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Class notes

Mercantile Law 471 (Company Law)

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These notes cover every single class from Unit 5 (external relationships) up until the end (winding up/ liquidation). I took notes in class and also re-listened to the recordings, meaning these notes cover EVERYTHING that was said along with summaries of case law.

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  • October 23, 2022
  • 351
  • 2022/2023
  • Class notes
  • Prof stevens (and sutherland)
  • All classes
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By: kaylalivesey • 1 year ago

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stellenboschlaw
Company Law: Semester 2
Mercanti le Law 471: 2022


Table of Contents
5. EXTERNAL RELATIONSHIPS................................................................................................................................................... 3

5.1 INTRODUCTION.............................................................................................................................................................................3
5.2 THE CAPACITY OF A COMPANY & THE ULTRA VIRES DOCTRINE................................................................................................................4
5.3 CONTRACTS CONCLUDED BY A COMPANY & REPRESENTATION OF THE COMPANY.....................................................................................23
5.4 LIABILITY OF A COMPANY FOR CRIMINAL ACTS & DELICTS, AND THE “DIRECTING MINDS” DOCTRINE............................................................66
5.5 LOCUS STANDI OF A DIRECTOR TO REPRESENT THE COMPANY IN COURT.................................................................................................67

6. CORPORATE GOVERNANCE................................................................................................................................................ 69

6.1 INTRODUCTION...........................................................................................................................................................................69
6.2 THE SHAREHOLDERS.................................................................................................................................................................... 70
6.3 THE BOARD OF DIRECTORS............................................................................................................................................................80
6.4 RIGHTS & CAPACITIES OF DIRECTORS............................................................................................................................................116

7. CORPORATE FINANCE [PART 1]........................................................................................................................................ 179

7.1 INTRODUCTION.........................................................................................................................................................................179
7.2 LEGAL NATURE OF SHARES AND SHAREHOLDING..............................................................................................................................182
7.3 RIGHTS AND DUTIES CONNECTED TO SHARES..................................................................................................................................193
7.4 CLASSES OF SHARES AND TERMS ON WHICH SHARES ARE ISSUED.........................................................................................................197
7.5 AUTHORISED V ISSUED SHARE CAPITAL..........................................................................................................................................207
7.6 ISSUE OF SHARES AND CAPITALISATION SHARES...............................................................................................................................212
7.7 NOMINEES AND BENEFICIAL INTEREST HOLDERS..............................................................................................................................226
7.8 SECURITIES REGISTER.................................................................................................................................................................244
7.9 SHARE CERTIFICATES AND UNCERTIFICATED SHARES..........................................................................................................................258
7.10 TRANSFER OF SHARES.............................................................................................................................................................. 262
7.11 OFFERS TO THE PUBLIC (*WILL NOT BE ASKED ON THIS)..................................................................................................................266

8. GROUPS OF COMPANIES.................................................................................................................................................. 267

8.1 INTRODUCTION.........................................................................................................................................................................267
8.2 DEFINITIONS: HOLDING COMPANY, SUBSIDIARY, RELATED & INTER-RELATED.........................................................................................269
8.3 SUBSIDIARY HOLDING SHARES IN HOLDING COMPANY.......................................................................................................................281

9. CORPORATE FINANCE [PART 2]........................................................................................................................................ 285

9.1 INTRODUCTION.........................................................................................................................................................................285
9.2 FINANCIAL ASSISTANCE FOR THE ACQUISITION OF SHARES/SECURITIES.................................................................................................292
9.3 OTHER FINANCIAL ASSISTANCE.....................................................................................................................................................316
9.4 DISTRIBUTION OF COMPANY FUNDS TO SHAREHOLDERS....................................................................................................................322

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, 9.5 ACQUISITION BY A COMPANY OF ITS OWN SHARES OR SHARES IN THE HOLDING COMPANY......................................................................333

10. WINDING-UP/ LIQUIDATION.......................................................................................................................................... 339

10.1 INTRODUCTION.......................................................................................................................................................................339
10.2 INSOLVENT COMPANY..............................................................................................................................................................339
10.3 VOLUNTARY WINDING-UP.........................................................................................................................................................345
10.4 CONSEQUENCES OF WINDING-UP...............................................................................................................................................349
10.5 DISSOLUTION OF COMPANY......................................................................................................................................................349




Scope of test 3 & exam:
 No multiple choice questions.
 Can leave out topic 1 & topic 3 completely
 In terms of topic 2:
o Can ignore sole proprietor’s, business trusts, voluntary associations, partnerships & SOC’s.
o The other parts you must still know (NPC’s, private & public co.’s etc.):
 But will not be asked direct questions on them.
 Rather, you must be able to identify things like what type of name indicates that it is a
private company & what the consequences there will be.
 But for eg., won’t be asked to discuss Fundstrust for 15 marks
 The same applies to topic 4:
o For instance, won’t be asked to discuss the legal nature of the company’s MOI but must know that
it is a sui generis contract. Know what consequences there are.
o Know what the hierarchy is between shareholders agreements, rules, MOI etc.
 The same with alterable/ unalterable provisions.
 From topic 5 onwards  those will be the direct questions.


The same applies to the exam scope:
 But obviously including the work covered after the test
 No multiple choice questions.




2

,5. EXTERNAL RELATIONSHIPS
5.1 Introduction
 Overview
o In this part we are going to talk about the external relationships which companies have
with the outside world & in particular we are going to focus on the contractual
relationships that companies have with outside parties.
 Companies must have the capacity to act
o First NB thing to understand from an introductory perspective is that companies must
have the capacity to act. The company itself must be able to act. This the first element.
 Even if the company is able to act
o Of course individuals will still have to act on behalf of a company
 Because a company does not, itself, have a physical presence & companies
themselves cannot perform acts.
o It is an abstract idea, a legal construct.
 Individuals/human beings must act for the company & when individuals conclude
contracts on behalf of the company, they need authority from the company to be
able to act on behalf of that company.
o For a company to conclude a contract, it needs both:
1 The capacity to act (itself), and
2 Individual(s), who will have to act on behalf of the company & those individuals
will need authority.
 To start off with, there are some cases where our courts have said that there are certain
institutions within the company who, when they act, can actually be regarded as the company
acting.
o For instance, the board of directors or the managing director.
 It was at some stage asked whether these institutions should really be treated as having
authority to act on behalf of the company because they really become the company when they
act.
o However, it is now accepted that all contracts concluded on behalf of the company at
least must be concluded in terms of authority (i.e., authority will be needed to conclude
those acts). But in some cases, the authority given to these institutions will be
so broad that it will be regarded as the company acting.
 For instance, in the context of formalities with land
 If the board concludes a contract for the sale of land, they will not be
treated as agents for purpose of the alienation of land act, they will simply
be treated as a company. But still, in the end, they need authority to do
that.
 *In the first part of the lectures, we are going to talk about the issue of capacity of the company
& the so-called ultra vires doctrine.




3

, 5.2 The capacity of a company & the ultra vires doctrine
5.2.1 Previous law (position under the Old Act)
 Under the common law, a valid company contract needed to satisfy two requirements:
o Contract had to be within the capacity of the company
o The person who entered the contract on behalf of the company had to have authority to
do so
 How did you determine what the capacity of the company was?
o Firstly: The OA specifically stated that you had to determine the capacity of the
company by looking at the objects of the company.
 Meaning the OA specifically required that the company in its MOI/constitution had
to set out its main object & that main object had to be set out in terms of sec
52(1)(b) of OA & that main object then determined the capacity of the company.
 The OA had various ways of extending this main object to ensure that a wider
range of activities would be within the capacity of the company (*but we will not
go into detail here).
 Sec 33 said the company would automatically have unlimited ancillary
objects that were related to its main object, even though it did not mention
them, & that the company had wide range of powers that it could exercise
to fulfil its object.
o In both those cases, the ancillary objects & wide range of powers
could only be limited in the MOI. If it did not limit it, it would be
very wide.
 The reason for this was that before the 1973 Act, companies often
formulated very wide objects clauses because they wanted to extend
the companies capacity as widely as possible.
o These provisions became completely impenetrable.
o And so, the idea under the OA was to get companies to
formulate shorter object clauses by just setting out the main
objects clause in the constitution & then to have the law expand on
the main objects clause.
 This, to a large extent, succeeded.
 Companies started having much shorter clauses because
they knew they would have unlimited ancillary objects &
they knew they would have unlimited powers unless they
restricted them.
 It is NB to mention that companies did not really like having their powers
limited in many cases because it could lead to liability of directors 
Future directors were often responsible for drafting the constitutions of
companies. They often disliked having their capacity limited & they wanted
to be formulated as widely as possible.
 So, the first aspect related to the fact that the capacity of a company was
determined by the objects of the company.

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