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STUDY UNIT 1
THE IMPACT OF THE CONSTITUTION AND GLOBALISATION ON ENTREPRENEURAL LAW
This evolving nature of law is foundational to the principle of transformative constitutionalism.
Purpose of the Companies Act:
• promote compliance with the Bill of Rights as provided for in the Constitution,
• promote the development of the South African economy by –
– encouraging entrepreneurship and enterprise efficiency;
– creating flexibility and simplicity in the formation and maintenance of companies;
– encouraging transparency and high standards of corporate governance as appropriate
– promote innovation and investment in the South African markets;
– re-affirm the concept of the company as a means of achieving economic and social benefits;
– continue to provide for the creation and use of companies in a manner that enhances the
economic welfare of South Africa as a partner within the global economy;
– promote the development of companies within all sectors of the economy, and encourage active
participation in economic organisation, management and productivity;
– create optimum conditions for the aggregation of capital for productive purposes and for the
investment of that capital in enterprises and the spreading of economic risk;
– provide for the formation, operation and accountability of NPCs to perform their functions;
– balance the rights and obligations of shareholders and directors within companies;
– encourage the efficient and responsible management of companies;
– provide for the efficient rescue and recovery of financially-distressed companies,
– provide a predictable and effective environment for the efficient regulation of companies.
Effect of legal personality
The effect of legal personality is illustrated in Salomon v Salomon and Co Ltd. “once the company is
legally incorporated it must be treated like any other independent person with its rights and
liabilities appropriate to itself”
The consequences of legal personality are the following:
•Separate existence; thus, a company cannot be said to be a South African company merely because
all the members are South Africans.
• Perpetual existence in the sense that a change in ‘members’ does not affect the legal person.
• The entity is a legal subject, and can have all the rights of a legal subject, including –
– rights of privacy, dignity and fame;
– being the owner of assets;
– being liable for debts/obligations;
– having profits/losses, which are the ‘property’ of the legal person; and
– suing and being sued in its own name.
• The entity cannot act in its own name; acts performed in its capacity as a legal subject must be
affected through duly appointed (usually natural) persons as agents – mere ‘membership’ does not
entitle a person to act as agent.
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• The entity is bound by and entitled to the Bill of Rights in terms of section 8(2) of the Constitution.
Whistle-blowers
Can disclose information to the effect that the whistle-blower reasonably believed at the time of the
disclosure that the disclosed information showed or tended to show someone in that capacity, has –
• contravened the Act,56 or a law mentioned in Schedule 6;
• failed or is failing to comply with any legal statutory obligation to which the company is subject;
• engaged in conduct that has endangered or is likely to endanger the health or safety of any
individual, or that damaged or is likely to damage the environment;
• unfairly discriminated, or condoned unfair discrimination, against any person, as contemplated in
section 9 of the Constitution
• contravened any other legislation prejudicial to the interests of the company.
The whistle-blower has qualified privilege in respect of the disclosure and is immune from any civil,
criminal or administrative liability for that disclosure.
If a person (any person)
• engages in conduct with the intent to cause detriment to the whistle-blower , and the conduct
causes such detriment; or
• directly or indirectly makes an express or implied threat
the whistle-blower is entitled to compensation from that person for any damages suffered.
Alternative dispute resolution
May refer a matter that could be the subject of such an application or complaint to –
• the Companies Tribunal; or
• an accredited entity; or
• for resolution by mediation, conciliation or arbitration.
If the dispute was resolved through the application of mediation, conciliation or arbitration by the
Companies Tribunal, or by an entity accredited in terms of section 166, the parties can submit the
order to a court to be confirmed as a court order.
Administrative fines
A court, on application by the CIPC or TRP, may impose an administrative fine for failure to comply
with a compliance notice. The fine may not be more than the greater of
- 10% of the respondent’s turnover for the period during which the company failed to comply
and
- the maximum prescribed by the minister (so prescribed is R1 million).
Ubuntu
Ubuntu advocates social justice and fairness. The second report issued by the Institute of Directors
of South Africa King Report on Corporate Governance, 2002 (then 2016) first canvassed the notion of
introducing African business values to be applied in South Africa, which is now summarised as
Ubuntu.
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One of the rules of natural justice is the audi alteram partem-rule. It basically means that before any
judicial functionary takes a decision on a matter, both sides of the story must be heard. This principle
is similar to the principle found in traditional African societies.
In summary, the values of ubuntu are embodied in the following elements that apply in business:
The ability to show compassion
Social justice and fairness
Harmony and humanity
Recognising the inter-connectedness of people and the accompanying responsibilities
Integrity and ethical behaviour
Open channels of communications and transparency
Due process and sensitivity in dealings with one another
Constitutional principles/ values
The values of ubuntu are reflected in the Constitution: The Republic of South Africa is one, sovereign,
democratic state founded on the following values: (a) human dignity; the achievement of equality
and the advancement of human rights and freedoms.
Examples of how the values of ubuntu are imbued in the law regulating different South African
businesses:
Business enterprises that the chosen name should not be offensive, racist or impinge
negatively on any individual/ legal person’s right to dignity.
The values of ubuntu must inform the manner in which corporate decisions are taken by
directors.
One of the purposes of the Companies Act is to promote compliance with the Bill of Rights in
the application of company law.
The Companies Act also aims to continue to provide for the creation and use of companies in
a manner that enhances the economic welfare.
Directors in performing their functions in companies must consider the interests of other
stakeholders.
Directors of companies can be removed by means of an ordinary resolution – this is despite
any agreement that may have been concluded to the contrary and no special resolution is
required. The law requires that before any such action may be taken, certain requirements
should be met to ensure ubuntu and fairness.
The Companies Act also provides protection for minority shareholders.
Principles of majoritarianism feature strongly throughout the legislation.
The Companies Act provides for a system of informal dispute resolution before the Takeover
Regulation Panel where appropriate, or other accredited forums. This is similar to the
African practice where a dispute is referred to a ‘Kgoro’ which will attempt to resolve the
matter.
Ubuntu is also evident in light of the fact that humanness is promoted in that agreements
must be respected and honoured by those who concluded.
The disclosure requirements in the Companies Act reflect the value of transparency of
ubuntu.
The principle of transparency is imbued in the requirement that directors must disclose any
financial interest that they have in any transaction affecting the company.
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The law attaches certain consequences to misconduct committed in different business
enterprises. This reflects an element of ubuntu and fairness and supports the principle that
one reaps what one sow’s
Restorative restitution is promoted rather than imposing criminal sanctions.
The Broad-based Black Economic Empowerment Act 53 of 2003 to address the level of black
ownership in the country.
As a strategic attempt to curb corruption the Protected Disclosures Act 26 of 2000 was
enacted.
One of the purposes of the Companies Act is providing for the efficient rescue and recovery
of the financially distressed companies in a manner that balances the rights and interest of
all relevant stakeholders
Constitutional interpretation and development of the common law
The guidelines for proper interpretation that have been provided by the constitutional &court
dictate that when a section of the legislation is capable of more than one construct, one being more
restrictive and the other providing for a wider net of protection, the broader contract be preferred.
The court has a duty to develop the common law so that the law keeps up, and remains suitable as
the needs of the community it aims to serve, change. Section 39 of the Constitution. Our common
law has evolved through centuries of feudalism, colonialism, discrimination, sexism, exploitation,
and apartheid.
The common law of contract regulates the environment within which trade and commerce take
place. In deciding whether the common law must be developed, the court must in each case
determine whether the common law fails to give effect to the section 39(2) objectives. The
adaptation of the common law by infusion of constitutional values is what is meant by
transformative constitutionalism.
The courts have through development of the common law clarified that a company has the following
rights:
Corporate Social Responsibility
Corporate governance is the system used to regulate corporate conduct to balance stakeholders’
interests, in order to ensure responsible behaviour while ensuring the maximum level of efficiency
and profitability for accompany.
Corporate social responsibility seeks to make modern companies responsible members of the
community. The term “CSR” is generally understood to mean integrating economic, social and
environmental imperatives into the company’s activities while at the same time addressing
