Department of Mercantile Law

Entrepreneurial Law 320

Semester test 01
12 September 2023
Time: 90 minutes
Marks: 40
Examiner: Prof WJC Swart
Internal moderator: Dr J van Wyk
External moderator: Prof M Bekink (UNISA)
Instructions:
1. The questions in this paper are divided into two parts, namely Part A and Part
B.
Part Theme Question(s) Total Marks
PART A Partnerships Questions 01 to 20 20

and

Close Corporations
PART B Companies Questions 1 to 5 15

2. You must complete both Part A and Part B of the paper and answer all the
questions. All the questions in Part A must be answered on side 1 of the
official multiple-choice sheet provided. This sheet must be completed in pencil.
All the questions in Part B must be answered in the book provided. The book
must be completed in pen (no answers written in pencil in the book will be
marked). Start the answering of each of the questions on a new page of the
book.
3. You have a maximum of 90 minutes in which to complete this test.
4. Your answer script must contain your full names and student number.
5. This is a closed-book test. The use of any notes or assistance is strictly
prohibited. You may use a calculator should it be required.
6. Clearly number the answers to the questions.
7. All answers must refer to relevant legislation and/or case law.
8. No marks will be given for ‘yes’ or ‘no’ answers unless the reasoning supporting
the answer is also correct.
9. Write legibly. Lecturers are not obligated to decipher illegible handwriting.
10. By partaking in this test, you agree to the following:
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 “The University of Pretoria commits itself to produce academic work of integrity. I affirm
that I am aware of and have read the Rules and Policies of the University, more
specifically the Disciplinary Procedure and the Tests and Examinations Rules, which
prohibit any unethical, dishonest, or improper conduct during tests, assignments,
examinations and/or any other forms of assessment. I am aware that no student or
any other person may assist or attempt to assist another student, or obtain help, or
attempt to obtain help from another student or any other person during tests,
assessments, assignments, examinations and/or any other forms of assessment”.

11. Please return this question paper together with the multiple-choice sheet and
book containing your answers to the invigilators.
12. Visit the ODR 320 ClickUP page for information about the release of marks and
the perusal opportunity.

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 PART A: PARTNERSHIPS AND CLOSE CORPORATIONS

Question 01
Consider the following statements and choose the option that reflects the CORRECT
legal position:

A. In terms of a silent partnership, all partners share proportionally in the losses

of the partnership.

B. In terms of a silent partnership, a partner's liability is fixed at a certain amount.

C. A partnership of all property is a partnership in terms of which only profits are

shared.

D. The fact that the partnership never becomes the owner of the partnership
assets is aligned with the entity theory related to partnerships.

Question 02
Answer the question by choosing the CORRECT option: Which remedy can a partner
rely on to claim the dissolution of a partnership?

A. Actio communi dividundo.

B. Utilis actio communi dividundo.
C. Actio pro socio.
D. Rei vindicatio.

Question 03
Complete the sentence by choosing the CORRECT option: In terms of the principle of
mutual mandate….

A. any silent partner may bind the partnership to transactions with third parties
without incurring liability to third parties.

B. any partner may bind the partnership to transactions provided that the
transaction falls within the scope of the business of the partnership.

C. only the managing partner of the partnership can bind the partnership to
transactions with third parties.

D. any partner may bind the partnership to transactions irrespective of whether

the transaction falls within the scope of the business of the partnership.
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Question 04
John contributed 30% of the capital of a partnership. John is entitled to 30% profits
and is liable for debts of the partnership up to a maximum amount of R50 000. John
is also not known by the members of the public and he is not actively involved in the
running of the partnership business.

Complete the sentence by choosing the CORRECT option: John is ….

A. a partner en commandite provided that he does not actively participate in the

management of the business of the partnership.

B. an ordinary partner and must not actively participate in the running of the
partnership to retain the status of an ordinary partner.

C. a silent partner and must remain inactive in the running of the partnership to
retain the status of a silent partner.

D. the managing partner and is authorised in terms of the principle of mutual

mandate to conclude contracts on behalf of the other partners irrespective of
whether these contracts fall within the scope of the partnership business.

Question 05
DXYZ was a partnership that specialised in the sale of paint. The partners were D, X,
Y and Z. Z is an en commandite partner. On 1 May 2023, Y, a partner in DXYZ
partnership, concluded a contract on behalf of the partnership for the sale of PVA paint
to the value of R250 000. The buyer paid the purchase price but the paint was never
delivered. The partnership was dissolved on 31 July 2023. On 1 August 2023, the
buyer instituted legal action.
Complete the sentence by choosing the CORRECT option: Under these
circumstances, the buyer may claim against…

A. D, X, and Y, jointly and severally.

B. D, X, and Y, jointly.
C. D, X, Y and Z, jointly and severally.
D. D, X, Y and Z, jointly.

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Question 06
Ashley, Bailey and Khomotso entered into an agreement. They wanted to buy vintage
cars, restore these cars, and sell them for a profit. They agreed that Bailey, who is a
trained mechanic and panelbeater, would restore the cars. Khomotso contributed the
property which was converted into a workspace. Ashley made a monetary contribution.
They further agreed that Bailey and Khomotso will each receive 50% of the profits,
while only Ashley will be liable for all of the losses.

Complete the sentence by choosing the CORRECT option: This form of agreement is
known as a …

A. Societas leonina.
B. Societas universorum bonorum.
C. Societas universorum quae ex quastu veniunt.
D. Partnership en commandite.

Question 07

Abel and Sam entered into a partnership agreement with each other. While Abel
contributed R800 000, Sam contributed R200 000 to the partnership. The partnership
realised a profit of R50 000. The partnership agreement is silent on how the profits of
partnerships must be shared amongst Abel and Sam.

Choose the CORRECT option:

A. As the parties did not agree on how profits must be distributed, Abel
and Sam are not entitled to any portion of the R50 000 profit.

B. Abel and Sam each receive R25 000 of the R50 000 profit.

C. Abel will be entitled to 80% of the R50 000 profit, while Sam will be entitled to
R20 000 of the R50 000 profit.

D. Abel will receive R40 000 of the R50 000 profit, while Sam will be entitled to
20% of the R50 000 profit.

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Question 08

John, Mia, and Trevor are partners. Their partnership specialises in the trading of
mountain bikes. One Saturday afternoon, Trevor randomly met a stranger named Gary
in a local pub. Gary explained to Trevor that investing in racehorses is a very lucrative
business. Trevor immediately informed Gary that the partnership could not lose out on
an opportunity to expand its business and made an offer to Gary, on behalf of the
partnership, to buy one of his racehorses for R1 million. Gary accepted the offer.

Choose the CORRECT option:

A. The partners are not under any legal duty to pay the R1 million and take delivery
of the racehorse as the transaction fell beyond the scope of the partnership's
business.

B. The partners have a legal duty to pay the R1 million and take delivery of the
racehorse as it does not matter whether the transaction fell within the scope of
the partnership's business.

C. The partners have a legal duty to pay the R1 million and take delivery of the
racehorse based on the Turquand rule.

D. The partners are not under any legal duty to pay the R1 million and take delivery
of the racehorse based on the doctrine of constructive notice.

Question 09
Answer the question by choosing the CORRECT option: Which of the following
constitutes a naturalia of a partnership agreement?

A. Each partner must contribute to the partnership.

B. The partners must have the objective to obtain a patrimonial benefit.

C. The business of the partnership must be carried out for joint benefit.

D. Every partner has the authority to conclude agreements that fall within the
scope of the partnership's business.

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Question 10
Answer the question by choosing the CORRECT statement regarding a partnership
en commandite

A. The partner en commandite shares the full risk of the partnership and remains
liable to co-partners for his or her or its proportional share of partnership losses.

B. The partner en commandite shares the full risk of the partnership and remains
liable to third parties for his or her or its proportional share of partnership losses.

C. The liability of the partner en commandite for losses of the partnership is limited
to an agreed amount and the partner en commandite is entitled to a fixed share
of the profits.

D. All partners, including the partner en commandite, participate in the business

of the partnership.

Question 11
A group of 10 final-year BCom students wants to incorporate a firm of accountants,
called Young and Upcoming Accountants CC (abbreviated YUA CC). Their application
for name reservation and incorporation was turned down by the Companies and
Intellectual Property Commission (CIPC) for the following reason (choose the
CORRECT option):

A. Accountants are required to be certified Chartered Accountants (CA) upon

completion of the required (CA) exam. Members of YUA CC have not yet
complied with these requirements.

B. The name reservation and incorporation application will only be granted once
the students complete their studies.

C. The suggested name already exists, therefore the incorporation of YUA CC was
rejected.

D. The name reservation and incorporation applications are refused as no new

close corporations may be incorporated.

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Question 12
Mom’s Ginger Beer CC was incorporated by the four Tshabalala sisters in 2007. Each
of the 4 sisters holds a 25% members’ interest in the CC. The business has been
doing very well for the past sixteen years. The sisters considered converting the CC
into a profit company, to trade as a private company. Two of the sisters are opposed
to the conversion of the CC as they want the business to remain a family business in
honour of their late mother. The two sisters who are in favour of the conversion want
to know if it is possible to proceed with converting the close corporation into a private
company, despite the resistance of the two other sisters. Advise the sisters who are in
favour of the conversion by choosing the CORRECT option below:

A. They can only succeed with converting a CC into a (Pty) Ltd by filing a notice
of conversion together with the payment of a prescribed fee, and if the holders
of 50% of the members’ interest voted in favour of conversion.

B. They can only succeed with converting a CC into a (Pty) Ltd by filing a notice
of conversion together with the payment of a prescribed fee, and if the holders
of 75% of the members’ interest voted in favour of conversion.

C. They can only succeed with converting a CC into a (Pty) Ltd by filing a notice
of conversion together with the payment of a prescribed fee, and if the holders
of 100% of the members’ interest voted in favour of conversion.

D. They can successfully convert the CC into a (Pty) Ltd by merely filing a notice
of conversion with the CIPC.

Question 13
Lily holds a members' interest in Builders4U CC. The principal business of Builders4U
CC is the building of residential houses and apartments. On behalf of Builders4U CC,
Lily entered a contract with Ice Cream Ltd to buy an ice-cream truck for R1 000 000.

Choose the CORRECT statement:

A. The contract between Ice Cream Ltd and Builders4U is void.

B. Lily will be personally liable for the payment of R1 000 000 to Ice Cream Ltd.
C. Lily has not breached her fiduciary duty to Builders4U CC.
D. A valid contract came into existence between Ice Cream Ltd and Builders4U.

Question 14
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Andre, Ben and Charles are the members of a close corporation. Andre and Ben each
hold a 25% members' interest in the close corporation, while Charles holds a 50%
members' interest. On 14 August 2023, Charles is sequestrated and on 12 September
2023, the trustee of his estate notifies Andre and Ben that the 50% members' interest
has been sold to Themba for R1 million.

Choose the CORRECT option:

A. Andre may serve a notice on the trustee to buy the 50% members’ interest for
R900 000 million.

B. Ben may serve a notice on the trustee to buy the 50% membership interest for
R1 million.

C. Andre and Ben can serve a notice in terms of which each will be entitled to buy
half of Charles' members’ interest for R500 000.

D. All of the above options.

Question 15
Amy, Chris, Danny, and Emily are the members of a close corporation. Amy, Chris,
Danny, and Emily each hold a 25% members' interest in the close corporation. On 12
September 2023, Zorro bought a 20% members' interest in the corporation directly
from the close corporation. In terms of the amended founding statement, Zorro will
hold a 20% members' interest in the close corporation. Choose the CORRECT
statement below, which contains the correctly adjusted members' interest of each
member:

A. Zorro (40%); Emily (20%); Amy (20%); Chris (20%); Danny (20%).
B. Zorro (20%); Emily (25%); Amy (15%); Chris (15%); Danny (15%).
C. Zorro (20%); Emily (20%); Amy (20%), Chris (20%), Danny (20%).
D. Zorro (20%); Emily (25%); Amy (25%), Chris (25%); Danny (25%).

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Question 16
The office of the accounting officer of Adventure Cycling CC has been vacant since 1
February 2023. Advise John, Mia, and Trevor, as the members of Adventure Cycling
CC, on the legal consequences that follow from the failure to fill this vacancy.
Choose the CORRECT option:

A. John, Mia, and Trevor will be jointly liable for the close corporation's debts.

B. Adventure Cycling CC will be jointly liable for the close corporation's debts with
John, Mia, and Trevor.

C. Only Adventure Cycling CC as a separate legal personality will be liable for the
debts of the close corporation.

D. Adventure Cycling CC and all its members who are aware of the vacancy will
be held jointly and severally liable for the debts of the corporation.

Question 17
Advise John, Mia and Trevor on the consent that is required in terms of the Close
Corporations Act 69 of 1984 if Adventure Cycling CC wants to dispose of its office
buildings in Cape Town.

Choose the CORRECT option:

A. The consent of members holding a members’ interest of 100% in Adventure

Cycling CC is needed.

B. The written consent of members holding a members’ interest of more than

50% in Adventure Cycling CC is needed.

C. The written consent of members holding at least 75% of the members' interest
in Adventure Cycling CC is needed.

D. The written consent of members holding a members’ interest of 100% in

Adventure Cycling CC is needed.

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Question 18
Tshepiso, Jani and Fanie are all members of ExtremeSports CC and parties to an
association agreement. Chris bought a members’ interest in ExtremeSports CC. All
the parties signed the amended founding statement but, due to an omission, Chris did
not sign the association agreement. Advise the members on the legal consequences
of the failure of Chris to sign the association agreement.

Choose the CORRECT option:

A. The purchase of the members' interest by Chris in ExtremeSports CC is void.

B. The purchase of the members' interest by Chris in ExtremeSports CC is

voidable.

C. Chris is bound to the founding statement, but not the association agreement.

D. Chris is bound to both the founding statement and the association agreement.

Question 19
Complete the sentence by choosing the CORRECT option: All existing close
corporations have a ….

A. shareholders' agreement.
B. association agreement.
C. memorandum of incorporation.
D. founding statement.

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Question 20
Chris is a member of Edu Magazines CC and the sole member of Supreme Printing
Press CC. Edu Magazines CC's main business is the printing and distribution of South
Africa's leading magazines. At one of Edu Magazines CC's meetings of members,
Chris convinced a majority of the members that the printing of the magazines must be
outsourced to Supreme Printing Press CC. During the meeting, Edu Magazines CC
awarded a R1 million contract for printing services to Supreme Printing Press CC. The
members of Edu Magazines CC were unaware that Chris was a member of Supreme
Printing Press CC.

Advise Edu Magazines CC on the correct legal position by completing the sentence
by choosing the CORRECT option: The contract between Edu Magazines CC and
Supreme Printing Press CC is….

A. valid and enforceable.

B. valid but unenforceable.
C. void at the option of Supreme Printing Press CC.
D. voidable at the option of Edu Magazines CC.

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 PART B: COMPANY LAW
Question 01 [3 marks]
1.1 Name the ground(s) that must be proven in terms of section 20(9) of the
Companies Act 71 of 2008 for a court to grant relief in the form of the piercing
or lifting of the corporate veil. (1)
• Unconscionable abuse (1)

The following may also be awarded a mark:

• ‘Unconscionable injustice’ (1)
• ‘Unconscionable abuse’ (1)

1.2 With reference to recent case law, critically evaluate the following remark of the
court in Hulse-Reutter and Others v Godde [2002] 2 All SA 211 (A) par 23
regarding the piercing or lifting of the corporate veil:
'The very exceptional nature of the relief which the respondent seeks against
the appellants requires in the circumstances of the present case, that he should
have no other remedy.' (2)
Note – Although the memo makes provision for a possible three marks this
question counts a maximum of two marks.
• Ex parte Gore (1)
• The remedy is not exceptional (1)
• Reliance can be place on the remedy even if alternative remedies are available
(1)

Question 02 [4 marks]
Ben Ten and Vela Vet are wildlife veterinarians and the directors of Wildvet Inc.
Wildvet Inc bought a helicopter for R3 million from BlueSky (Pty) Ltd. After BlueSky
(Pty) Ltd delivered the helicopter, Wildvet Inc failed to pay the purchase price. With
reference to the Companies Act 71 of 2008, explain in detail who can be held liable
for the payment of the outstanding purchase price. In your answer, you must refer to
the grounds for liability of the respective parties. (4)
• Wildvet Inc (1)

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 • Ben Ten (1)
• Vela Vet (1)
• Jointly and severally (1) for contractual debts

Question 03 [2 marks]
The memorandum of incorporation of Organic Farms Ltd ('the company') provides that
its business is restricted to 'catle' farming instead of 'cattle' farming. With reference to
these facts, advise the board comprehensively on who may correct the memorandum
of incorporation and whether a shareholders' resolution is required in terms of the
Companies Act 71 of 2008 to correct the memorandum of incorporation of the
company. (2)
• Board (1) – The board only! Not shareholders holding 10% of the
voting rights. Mentioning both award 0.
• No shareholders' resolution required to alter MOI (1)

Question 04 [3 marks]
Anri, Chris, Noma and Tshepiso are the directors of ExtremeConstruction (Pty) Ltd
('the company'). Without the knowledge of his co-directors, Chris concluded an
agreement with Grace on behalf of the company. In terms of the agreement, the
company purchased a heavy-duty crane for R10 million. Grace is of the view that the
company is bound to the agreement as the contract was concluded by a director of
the company on behalf of the company and the purchase of the heavy-duty crane falls
within the scope of the company's business. With reference to the applicable company
law principles, explain whether there is a valid and enforceable contract between
ExtremeConstruction (Pty) Ltd and Grace. (3)
• The board as a collective manages the business and affairs of the company of
a company. (1) – Or approval from other directors may also be marked
correct.
• A single director (Chris) cannot bind the company. Must be authorised by the
board. (1)
• No contract between ExtremeConstruction (Pty) Ltd and Grace. (1)

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Question 05 [3 marks]
Bigshows Ltd ('the company') made a profit of R100 million in its last financial year.
The company wishes to pay a dividend of R10 per share to each of its shareholders.
With reference to the Companies Act 71 of 2008, advise the board of the company on
the statutory requirements that apply to the payment of a dividend. (3)

Note: This question counts a maximum of three marks.

• Dividend = distribution (1)
• Board resolution authorised distribution (1)
• Reasonably appears that the company will meet solvency and liquidity test
immediately after the payment distribution (1)
• Second board resolution = board acknowledges the application of the solvency
and liquidity test and it reasonably appears that the company will meet the
solvency and liquidity test immediately after the payment distribution. (1)

PART A: 20
PART B: 15
TOTAL:35
END OF PAPER

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