CLA2601
NOTES
UNSIA
2019
,Table of Contents
LEARNING UNIT 1: Legal personality..................................................................................7
1.1 Introduction to legal personality.............................................................................................7
1.2 Legal personality of branches and divisions............................................................................8
1.3 Trusts and partnerships are not juristic persons......................................................................8
1.4 Disregarding separate juristic personality...............................................................................8
1.5 Reflection..............................................................................................................................10
LEARNING UNIT 2: Types of companies.............................................................................11
2.1 Introduction.........................................................................................................................11
2.2 Profit companies..................................................................................................................11
2.3 Non-profit companies..........................................................................................................13
2.4 Transitional provisions and close corporations.....................................................................13
2.5 External companies..............................................................................................................13
2.6 Domesticated companies.....................................................................................................14
2.7 Reflection.............................................................................................................................15
LEARNING UNIT 3: Registration of companies..................................................................16
3.1 Introduction.........................................................................................................................16
3.2 Procedure for the incorporation of companies.....................................................................16
3.3 The role of the Companies and Intellectual Property Commission (CIPC).............................17
3.4 Rules made by the board of directors...................................................................................18
3.5 The legal status of the MOI and the rules.............................................................................18
3.6 Ring-fenced companies........................................................................................................19
3.7 Amending the MOI...............................................................................................................19
Companies Act: sections 15 and 17(1)..........................................................................................................19
In terms of the procedure set out in the company’s MOI............................................................................20
3.8 Alteration of the MOI...........................................................................................................20
3.9 Translations of the MOI........................................................................................................20
3.10 Consolidation of the MOI...................................................................................................21
3.11 Authenticity of versions of the MOI....................................................................................21
3.12 The MOI and shareholders’ agreements.............................................................................21
3.13 Reflection...........................................................................................................................21
LEARNING UNIT 4: Pre-incorporation contracts................................................................23
4.1 Introduction.........................................................................................................................23
4.2 Agreement for the benefit of a third party...........................................................................23
1
, 4.3 Statutory method of conclusion of a pre-incorporation contract.........................................23
4.4 Reflection.............................................................................................................................24
LEARNING UNIT 5: Registration of company names..........................................................25
5.1 Introduction.........................................................................................................................25
5.2 Reservation process.............................................................................................................25
5.3 Effect of a name reservation.................................................................................................26
5.4 Change of name...................................................................................................................26
5.5 Use of name and registration number..................................................................................27
5.6 Reflection.............................................................................................................................27
LEARNING UNIT 6: Corporate finance...............................................................................28
6.1 Introduction.........................................................................................................................28
6.2 The solvency and liquidity test.............................................................................................28
6.3 Shares as a source of finance and the nature of shares........................................................29
6.4 Authorised, issued and unissued shares...............................................................................29
6.4.1 Preference shares.................................................................................................................................30
6.4.2 Ordinary shares....................................................................................................................................31
6.4.3 Deferred shares....................................................................................................................................31
6.4.4 Treasury shares.....................................................................................................................................31
6.4.5 Capitalisation shares.............................................................................................................................32
6.5 Issued shares........................................................................................................................32
6.6 Right of pre-emption or pro-rata offer.................................................................................33
6.7 Financial assistance for the subscription or purchase of securities.......................................33
6.8 Company distributions.........................................................................................................34
6.9 Share buybacks....................................................................................................................35
6.10 Debt instruments...............................................................................................................36
6.11 Reflection...........................................................................................................................37
LEARNING UNIT 7: Shareholders and company meetings..................................................38
7.1 Introduction.........................................................................................................................38
7.2 General comments regarding meetings................................................................................38
7.3 Record date..........................................................................................................................38
7.4 Calling of shareholders’ meeting..........................................................................................39
7.5 Notice of meetings...............................................................................................................39
7.6 Postponement and adjournment of meetings......................................................................40
7.7 Representation by proxy......................................................................................................40
7.8 Quorum................................................................................................................................40
7.9 Procedure of meetings.........................................................................................................41
7.10 Majority rule......................................................................................................................41
2
, 7.11 Some exceptions to applicable rules and formalities..........................................................41
7.12 Shareholders acting other than at a meeting......................................................................41
7.13 Annual general meeting.....................................................................................................42
7.14 Convening a meeting in special circumstances...................................................................42
7.15 Decisions of shareholders and others.................................................................................42
7.15.1 Ordinary Resolutions..........................................................................................................................43
7.15.2 Special Resolutions.............................................................................................................................43
7.16 Voting rights of shareholders and others............................................................................43
7.17 Reflection...........................................................................................................................43
LEARNING UNIT 8: Directors and board committees.........................................................45
8.1 Introduction.........................................................................................................................45
8.2 Meaning of the word “director”...........................................................................................45
8.2.1 Types of director...................................................................................................................................45
8.3 Duties of directors................................................................................................................46
8.3.2 Partially codified directors’ duties.......................................................................................................46
8.3.3 The business judgement rule...............................................................................................................48
8.4 Liability of directors and prescribed officers.........................................................................49
8.5 Number of directors and consent.........................................................................................50
8.6 Ineligible and disqualified persons.......................................................................................51
8.7 Application to declare a person delinquent or under probation...........................................51
8.8 First directors of a company.................................................................................................52
8.9 Vacancies on the board........................................................................................................52
8.10 Removal of directors..........................................................................................................53
8.11 Board committees..............................................................................................................53
8.12 Board meetings..................................................................................................................54
8.13 Reflection...........................................................................................................................54
LEARNING UNIT 9: Capacity and representation of a company.........................................55
9.1 Introduction.........................................................................................................................55
9.2 Capacity of a company.........................................................................................................55
9.3 The ultra vires doctrine........................................................................................................55
9.4 Representation.....................................................................................................................56
9.5 Doctrine of constructive notice............................................................................................56
9.6 The Turquand rule................................................................................................................57
9.6.1 Common law Turquand rule.................................................................................................................57
9.6.2 “Statutory Turquand rule” – section 20(7) of the Companies Act.......................................................58
9.7 The doctrine of estoppel......................................................................................................58
9.8 Reflection.............................................................................................................................59
LEARNING UNIT 10: Auditors and the company secretary.................................................60
3
NOTES
UNSIA
2019
,Table of Contents
LEARNING UNIT 1: Legal personality..................................................................................7
1.1 Introduction to legal personality.............................................................................................7
1.2 Legal personality of branches and divisions............................................................................8
1.3 Trusts and partnerships are not juristic persons......................................................................8
1.4 Disregarding separate juristic personality...............................................................................8
1.5 Reflection..............................................................................................................................10
LEARNING UNIT 2: Types of companies.............................................................................11
2.1 Introduction.........................................................................................................................11
2.2 Profit companies..................................................................................................................11
2.3 Non-profit companies..........................................................................................................13
2.4 Transitional provisions and close corporations.....................................................................13
2.5 External companies..............................................................................................................13
2.6 Domesticated companies.....................................................................................................14
2.7 Reflection.............................................................................................................................15
LEARNING UNIT 3: Registration of companies..................................................................16
3.1 Introduction.........................................................................................................................16
3.2 Procedure for the incorporation of companies.....................................................................16
3.3 The role of the Companies and Intellectual Property Commission (CIPC).............................17
3.4 Rules made by the board of directors...................................................................................18
3.5 The legal status of the MOI and the rules.............................................................................18
3.6 Ring-fenced companies........................................................................................................19
3.7 Amending the MOI...............................................................................................................19
Companies Act: sections 15 and 17(1)..........................................................................................................19
In terms of the procedure set out in the company’s MOI............................................................................20
3.8 Alteration of the MOI...........................................................................................................20
3.9 Translations of the MOI........................................................................................................20
3.10 Consolidation of the MOI...................................................................................................21
3.11 Authenticity of versions of the MOI....................................................................................21
3.12 The MOI and shareholders’ agreements.............................................................................21
3.13 Reflection...........................................................................................................................21
LEARNING UNIT 4: Pre-incorporation contracts................................................................23
4.1 Introduction.........................................................................................................................23
4.2 Agreement for the benefit of a third party...........................................................................23
1
, 4.3 Statutory method of conclusion of a pre-incorporation contract.........................................23
4.4 Reflection.............................................................................................................................24
LEARNING UNIT 5: Registration of company names..........................................................25
5.1 Introduction.........................................................................................................................25
5.2 Reservation process.............................................................................................................25
5.3 Effect of a name reservation.................................................................................................26
5.4 Change of name...................................................................................................................26
5.5 Use of name and registration number..................................................................................27
5.6 Reflection.............................................................................................................................27
LEARNING UNIT 6: Corporate finance...............................................................................28
6.1 Introduction.........................................................................................................................28
6.2 The solvency and liquidity test.............................................................................................28
6.3 Shares as a source of finance and the nature of shares........................................................29
6.4 Authorised, issued and unissued shares...............................................................................29
6.4.1 Preference shares.................................................................................................................................30
6.4.2 Ordinary shares....................................................................................................................................31
6.4.3 Deferred shares....................................................................................................................................31
6.4.4 Treasury shares.....................................................................................................................................31
6.4.5 Capitalisation shares.............................................................................................................................32
6.5 Issued shares........................................................................................................................32
6.6 Right of pre-emption or pro-rata offer.................................................................................33
6.7 Financial assistance for the subscription or purchase of securities.......................................33
6.8 Company distributions.........................................................................................................34
6.9 Share buybacks....................................................................................................................35
6.10 Debt instruments...............................................................................................................36
6.11 Reflection...........................................................................................................................37
LEARNING UNIT 7: Shareholders and company meetings..................................................38
7.1 Introduction.........................................................................................................................38
7.2 General comments regarding meetings................................................................................38
7.3 Record date..........................................................................................................................38
7.4 Calling of shareholders’ meeting..........................................................................................39
7.5 Notice of meetings...............................................................................................................39
7.6 Postponement and adjournment of meetings......................................................................40
7.7 Representation by proxy......................................................................................................40
7.8 Quorum................................................................................................................................40
7.9 Procedure of meetings.........................................................................................................41
7.10 Majority rule......................................................................................................................41
2
, 7.11 Some exceptions to applicable rules and formalities..........................................................41
7.12 Shareholders acting other than at a meeting......................................................................41
7.13 Annual general meeting.....................................................................................................42
7.14 Convening a meeting in special circumstances...................................................................42
7.15 Decisions of shareholders and others.................................................................................42
7.15.1 Ordinary Resolutions..........................................................................................................................43
7.15.2 Special Resolutions.............................................................................................................................43
7.16 Voting rights of shareholders and others............................................................................43
7.17 Reflection...........................................................................................................................43
LEARNING UNIT 8: Directors and board committees.........................................................45
8.1 Introduction.........................................................................................................................45
8.2 Meaning of the word “director”...........................................................................................45
8.2.1 Types of director...................................................................................................................................45
8.3 Duties of directors................................................................................................................46
8.3.2 Partially codified directors’ duties.......................................................................................................46
8.3.3 The business judgement rule...............................................................................................................48
8.4 Liability of directors and prescribed officers.........................................................................49
8.5 Number of directors and consent.........................................................................................50
8.6 Ineligible and disqualified persons.......................................................................................51
8.7 Application to declare a person delinquent or under probation...........................................51
8.8 First directors of a company.................................................................................................52
8.9 Vacancies on the board........................................................................................................52
8.10 Removal of directors..........................................................................................................53
8.11 Board committees..............................................................................................................53
8.12 Board meetings..................................................................................................................54
8.13 Reflection...........................................................................................................................54
LEARNING UNIT 9: Capacity and representation of a company.........................................55
9.1 Introduction.........................................................................................................................55
9.2 Capacity of a company.........................................................................................................55
9.3 The ultra vires doctrine........................................................................................................55
9.4 Representation.....................................................................................................................56
9.5 Doctrine of constructive notice............................................................................................56
9.6 The Turquand rule................................................................................................................57
9.6.1 Common law Turquand rule.................................................................................................................57
9.6.2 “Statutory Turquand rule” – section 20(7) of the Companies Act.......................................................58
9.7 The doctrine of estoppel......................................................................................................58
9.8 Reflection.............................................................................................................................59
LEARNING UNIT 10: Auditors and the company secretary.................................................60
3
