ENTREPRENEURIAL LAW
EXAM PACK
Abstract
This exam pack contains answers for past papers from 2013 to 2015.
JOSEPH
0784683517
, 1
MAY / JUNE 2013
SECTION A
QUESTION 1
1.1 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.
1.2 a) The Turquand rule was derived from Royal British Bank v Turquand.
According to the common-law Turquand rule, if the person acting on behalf of the
company has the authority to do so, but this is subject to an internal formality, such
as approval by the board, an outsider contracting with the company in good faith is
entitled to assume that this internal requirement has been complied with. The
company will be bound by the contract even if the internal formality has not been
complied with. The exceptions are: if the outsider was aware of the fact that the
internal formality had not been complied with; or if the circumstances under which
the contract was concluded were suspicious. In light of the above, the company is
not bound in the sense that the exception to the common law rule does not apply in
the given scenario.
, 2
b) No, in the sense that in terms of the Companies Act, only public companies have
a statutory obligation to convene annual general meetings.
c) Section 61 stipulates that at least the following matters must be transacted at the
AGM: 63
Election of directors to the extent required by the Companies Act, or the
company’s Memorandum of Incorporation
Appointment of an auditor for the following financial year
Appointment of an audit committee
Presentation of the directors’ report
Presentation of audited financial statements for the immediately preceding
financial year
Presentation of an audit committee report
Any matter raised by shareholders.
1.3 Grounds for the order:
Served as a director while disqualified
Acted as director while under probation in a manner that contravened order of
probation
Grossly abused position of director
Took personal advantage of information/ an opportunity
Intentionally/ by gross negligence inflicted harm to company/ subsidiary.
Acted in a manner that amounts to gross negligence, wilful misconduct or
breach of trust.
1.4
The board of directors must authorise the distribution.
It must reasonably appear that the company will be able to satisfy the
solvency and liquidity test immediately after the distribution has been made.
The board must acknowledge by way of a resolution that it has applied the
solvency and liquidity test and reasonably concluded that the company will
satisfy the test immediately after completion of the proposed distribution.
, 3
QUESTION 2
2.1 A director who has been removed from office may apply to a court to review the
determination of the board. This application must be brought within twenty business
days from the date of a decision taken by the board. The court has discretion
whether to confirm the determination of the board. A removal in terms of section 71
does not detract from any right that the director so removed has to claim
compensation or damages resulting from the loss of his/ her office.
2.2 As an alternative to applying to court or filing a complaint with the Commission,
an applicant or complainant may refer a matter to the:
Companies Tribunal
To an accredited entity for resolution by mediation
Conciliation or arbitration
2.3 • Nominate and appoint a registered, independent auditor;
• Determine the fees to be paid to the auditor and the auditor’s terms of engagement;
• Ensure that the appointment of the auditor complies with the Companies Act and
other legislation;
• Determine the nature and extent of non-audit services that the auditor may provide
or must not provide;
• Pre-approve any proposed agreement with the auditor for the provision of non-audit
services;
• Prepare a report to be included in the annual financial statements describing how
the audit committee carried out its functions, stating whether the committee is
satisfied that the auditor was independent from the company and commenting in any
way considered appropriate.
• To deal with complaints.
• To make submissions to the board on accounting policies, financial control, records
and reporting;
• To perform other functions as determined by the board including development of
policy to improve governance.
EXAM PACK
Abstract
This exam pack contains answers for past papers from 2013 to 2015.
JOSEPH
0784683517
, 1
MAY / JUNE 2013
SECTION A
QUESTION 1
1.1 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.
1.2 a) The Turquand rule was derived from Royal British Bank v Turquand.
According to the common-law Turquand rule, if the person acting on behalf of the
company has the authority to do so, but this is subject to an internal formality, such
as approval by the board, an outsider contracting with the company in good faith is
entitled to assume that this internal requirement has been complied with. The
company will be bound by the contract even if the internal formality has not been
complied with. The exceptions are: if the outsider was aware of the fact that the
internal formality had not been complied with; or if the circumstances under which
the contract was concluded were suspicious. In light of the above, the company is
not bound in the sense that the exception to the common law rule does not apply in
the given scenario.
, 2
b) No, in the sense that in terms of the Companies Act, only public companies have
a statutory obligation to convene annual general meetings.
c) Section 61 stipulates that at least the following matters must be transacted at the
AGM: 63
Election of directors to the extent required by the Companies Act, or the
company’s Memorandum of Incorporation
Appointment of an auditor for the following financial year
Appointment of an audit committee
Presentation of the directors’ report
Presentation of audited financial statements for the immediately preceding
financial year
Presentation of an audit committee report
Any matter raised by shareholders.
1.3 Grounds for the order:
Served as a director while disqualified
Acted as director while under probation in a manner that contravened order of
probation
Grossly abused position of director
Took personal advantage of information/ an opportunity
Intentionally/ by gross negligence inflicted harm to company/ subsidiary.
Acted in a manner that amounts to gross negligence, wilful misconduct or
breach of trust.
1.4
The board of directors must authorise the distribution.
It must reasonably appear that the company will be able to satisfy the
solvency and liquidity test immediately after the distribution has been made.
The board must acknowledge by way of a resolution that it has applied the
solvency and liquidity test and reasonably concluded that the company will
satisfy the test immediately after completion of the proposed distribution.
, 3
QUESTION 2
2.1 A director who has been removed from office may apply to a court to review the
determination of the board. This application must be brought within twenty business
days from the date of a decision taken by the board. The court has discretion
whether to confirm the determination of the board. A removal in terms of section 71
does not detract from any right that the director so removed has to claim
compensation or damages resulting from the loss of his/ her office.
2.2 As an alternative to applying to court or filing a complaint with the Commission,
an applicant or complainant may refer a matter to the:
Companies Tribunal
To an accredited entity for resolution by mediation
Conciliation or arbitration
2.3 • Nominate and appoint a registered, independent auditor;
• Determine the fees to be paid to the auditor and the auditor’s terms of engagement;
• Ensure that the appointment of the auditor complies with the Companies Act and
other legislation;
• Determine the nature and extent of non-audit services that the auditor may provide
or must not provide;
• Pre-approve any proposed agreement with the auditor for the provision of non-audit
services;
• Prepare a report to be included in the annual financial statements describing how
the audit committee carried out its functions, stating whether the committee is
satisfied that the auditor was independent from the company and commenting in any
way considered appropriate.
• To deal with complaints.
• To make submissions to the board on accounting policies, financial control, records
and reporting;
• To perform other functions as determined by the board including development of
policy to improve governance.
