Exam (elaborations)
LML Portfolio Guidelines and Answers
- Course
- LML4806 - Company Law
- Institution
- University Of South Africa (Unisa)
LML Portfolio Guidelines and Answers with references and footnotes.
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QUESTION 1 [22]1.1 Exclusive Properties (Pty) Ltd (the company) has four shareholders, each
holding 25% of the voting rights in the company. All of the shareholders are
also directors of the company. The Memorandum of Incorporation of the
company has not changed the default position in terms of the Companies Act
71 of 2008 regarding the threshold required to pass ordinary resolutions. The
company held a board meeting at which three directors were present. Some of
the decisions taken by the board of directors related to matters that were
required to be referred to the shareholders for approval by an ordinary
resolution. Without issuing a notice of a shareholders’ meeting or convening a
shareholders’ meeting, the board meeting proceeded to consider the proposed
ordinary resolutions. All the directors who were present at the meeting voted on
the proposed ordinary resolutions in their capacity as shareholders. Oliver, a
director and shareholder of the company who was not present at the meeting,
objects to the passing of the ordinary resolutions at the meeting in this manner.
He argues that (i) the voting on the ordinary resolutions was invalid as no notice
of a shareholders’ meeting was properly given, (ii) the quorum requirements for
a shareholders’ meeting were not satisfied, and (iii) the threshold required for
the approval of the ordinary resolutions was not satisfied.
With reference to the Companies Act 71 of 2008 and the facts provided, advise
Oliver whether his arguments hold merit, and whether the ordinary
resolutions were validly passed at the meeting. (12)
If every shareholder of a company (other than a state-owned company) is also a
director of the company, any matter that is required to be referred by the board to the
shareholders for decision may be dealt with in terms of section 57(4) of the Companies
Act.1 The effect of this section is that a matter may be referred by the board to the
shareholders without notice or compliance with any internal formalities. However, this
is subject to the Memorandum of Incorporation which may provide otherwise.
1 Companies Act No. 71 of 2008.
, Therefore, as all the shareholders of Exclusive Properties (Pty) Ltd are directors of the
company, section 57(4) of the Companies Act 71 of 2008 would be applicable, unless
the Memorandum of Incorporation provides otherwise.
Section 57(4) requires the following:
• Every person must be present at the board meeting when the matter was
referred to them in their capacity as shareholders.
• A sufficient number of persons must be present in their capacity as
shareholders to satisfy the quorum requirements as set out in section 64 of the
Companies Act.
• A resolution adopted by the shareholders be supported by shareholders holding
at least the percentage of shares required for adopting an ordinary resolution
at a properly constituted shareholders’ meeting.
In this case, Oliver was not present at the meeting. Therefore, the first proviso is not
satisfied because not every person was present at the board meeting when the matter
was referred to them in their capacity as shareholders.
The default position for a quorum to be satisfied is that at least 25% of all the voting
rights eligible to be exercised in respect of at least one matter to be decided at the
meeting must be present before the meeting may start. Since three out of four
shareholders were present at the meeting, the quorum requirements for the meeting
were satisfied. The default position for the support of an ordinary resolution is that
shareholders holding more than 50% of the voting rights exercised must vote in favour
of the resolution.
In conclusion, Oliver’s objection is valid because not every person was present at the
board meeting when the matter was referred to them in their capacity as shareholders.
Therefore, the ordinary resolutions were not validly passed.
Refer to section 57(4) Companies Act 71 of 2008, par 11. 4.3 of the prescribed
textbook and page 3 of the study guide.
1.2 The Memorandum of Incorporation of Generators Unlimited (Pty) Ltd
provides that only the board of directors, or any director authorised by the
board, has the power to conclude contracts on behalf of the company. It also
states that any transaction that exceeds R10 million must first be authorised by
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