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PVL2602 - Law of succession summary
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Study Unit 4: Company formation?Activity 1
Draft a Memorandum of Incorporation in which you include ten issues that may be
included in a Memorandum of Incorporation. Ensure that the provisions of the
Memorandum of Incorporation give clarity on all the different issues.
See section 15 of the Companies Act. This activity is intended to familiarise you with
issues that are usually included in the Memorandum of Incorporation. Did you check
the provisions to ensure that they are consistent with the Companies Act?
Companies may accept or alter the following alterable provisions as long as the
alteration remains consistent with the Companies Act.
Alterable provisions
A company enjoys all the legal powers and capacity of an individual, except to
the extent that a juristic person is incapable of exercising any such powers, or
having any such capacity; or the company’s Memorandum of Incorporation
provides otherwise (e.g. it may determine that the company’s activities will be
limited to a specific business).
Private, non-profit and incorporated companies may elect to comply with the
extended accountability requirements of Chapter 3 (section (2)).
Shares within the same class have the same rights, limitations and terms,
unless the Memorandum of Incorporation provides otherwise (section 37(1)).
The Memorandum of Incorporation may exclude the right of first refusal of
current shareholders of a private company in respect of shares issued by the
company (section 39(3)).
The Memorandum of Incorporation may forbid the board to render financial
assistance to parties wanting to acquire shares in the company (section
45(2)).
The Memorandum of Incorporation may provide for longer minimum notice
periods for meetings.
Electronic notice and electronic participation in meetings are allowed unless
the Memorandum of Incorporation prohibits it (section 63(2)).
Companies may determine a higher number of minimum directors than that
prescribed by the Companies Act (section 66(2)).
?Activity 2
Vanitha and Sandra have just moved to a new town. There they meet a mutual
friend, Wilma, from their days in boarding school. The town has many orphans who
are homeless. Vanitha, Sandra and Wilma have decided to form a non-profit
company that will provide food and shelter to the orphans. They have completed
drafting the Memorandum of Incorporation for the company to be registered as
Hayani NPC. They want to start operating before the winter season arrives. The
directors are Vanitha, Sandra and Wilma. A day before filing their documents with
the Commission, Vanitha finds out that Sandra has been prohibited by a court of law
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,from becoming a director. She discusses this with Wilma and together they decide to
proceed with the process of incorporation since looking for someone to replace
Sandra as a director will cause unnecessary delays. They agree that they will look
for someone to replace Sandra after incorporation. They proceed to file a copy of the
Memorandum of Incorporation and the Notice of Incorporation, together with the
prescribed fee with the Commission. How must the Commission deal with this notice
of Incorporation?
Although the Companies Act allows for flexibility, there are circumstances in which
the Commission is compelled to reject the Notice of Incorporation. Read section
13(4) (b) together with section 69(8) of the Companies Act.
?Activity 3
You are a member of the board of directors of Regona (Pty) Ltd. At the last meeting
of the board it became clear that the Memorandum of Incorporation was silent
regarding certain issues relating to the governance of the company. After lengthy
discussions three rules concerning the governance of the company were made.
They were filed with the Commission a month ago. The next general shareholders’
meeting has not taken place yet.
You decide to read the rules thoroughly and you realise that one of the rules is
already addressed by the Companies Act. You also realise that another rule is
actually inconsistent with the Memorandum of Incorporation of the company. You
mention this to the other members of the board. You are then requested to find out if
these rules are valid or not. You are further requested to find out when they will
become permanent and on whom they are binding.
The board of directors has the power to make rules concerning the governance of
the company, provided that they are not addressed in the Companies Act or in the
Memorandum of Incorporation. A rule made by the board which is inconsistent with
the Memorandum of Incorporation or with the Companies Act will be void, but only to
the extent of its inconsistency. Although the rule becomes effective 10 business days
after publication, ratification by an ordinary resolution at the next shareholders’
general meeting is important. 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 seems to be of
a contractual nature.
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, ?Activity 4
After Exit (Pty) Ltd was incorporated, the Memorandum of Incorporation was
translated into Afrikaans and Tshivenda. The English, Tshivenda and Afrikaans
copies were kept together. There is now confusion regarding the provision that deals
with the frequency of meetings as the three versions state different things. Which
version of the Memorandum of Incorporation should prevail and why?
In the event of a conflict between a provision in the Memorandum of Incorporation
and a provision in the translated version, the provision in the original Memorandum
of Incorporation prevails.
?Activity 5
Punch (Pty) Ltd has made alterations to its Memorandum of Incorporation three
times within the past year. The Companies and Intellectual Property Commission is
concerned about the number of documents that have to be handled each time one
has to read Punch (Pty) Ltd’s Memorandum of Incorporation. How can the problem
be addressed?
The Commission may request the company to file a consolidated revision of its
Memorandum of Incorporation. Remember that there is a sworn declaration that
must accompany this.
?Activity 6
Exit (Pty) Ltd has had several alterations and translations made to its Memorandum
of Incorporation. Some of the alterations were made in respect of the same
provisions. One of the directors approaches you as he is worried about the fact that
the Memorandum is made up of too many documents. He is already confused and
does not know which version should prevail in the event of a conflict and why. Advise
him.
Where there is a conflict between various versions of the Memorandum of
Incorporation, the latest version that has been endorsed by the Commission prevails.
As you advise the director, you may inform him about the possibility of consolidating
the Memorandum of Incorporation.
?Activity 7
Ryno has been appointed as a director of a private company. He becomes aware of
an agreement between the shareholders of the company. As he reads the
agreement he realises that two of the ten provisions contained in the agreement are
not consistent with the company’s Memorandum of Incorporation. He is concerned
about the validity of the agreement. Advise Ryno.
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