Exam (elaborations)
CLA2601 EXAM PACK 2023
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- University Of South Africa (Unisa)
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CLA2601 EXAMPACK 2023
UPDATED QUESTIONS
AND ANSWERS
,CLA2601 – EXAM PAPERS AND SOLUTIONS
OCTOBER/NOVEMBER 2013
SECTION A
QUESTION 1
1.1 AJ and Peter wish to start a business together. They are unsure of what
type of enterprise would be the most suitable. Explain the advantages
and disadvantages attached to a legal personality. Refer to the relevant
case law.
- Can acquire rights and duties separate from its shareholders
- The assets of the company are its exclusive property and does not belong to
the shareholders
- Company can acquire its own assets
- Company is liable for its own liabilities
- Shareholders enjoy limited liability
Case law
- Salomon v Salomon and Co Ltd [1987] AC22 (HL) [43]
- Airport Cold Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C)
- Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530 [44]
- Dhlomo v Natal Newspapers (Pty) Ltd 2989 (1) SA 945 (A) [49]
1.2 Ben and Werner decide to form Levin (Pty) Ltd. They are the only
shareholders and directors of the company. Levin (Pty) Ltd’s
constitutive document indicates that final dividends must be confirmed
by the general meeting. At a board meeting, Ben and Werner agree that
the company must declare a dividend of 25 cents per share.
With reference to the set of facts (in question 1.2) answer the following
questions:
1.2.1 Indicate whether Levin (Pty) Ltd is a public or private company and
list two differences between public and private companies.
Private Company
The Memorandum of Incorporation (MOI) of a private company prohibits it
from offering any of its securities to the public and restricts the transferability
of its securities. The securities of the public companies may be offered to the
public and is freely transferable. Public companies may also be listed on the
JSE.
1.2.2 What is the constitutive document of this type of enterprise called?
Memorandum of Incorporation (MOI)
1.2.3 Explain whether or not it is possible for Ben and Werner to pass
the resolution to declare dividends without convening a meeting of
shareholders.
- Section 57 (4) regulates the situation where every shareholder is a director
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, of the company
- Any matter that is required to be referred by the board to the shareholders
for decision may be decided by the shareholders at any time after being
referred, without notice or compliance with any internal formalities, except to
the extent that the Memorandum of Incorporation provides otherwise,
provided that –
*every such person was present at the board meeting with the matter was
referred to them in their capacity as shareholders
*sufficient persons present in the capacity as shareholders to satisfy the
quorum requirements set out in section 64
*a resolution adopted by those persons in the capacity as shareholders has at
least the support that would have been required for it to be adopted as an
ordinary or special resolution, as the case may be, at a properly constituted
shareholders meeting
- Yes, it is possible to obtain the approval for the declaration of dividends from
the general meeting without formally constituting a shareholders meeting
QUESTION 2
2.1 The Memorandum of Incorporation of Country Homes (Pty) Ltd states
that the company’s principle business is “the delivery of estate agent
services”. One of the directors purchases a racing horse on behalf of
the company at a racing horse auction. The board of directors decides
that it will be beneficial to the company to keep the racing horse and
participate in races. However, the horse does not perform well in its first
race. The board of directors wishes to know whether or not the company
is bound to the contract. Discuss the consequences of the transaction
in terms of the Companies Act 71 of 2008.
- No longer necessary for a company to state its principle business in its
Memorandum of Incorporation
- Section 19(1) of the Companies Act 71 of 2008 widens the capacity of a
company
- A company now has all the legal capacity of a natural person except to the
extent that a juristic person is incapable of exercising any such powers
- Companies are no longer limited by their main and ancillary objects or
business
- A company’s Memorandum of Incorporation may restrict/qualify the purpose
and powers of a company
- Section 20(1)(a) states that such restrictions would not render a contract
concluded in conflict with restrictions invalid
- Section 20(6) of the Companies Act determines that each shareholder has a
claim for damages against any person who fraudulently or due to gross
negligence causes the company to do something inconsistent with the Act or
such restrictions
- Unless the contract is ratified in terms of section 20(2) of the Companies Act
71 of 2008
2
, 2.2 Amy is a director of Loots Ltd. The company’s Memorandum of
Incorporation determines that the directors are appointed for a period of
two years. Six months after Amy’s appointment as director the
shareholders want to remove Any from her post as director. Advise
Loots Ltd regarding the following:
a) What type of resolution is required to remove a director from her
position?
Ordinary resolution
b) Will Amy be able to claim damages from the company if she had not
concluded a separate employment contract with the company?
Yes
- In terms of section 15(6) of the Companies Act 71 of 2008
- The Memorandum of incorporation is binding between the company and
each director
- Section 7 of the Companies Act 71 of 208 determines that a director may
claim damages based on breach of contract
2.3 Parrots Ltd holds 60% of the ordinary shares (ie a controlling interest) in
Sabers Ltd. Mr Pretorius wishes to acquire shares in Parrots Ltd and
acquires a loan from Beep Bank Ltd for this purpose Sabers Ltd
provides security in favour of Beep Bank for Mr Pretorius’ loan.
Explain whether or not the transaction between Mr Pretorius and Parrots
Ltd qualifies as financial assistance.
In Lipschitz v UDC Bank Ltd 1979 (1) SA 789 (A) it was held that the
transaction must be assessed in 2 phases:
Firstly, it must be ascertained whether there was financial assistance. In
Gradwell (Pty) Ltd vs Rostra Printers Ltd 1959(4) SA 419(A) the
“improvishment test” was formulated to assist in determining whether financial
assistance was provided. In terms of the improvishment test one considers
whether a transaction will have the effect of leaving the company poorer. If so,
financial assistance was provided. In Lipschitz, the court held that
impoverishment is not the only measure of financial assistance, but that
exposing the company to risk will also qualify as financial assistance for
purposes of the Companies Act. If the company buys an asset from the
person in order to enable that person to purchase shares in the company, it
will depend on the facts whether there was financial assistance. Factors
considered are whether the company needs the asset in its normal business
and whether the company paid a fair price for it.
Secondly, it must be determined whether that assistance was for the purpose
of acquiring shares in the company. In this case the transactions passed both
tests, in other words, financial assistance was provided for the purchase of
the company’s shares.
2.4 Samson is a newly appointed director of Stoop Ltd. He has no previous
experience as a director and no special management qualifications. His
son, Jeff is a second year law student. Jeff told Samson that he need not
be concerned about his new appointment since the business judgement
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