,MCL5901 UPDATED EXAMINATION PACK 2026
MCL5901 JANUARY 2026 EXAM MEMO
QUESTION 1
Thato is a director of Amanzi (Pty) Ltd. The company generated more than its usual
profit at the end of 2024. Thato is considering contributing to the Tokologo
community by installing a water infrastructure system in the area given that the area
does not have such a system. Currently, people are forced to walk several kilometres
every day to fetch water from a nearby water source. Some members of the board of
Amanzi (Pty) Ltd are opposed to the company paying for the installation of the water
infrastructure system in the community. They claim that the company’s business
should be managed exclusively in the interests of profit-making so that the interests
of other stakeholders, such as the community, should not be considered. They also
claim that all the company’s profits should be reinvested into the company to grow
and expand the business. With reference to the facts in the scenario above and
relevant cases, advise Thato on whether the installation of the water infrastructure
system in her community may be justified on the basis of the principle of ubuntu, or
whether the profits of the company must instead be reinvested to grow the
company’s business. [15]
The issue is whether Amanzi (Pty) Ltd may use part of its profits to install a water
infrastructure system for the Tokologo community, despite the argument that the company
should concentrate exclusively on profit-making and reinvest all profits into the business.
The starting point is the traditional principle that a company is a separate legal person and
that directors must act in the interests of the company. However, modern South African
company law does not require directors to ignore the interests of stakeholders and the
broader social environment in which the company operates.
The principle of ubuntu is particularly relevant. Ubuntu is associated with values such as
human dignity, compassion, solidarity, interconnectedness and concern for the welfare of
other members of society. In S v Makwanyane 1995 (6) BCLR 665 (CC), the Constitutional
,Court recognised ubuntu as an important constitutional value. The Court associated ubuntu
with concepts such as humaneness, social justice, reconciliation and the recognition of the
dignity and interconnectedness of people.
The facts of the scenario provide a strong social context for applying these principles. The
Tokologo community does not have a proper water infrastructure system and community
members are required to walk several kilometres every day to obtain water. Amanzi's
proposed contribution would therefore address a serious community need rather than
merely provide a private benefit to a particular individual.
Section 7 of the Companies Act 71 of 2008 is also important. Section 7(d) provides that one
of the purposes of the Act is to reaffirm the concept of the company as a means of
achieving economic and social benefits. This indicates that South African company law
does not regard companies as institutions whose activities must necessarily be directed
exclusively towards immediate financial profit.
The directors must nevertheless comply with section 76(3) of the Companies Act. This
provision requires a director, when exercising powers and performing functions as a
director, to act in good faith and for a proper purpose, in the best interests of the company
and with the required degree of care, skill and diligence.
Therefore, Thato cannot simply argue that ubuntu automatically permits the company to
spend its money on any charitable project. The expenditure must still be properly
authorised and the directors must genuinely consider whether the decision is in the
company's best interests.
The concept of the company's “best interests” should also not be interpreted so narrowly
that only short-term financial profit is relevant. The interests of stakeholders may be
relevant to determining what is in the company's best interests. A company's reputation,
relationship with the community, long-term sustainability and social responsibilities may all
be relevant considerations.
The argument that all profits must be reinvested into the company is therefore incorrect
as a general proposition. The Companies Act does not establish a general rule that every
profit generated by a company must necessarily be reinvested into expanding the business.
, A board may make different legitimate decisions regarding the use of company resources,
provided that those decisions comply with the Act, the company's MOI and the directors'
fiduciary and statutory duties.
The proposed project could also potentially benefit Amanzi indirectly. A company that
contributes positively to the community in which it operates may develop stronger
community relationships and enhance its reputation. These considerations may form part of
the board's assessment of the company's long-term interests.
However, the directors should properly investigate the financial implications of the project.
They should consider the amount involved, the company's financial position, whether the
expenditure is authorised by the MOI, and whether the project has a rational connection to
the interests and purposes of the company.
In applying these principles to the facts, Amanzi has generated more profit than usual.
There is therefore no indication that the proposed expenditure would necessarily threaten
the company's financial survival. The water project addresses an important community
need and is consistent with the values of ubuntu and the social-benefit objectives
recognised by the Companies Act.
Conclusion: Thato may therefore advise the board that the installation of the water
infrastructure system can potentially be justified. Amanzi is not legally required to reinvest
every rand of profit into growing the business. The board may consider the interests of the
Tokologo community and broader social considerations when determining what is in the
company's best interests. However, the directors must still comply with section 76(3), act in
good faith, for a proper purpose and with the required care, skill and diligence. The principle
of ubuntu can therefore support the decision, but it does not remove the directors' statutory
duties.
QUESTION 2
Fiona wishes to start a non-profit company called “Iziko NPC” which will provide a
safe recreational facility for the youth in her community to play sports, games, and
engage in other recreational activities. She approaches Allen and Nozi to be
MCL5901 JANUARY 2026 EXAM MEMO
QUESTION 1
Thato is a director of Amanzi (Pty) Ltd. The company generated more than its usual
profit at the end of 2024. Thato is considering contributing to the Tokologo
community by installing a water infrastructure system in the area given that the area
does not have such a system. Currently, people are forced to walk several kilometres
every day to fetch water from a nearby water source. Some members of the board of
Amanzi (Pty) Ltd are opposed to the company paying for the installation of the water
infrastructure system in the community. They claim that the company’s business
should be managed exclusively in the interests of profit-making so that the interests
of other stakeholders, such as the community, should not be considered. They also
claim that all the company’s profits should be reinvested into the company to grow
and expand the business. With reference to the facts in the scenario above and
relevant cases, advise Thato on whether the installation of the water infrastructure
system in her community may be justified on the basis of the principle of ubuntu, or
whether the profits of the company must instead be reinvested to grow the
company’s business. [15]
The issue is whether Amanzi (Pty) Ltd may use part of its profits to install a water
infrastructure system for the Tokologo community, despite the argument that the company
should concentrate exclusively on profit-making and reinvest all profits into the business.
The starting point is the traditional principle that a company is a separate legal person and
that directors must act in the interests of the company. However, modern South African
company law does not require directors to ignore the interests of stakeholders and the
broader social environment in which the company operates.
The principle of ubuntu is particularly relevant. Ubuntu is associated with values such as
human dignity, compassion, solidarity, interconnectedness and concern for the welfare of
other members of society. In S v Makwanyane 1995 (6) BCLR 665 (CC), the Constitutional
,Court recognised ubuntu as an important constitutional value. The Court associated ubuntu
with concepts such as humaneness, social justice, reconciliation and the recognition of the
dignity and interconnectedness of people.
The facts of the scenario provide a strong social context for applying these principles. The
Tokologo community does not have a proper water infrastructure system and community
members are required to walk several kilometres every day to obtain water. Amanzi's
proposed contribution would therefore address a serious community need rather than
merely provide a private benefit to a particular individual.
Section 7 of the Companies Act 71 of 2008 is also important. Section 7(d) provides that one
of the purposes of the Act is to reaffirm the concept of the company as a means of
achieving economic and social benefits. This indicates that South African company law
does not regard companies as institutions whose activities must necessarily be directed
exclusively towards immediate financial profit.
The directors must nevertheless comply with section 76(3) of the Companies Act. This
provision requires a director, when exercising powers and performing functions as a
director, to act in good faith and for a proper purpose, in the best interests of the company
and with the required degree of care, skill and diligence.
Therefore, Thato cannot simply argue that ubuntu automatically permits the company to
spend its money on any charitable project. The expenditure must still be properly
authorised and the directors must genuinely consider whether the decision is in the
company's best interests.
The concept of the company's “best interests” should also not be interpreted so narrowly
that only short-term financial profit is relevant. The interests of stakeholders may be
relevant to determining what is in the company's best interests. A company's reputation,
relationship with the community, long-term sustainability and social responsibilities may all
be relevant considerations.
The argument that all profits must be reinvested into the company is therefore incorrect
as a general proposition. The Companies Act does not establish a general rule that every
profit generated by a company must necessarily be reinvested into expanding the business.
, A board may make different legitimate decisions regarding the use of company resources,
provided that those decisions comply with the Act, the company's MOI and the directors'
fiduciary and statutory duties.
The proposed project could also potentially benefit Amanzi indirectly. A company that
contributes positively to the community in which it operates may develop stronger
community relationships and enhance its reputation. These considerations may form part of
the board's assessment of the company's long-term interests.
However, the directors should properly investigate the financial implications of the project.
They should consider the amount involved, the company's financial position, whether the
expenditure is authorised by the MOI, and whether the project has a rational connection to
the interests and purposes of the company.
In applying these principles to the facts, Amanzi has generated more profit than usual.
There is therefore no indication that the proposed expenditure would necessarily threaten
the company's financial survival. The water project addresses an important community
need and is consistent with the values of ubuntu and the social-benefit objectives
recognised by the Companies Act.
Conclusion: Thato may therefore advise the board that the installation of the water
infrastructure system can potentially be justified. Amanzi is not legally required to reinvest
every rand of profit into growing the business. The board may consider the interests of the
Tokologo community and broader social considerations when determining what is in the
company's best interests. However, the directors must still comply with section 76(3), act in
good faith, for a proper purpose and with the required care, skill and diligence. The principle
of ubuntu can therefore support the decision, but it does not remove the directors' statutory
duties.
QUESTION 2
Fiona wishes to start a non-profit company called “Iziko NPC” which will provide a
safe recreational facility for the youth in her community to play sports, games, and
engage in other recreational activities. She approaches Allen and Nozi to be
