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MRL 2601MRL2601
OCTOBER NOVEMBER 2018
QUESTION 1
1.1 it is a private company.
Its Memorandum of Incorporation prohibits the offering of any securities to
the public and restricts the transferability of its securities.
Private companies are no longer limited to 50 shareholders, as was the case
under the Companies Act of 1973.
In terms of section 8(2)(b) of the Companies Act, a private company’s
Memorandum of Incorporation must contain a prohibition against the offering
of its securities to the public and must restrict the transferability of its
securities.
It can be formed by one person.
It must have at least one director.
1.2 The companies act will enjoy preference over the companies memorandum of
incorporation because it is a legislative document thus it is authoritative. The
company’s memorandum of incorporation and the company rules enjoy equal
status.
,1.3 In terms of section 163 of the Companies Act, a shareholder or a director may
bring an application for the court to provide relief against oppressive or
unfairly prejudicial conduct by the company.
A derivative action is a lawsuit brought by a corporation shareholder against
the directors, management and/or other shareholders of the corporation for a
failure by management (In effect, the suing shareholder claims to be acting on
behalf of the corporation, because the directors and management are failing
to exercise their authority for the benefit of the company and all of its
shareholders.) This is in terms of section 165 of the companies act.
The derivative action is the best because the shareholder will be acting on
behalf of the company and since she could not afford to pay the legal costs
the company will pay its costs as juristic person.
1.4 The Turquand rule was derived from Royal British Bank v Turquand. According
to the common law Turquand rule, if the person acting on behalf of the
company has the authority to do so, but this is subject to an internal formality,
such as approval by the board, an outsider contracting with the company in
good faith is entitled to assume that this internal requirement has been
complied with. The company will be bound by the contract even if the internal
formality has not been complied with. The exceptions are: if the outsider was
aware of the fact that the internal formality had not been complied with; or if
the circumstances in which the contract was concluded were suspicious. The
Turquand rule was formulated to keep an outsider’s duty to inquire into the
affairs of the company within reasonable bounds. To trigger the protection
provided by the Turquand rule, there must have been an internal requirement
present.
,Thus as a result of this rule the outsider is protected against the company
when it denies liability provided that the outsider acted in good faith when
concluding the contract with the company. Thus the company is cannot deny
liability unless the outsider new that some internal requirement was not
complied with or the contract was concluded under suspicious conditions.
1.5 In Salomon v Salomon & Co Ltd, it was held that the principle of separate
legal personality has various implications:
The estate of the company is assessed apart from the estates of the
individual shareholders or members.
The debts of the company are the company’s debts and are separate from
those of its shareholders or members. They (the shareholders or members)
enjoy limited liability.
Where a company is wronged, the company must itself seek redress.
Companies are the bearers of rights as well as duties in terms of Chapter 2
of the Constitution.
QUESTION 2
2.1.1 Cash Flex Ltd will be giving Pro-Shift Pty Ltd financial assistance. This is a
form of distribution (section 46 of the companies act regulates distribution)
certain requirements have to be met. These are:
A distribution may be made in the following circumstances:
The board of directors must authorize the distribution.
It must reasonably appear that the company will be able to satisfy the
solvency and liquidity tests immediately after the distribution has been made.
, The board must acknowledge by way of a resolution that it has applied the
solvency and liquidity tests and reasonably concluded that the company will
satisfy the tests immediately after completion of the proposed distribution.
The solvency and liquidity tests are set out in section 44 of the Companies
Act:
Solvency test: That, in considering all reasonably foreseeable financial
circumstances of the company at that time, the assets of the company, fairly
valued, equal or exceed the liabilities of the company as fairly valued.
Liquidity test: That, in considering all reasonably foreseeable financial
circumstances of the company at that time, it appears that the company will
be able to pay its debts as they become due in the ordinary course of business
for a period of 12 months after the distribution. If the distribution was in the
form of giving a loan to a shareholder or forgiving a loan made to a
shareholder, the period runs from 12 months after the test was considered.
Thus Cash Flex Ltd must satisfy these statutory requirements before it can
assist Pro-Shift Pty Ltd.
2.1.2
It is a rule in all 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. Proper, constructive dialogue requires
the infusion of the culture of ubuntu to promote social cohesion.
Ubuntu and Fairness before the law. The law attaches certain
consequences to misconduct committed in different business
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