)
 Within three months after incorporation (1)
 Board must ratify or reject (1)
 If no action (ratification/rejection) within three months (1)
 Regarded that the company ratified the contract (1)
 Conclusion: On the facts more than three months have lapsed (1)
 Contract between the company and Joe Foster is binding. (1)

4.2 5 MARKS

On 1 June 2021 the board of Green Developments (Pty) Ltd (‘the company’)
concluded a contract with Exotic Game (Pty) Ltd in terms of which it purchased a
herd of buffalo at a price of R10 million. The purchase price for the buffalo was
payable on 1 July 2021, after which Exotic Game (Pty) Ltd would have delivered the
buffalo on 1 August 2021. On 15 July 2021 the company wrote a letter to Exotic
Game (Pty) Ltd stating that the company was not bound to the contract as the
contract falls beyond the scope of the company’s business as described in its
Memorandum of Incorporation. With reference to the Companies Act 71 of 2008
indicate whether the company’s shareholders may have any claims against the
directors of the company as a result of the transaction.
(5)
MAX 5 marks

 Section 20(6) of the Companies Act 71 of 2008 (1)

 Shareholders have a claim for damages (1)
 against each person who (1)
 intentionally, fraudulently or due to gross negligence (1)
 did anything inconsistent with
 the Companies Act (1)
 the Memorandum of Incorporation (1)
 Conclusion: Yes, the shareholders will have a claim for damages against the
directors of the company (1)

QUESTION 5 5 MARKS
Briefly outline the procedure that must be followed to register a public company in
terms of the Companies Act 71 of 2008. (5)
MAX 5 marks

 Section 13 of the Companies Act 71 of 2008 (1)

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 At least three (3) directors (1)

 Incorporators must all sign the Memorandum of Incorporation (1) [some
students abbreviate MOI]
 The Notice of Incorporation (1)
 Memorandum of Incorporation (1)
 Prescribed fee (1)
 Filed with the Commission (1) [Companies and Intellectual Property
Commission/ CIPC]

QUESTION 6 4
MARKS
Explain the requirements that must be adhered to in a company’s Memorandum of
Incorporation for a company to qualify as a personal liability company as envisaged
in the Companies Act 71 of 2008.
(4)
MAX 4 marks

 Section 1 of the Companies Act 71 of 2008 defines a personal liability company

as a company that satisfies the criteria in section 8(2)(c) of the Companies Act
(1)
 It must meet the criteria in s 8(2)(b) of the Companies Act 71 of 2008 (1)
 Prohibits offering of securities to the public (1)
 Restricts the transferability of securities (1)
 Further the Memorandum of Incorporation of the company must state that it is a
personal liability company. (1)

QUESTION 7 12 MARKS
Plantfarm (Pty) Ltd is a company that is mainly involved in the distribution of seed for
farming. To supplement Plantfarm (Pty) Ltd’s income the directors of Plantfarm (Pty)
Ltd 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 Plantfarm (Pty) Ltd in the company’s existing
Memorandum of Incorporation. (12)
MAX 12 marks

 In terms of section 16 of the Companies Act 71 of 2008, (1)

 changes may be made to the Memorandum of Incorporation, (1)
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 unless the amendment of a provision is prohibited by the Memorandum of

Incorporation itself in terms of section 15(2)(c) of the Companies Act 71 of
2008. (1)
 Such amendments may be in the form of amendments to the existing
provision(s) of the Memorandum of Incorporation (1)
 A company’s Memorandum of Incorporation may be amended in compliance
with a court order (1)
 An amendment in terms of a court order is given effect via a board resolution
and there is no need for a shareholders’ special resolution. (1) or
 by the board of directors (1)
 in terms of section 36(3) and (4) of the Companies Act 71 of 2008 (1)
 by a special resolution of the shareholders (1) proposed by – the board of
directors; or – shareholders who collectively exercise not less than 10% of the
voting rights. (1)
 The proposal will be adopted if approved by the required majority who voted in
writing within 20 days after the resolution was submitted to them (section 60 of
the Companies Act 71 of 2008). (1)
 To effect the amendment, a form CoR 15.2 must be filed. (1)
 A filing fee must be paid. (1)
 A copy of the special resolution (if such is required in terms of a company’s
Memorandum of Incorporation) or a copy of the amended Memorandum of
Incorporation must accompany the notice. (1)

Close corporations

QUESTION 8 22 MARKS
8.1 Puseletso has recently bought the member’s interest in Gangnam’s Tile CC.
She does not have experience of close corporations and approaches you for
information on the important characteristics of a member’s interest in a close
corporation. Advise Puseletso. (5)

MAX 5 marks

 Members’ interest is expressed as a percentage (out of a total of 100%) in the

founding statement. (1)
 Member’s interest may not be held jointly. (1)
 The aggregate members’ interests must at all times be 100 per cent. (1)
 A member’s interest in a close corporation is like a share in a company. (1)
 Member’s interest is an incorporeal, moveable thing. (1)
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 Member’s interest is a personal right to share in the close corporation’s profits

after its creditors have been paid (1)

8.2 Puseletso is experiencing financial problems, and it appears that she will be
sequestrated. The other members of Gangnam’s Tile CC, who are aware of
the situation, are concerned about what effect this will have on the continued
existence of Gangnam’s Tile CC. With reference to the Close Corporations
Act 69 of 1984 explain whether the continuation of the business will be
affected by Puseletso’s sequestration and what happens to the member’s
interest of a member of a close corporation when she is sequestrated.
(6)
MAX 6 marks

 Puseletso’s sequestration will not affect the continuation of the business as a

close corporation has separate legal personality. (1)
 Section 34(1) of the Close Corporations Act 69 of 1984 prescribes a mandatory
procedure for disposal of an insolvent member’s interest. (1)
 The purpose is to balance the rights of the other members with the rights of
creditors of the insolvent member’s estate. (1)
 If the estate of a member is sequestrated, the trustee of the insolvent estate
may realise the member’s interest, (1) and
o sell the member’s interest to the close corporation (1)
o sell the member’s interest to the other members (1)
o sell the member’s interest to a third party, subject to the other members’ pre-
emptive right to purchase the member’s interest. (1)
 The money value will thereafter be paid over to the creditors. (1)

8.3 The members of Gangnam’s Tile CC discover that Puseletso has been
concluding several contracts on behalf of the close corporation that benefit
her family members, but which is detrimental to the business. They are of the
opinion that Puseletso’s actions amount to a breach of her fiduciary duties.
Based on these facts advise the members regarding the following:
8.3.1 The scope of the fiduciary duties that are owed by a member of a close
corporation and to who this duty is owed. (6)
MAX 6 marks

 Section 42 of the Close Corporations Act 69 of 1984 regulates this duty (1)
 Members have a duty towards the close corporation (1)
 Must act honestly and in good faith (1)
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 Exercise the powers to manage or represent the corporation in the best interest
of the corporation. (1)
 Not act without or exceed such powers. (1)
 Avoid a conflict of interests with those of the close corporation (1)
 Not derive a personal financial gain to which he or she is not entitled by virtue
of being a member of the close corporation (1)
 Disclose any material interest in a transaction to the other members as soon as
possible. (1)
 Not compete with the close corporation’s business activities in any way.(1)

8.3.2 With reference to the relevant statutory provision, what the other
members would have to prove to successfully apply for a court order
remove Puseletso as a member of the close corporation.
(5)

 Section 36 of the Close Corporations Act 69 of 1984 (1)

 Permanent incapacity to participate in running of business (1)
 Conduct that is reasonably likely to affect the running of the business
negatively (1)
 Conduct rendering it impossible for the other members to continue working with
that particular member in the enterprise (1)
 The existence of circumstances rendering it just and equitable (1)

QUESTION 9 10 MARKS
With reference to the effect of the enactment of the Companies Act 71 of 2008,
discuss whether the case Royal British Bank v Turquand (1856) 119 ER 886 remains
relevant in the context of company law.
(10)
MAX 10 marks

 The common-law Turquand rule was laid down in this case. (1)
 Also known as the ‘indoor management rule’. (1)
 This entails that when the authority of a company representative is subject to
an internal requirement (1),
 a third party may assume that the relevant internal requirement is complied
with. (1)
 Unless the third party knew that the internal requirement was not complied with
(1)
 Or the circumstances were suspicious (1)
 Section 20(7) of the Companies Act 71 of 2008 contains a provision that is
similar to the Turquand Rule (1)
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 Section 20(7) of the Companies Act 71 of 2008 provides that a person dealing
with a company in good faith is entitled to presume that the company, in making
any decision in the exercise of its powers, has complied with all the formal and
procedural requirements in terms of the Act, the company’s Memorandum of
Incorporation and any rules of the company,
 unless the person knew, or reasonably ought to have known, of any failure by
the company to comply with any such requirement.(1)
 Section 20(8) of the Companies Act 71 of 2008 (1)
 Indicates that section 20(7) does not replace the common-law rule (1)
 Conclusion: Yes, the Turquand Rule remains relevant (1)

QUESTION 10 10 MARKS
Adventure Ltd granted a repayable loan of R1 million to each of its directors to assist
them with the payment of their studies. With reference to the relevant legislative
provision, indicate how the transaction will be regulated. (10)

 A loan is financial assistance. (1)

 This is also financial assistance to a director. (1)
 Section 45 of the Companies Act 71 of 2008 applies (1)
 The granting of such loan must comply with section 45 of the Companies Act
71 of 2008 (1)
 and the Memorandum of Incorporation of the company (1)
 Pursuant to special resolution adopted within the previous two years. (1)
 Considering all reasonably foreseeable financial circumstances of the company
is: (1)
 Solvency = Assets exceed Liabilities (1)
 Liquidity = able to pay its debts as they become due during the ordinary course
of business (1)
 Written notice should be given to all shareholders. (1)

TOTAL: 100 marks

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