LML4806 EXAM PACK
2026
FOR ASSISTANCE CONTACT
EMAIL:
, lOMoARcPSD|67513644
LML4806 EXAM PREP
Bongani has been a non-executive director of Apex (Pty) Ltd since 2012. He is also a
director and sole shareholder of a management consultancy business, Infinity (Pty) Ltd.
Apex (Pty) Ltd is undergoing a process of internal restructuring. Without knowing of
Bongani’s involvement with Infinity (Pty) Ltd, one of the other directors of Apex (Pty) Ltd
proposes to the board of directors of Apex (Pty) Ltd that Infinity (Pty) Ltd should be
approached for advice on the recruitment of key staff. The board of directors of Apex
(Pty) Ltd will be voting on this issue at the next board meeting which is scheduled for
next week.
(a) Bongani seeks your advice. He wants to know whether he must disclose his
interest in this matter to the board of directors of Apex (Pty) Ltd and if so, what
procedure he must adopt to do so. (8)
Section 75 of the Companies Act 71 of 2008 (hereinafter referred to as the “Act”)
regulates these situations. In terms thereof, a director has to disclose, before a board
meeting is to take place, any personal financial interests that they may have as well as
the nature of such interests, before the matter is taken into consideration.
Section 1 of the Act defines a personal financial interest as a person’s direct material
interest of a financial, monetary or economic nature, or that could have monetary worth
attached to it.
Because Infinity (Pty) Ltd, of which Bongani is a director and sole shareholder, stands to
gain financially if Apex (Pty) Ltd names Infinity (Pty) Ltd to advise it on staff recruitment,
Bongani has a personal financial interest in this matter.
As such, Bongani will have to disclose his interest in the matter.
The following is the procedure to be followed by Bongani to disclose his interest in the
matter:
1. Prior to the consideration of the matter at the meeting, he must notify the board
of directors of his interest and its general nature;
, lOMoARcPSD|67513644
2. He has to disclose all relevant information to his knowledge in relation to the
matter;
3. If requested by the directors, he may provide any observations or pertinent
insights in relation to the matter;
4. If Bongani is present at the meeting, he must adjourn the meeting following any
disclosure;
5. He is not allowed to participate in the consideration of the matter;
6. Unless specifically asked to do so by the board, he is not allowed to execute any
document on behalf of the company in relation to the matter.
(b) Assume that Bongani does not disclose his interest. Explain whether the contract
between Apex (Pty) Ltd and Infinity (Pty) Ltd will nonetheless be valid. (7)
According to Section 75(7) of the Act, a board decision, transaction, or agreement
approved by the board is valid despite any personal financial interest of a director or a
person linked to a director, but only if –
1. It was approved once that interest was disclosed in the way section 75
contemplates.
2. Even though it was approved without disclosing such interest, it
a. has since been confirmed by an ordinary shareholder resolution following
disclosure of the interest or;
b. has been deemed valid by the court in accordance with Act section 75(8). In
accordance with section 75(8) of the Act, a court may, upon application from
any interested party, declare a board-approved agreement enforceable even
in cases where the director fails to comply with section 75's disclosure
requirements.
The court upheld in Omar v. Inhouse Technical Management (Pty) Ltd 2015 (3) SA 146
(WCC) that a transaction or agreement entered into would be invalid if section 75(5) of
the Companies Act was not adhered to. This is unless the agreement was approved by
the company's shareholders or found to be valid by the court.
, lOMoARcPSD|67513644
Only if the contract was accepted after Bongani disclosed its general nature prior to the
meeting's consideration will it be deemed to be valid. Even in the event that no
disclosure was made, the agreement will still be valid if Apex (Pty) Ltd's shareholders
approve it following Bongani's disclosure to them. In addition, the contract will be valid if
a court declares it valid on an application by any party with an interest.
______________________________________________________________________
Deli Delight (Pty) Ltd (“Deli Delight”) recently released its financial statements which
reflected a huge profit. As a result, several investors are keen to purchase shares in Deli
Delight. Sifiso, who is currently not a shareholder, approaches Deli Delight. The board
of directors of Deli Delight resolves to issue some shares in Deli Delight to Sifiso, but on
condition that payment shall be made before or when the shares are issued. Simphiwe,
one of the prescribed officers and shareholders of Deli Delight, is opposed to his
brother, Sifiso, purchasing the shares. He believes that he (Simphiwe), together with
Deli Delight’s other shareholders, must first be afforded an opportunity to subscribe for
the shares. Advise Simphiwe whether he has the right to be first afforded an opportunity
to subscribe for the new shares in Deli Delight. [15]
Section 39(2) of the Companies Act 71 of 2008 ('the Act') stipulates that when a private
company intends to issue shares, each shareholder is entitled, prior to any non-
shareholder, to receive an offer and, within a reasonable timeframe, to subscribe for a
percentage of the shares to be issued that corresponds to the voting power of that
shareholder's general voting rights immediately preceding the offer.
As a result, existing shareholders in private companies are granted the prerogative to
subscribe for additional shares that the company issues in proportion to their voting
power.
A private company's Memorandum of Incorporation may restrict, negate, limit, or impose
limitations on the pre-emptive right with regard to the company's shares.
Section 39(1) (b) of the Act stipulates that, with regard to private companies, the pre-
emption right is not applicable to shares issued:
2026
FOR ASSISTANCE CONTACT
EMAIL:
, lOMoARcPSD|67513644
LML4806 EXAM PREP
Bongani has been a non-executive director of Apex (Pty) Ltd since 2012. He is also a
director and sole shareholder of a management consultancy business, Infinity (Pty) Ltd.
Apex (Pty) Ltd is undergoing a process of internal restructuring. Without knowing of
Bongani’s involvement with Infinity (Pty) Ltd, one of the other directors of Apex (Pty) Ltd
proposes to the board of directors of Apex (Pty) Ltd that Infinity (Pty) Ltd should be
approached for advice on the recruitment of key staff. The board of directors of Apex
(Pty) Ltd will be voting on this issue at the next board meeting which is scheduled for
next week.
(a) Bongani seeks your advice. He wants to know whether he must disclose his
interest in this matter to the board of directors of Apex (Pty) Ltd and if so, what
procedure he must adopt to do so. (8)
Section 75 of the Companies Act 71 of 2008 (hereinafter referred to as the “Act”)
regulates these situations. In terms thereof, a director has to disclose, before a board
meeting is to take place, any personal financial interests that they may have as well as
the nature of such interests, before the matter is taken into consideration.
Section 1 of the Act defines a personal financial interest as a person’s direct material
interest of a financial, monetary or economic nature, or that could have monetary worth
attached to it.
Because Infinity (Pty) Ltd, of which Bongani is a director and sole shareholder, stands to
gain financially if Apex (Pty) Ltd names Infinity (Pty) Ltd to advise it on staff recruitment,
Bongani has a personal financial interest in this matter.
As such, Bongani will have to disclose his interest in the matter.
The following is the procedure to be followed by Bongani to disclose his interest in the
matter:
1. Prior to the consideration of the matter at the meeting, he must notify the board
of directors of his interest and its general nature;
, lOMoARcPSD|67513644
2. He has to disclose all relevant information to his knowledge in relation to the
matter;
3. If requested by the directors, he may provide any observations or pertinent
insights in relation to the matter;
4. If Bongani is present at the meeting, he must adjourn the meeting following any
disclosure;
5. He is not allowed to participate in the consideration of the matter;
6. Unless specifically asked to do so by the board, he is not allowed to execute any
document on behalf of the company in relation to the matter.
(b) Assume that Bongani does not disclose his interest. Explain whether the contract
between Apex (Pty) Ltd and Infinity (Pty) Ltd will nonetheless be valid. (7)
According to Section 75(7) of the Act, a board decision, transaction, or agreement
approved by the board is valid despite any personal financial interest of a director or a
person linked to a director, but only if –
1. It was approved once that interest was disclosed in the way section 75
contemplates.
2. Even though it was approved without disclosing such interest, it
a. has since been confirmed by an ordinary shareholder resolution following
disclosure of the interest or;
b. has been deemed valid by the court in accordance with Act section 75(8). In
accordance with section 75(8) of the Act, a court may, upon application from
any interested party, declare a board-approved agreement enforceable even
in cases where the director fails to comply with section 75's disclosure
requirements.
The court upheld in Omar v. Inhouse Technical Management (Pty) Ltd 2015 (3) SA 146
(WCC) that a transaction or agreement entered into would be invalid if section 75(5) of
the Companies Act was not adhered to. This is unless the agreement was approved by
the company's shareholders or found to be valid by the court.
, lOMoARcPSD|67513644
Only if the contract was accepted after Bongani disclosed its general nature prior to the
meeting's consideration will it be deemed to be valid. Even in the event that no
disclosure was made, the agreement will still be valid if Apex (Pty) Ltd's shareholders
approve it following Bongani's disclosure to them. In addition, the contract will be valid if
a court declares it valid on an application by any party with an interest.
______________________________________________________________________
Deli Delight (Pty) Ltd (“Deli Delight”) recently released its financial statements which
reflected a huge profit. As a result, several investors are keen to purchase shares in Deli
Delight. Sifiso, who is currently not a shareholder, approaches Deli Delight. The board
of directors of Deli Delight resolves to issue some shares in Deli Delight to Sifiso, but on
condition that payment shall be made before or when the shares are issued. Simphiwe,
one of the prescribed officers and shareholders of Deli Delight, is opposed to his
brother, Sifiso, purchasing the shares. He believes that he (Simphiwe), together with
Deli Delight’s other shareholders, must first be afforded an opportunity to subscribe for
the shares. Advise Simphiwe whether he has the right to be first afforded an opportunity
to subscribe for the new shares in Deli Delight. [15]
Section 39(2) of the Companies Act 71 of 2008 ('the Act') stipulates that when a private
company intends to issue shares, each shareholder is entitled, prior to any non-
shareholder, to receive an offer and, within a reasonable timeframe, to subscribe for a
percentage of the shares to be issued that corresponds to the voting power of that
shareholder's general voting rights immediately preceding the offer.
As a result, existing shareholders in private companies are granted the prerogative to
subscribe for additional shares that the company issues in proportion to their voting
power.
A private company's Memorandum of Incorporation may restrict, negate, limit, or impose
limitations on the pre-emptive right with regard to the company's shares.
Section 39(1) (b) of the Act stipulates that, with regard to private companies, the pre-
emption right is not applicable to shares issued:
