MRL2601
NOTES
, lOMoARcPSD|21997160
MRL2601/1
COMPANIES
IMPORTANT SECTIONS OF LEGISLATION:
COMPANIES ACT 71 OF 2008:
Section 1 – Definitions
Section 4 – Solvency and liquidity test
Section 7 – Purposes of the Companies Act
Section 8 – Categories of companies
Section 13 – Right to incorporate a company
Section 14 – Registration of a company
Section 15 – Memorandum of Incorporation, shareholder agreements and
rules of company
Section 16 – Amending Memorandum of Incorporation
Section 19(1) – Legal status of companies
Section 19(3) – Personal liability companies
Section 19(4) & 19(5) – Abolishing the doctrine of constructive notice and exceptions
Section 20 – Validity of company actions
Section 20(7) – Statutory Turquand rule
Section 20(9) – Abuse of juristic personality
Section 21 – Pre-incorporation contracts
Section 38 – Issuing shares
Section 44 – Financial assistance for subscription of securities
Section 46 – Distributions must be authorised by board
Section 48 – Acquisition of company’s own shares
Section 57 – Expanded definition of “shareholder” – Part F of Chapter 2
Section 58 – Shareholder right to be represented by proxy
Section 60 – Shareholders acting other than at meeting
Section 61 – Shareholders’ meetings
Section 62 – Notice of meetings
Section 64 – Meeting quorum and adjournment
Section 65 – Shareholder resolutions
Section 66 – Consent to serve as a director required for appointment
Section 67 – First director or directors
Section 69 – Ineligibility and disqualification of persons to be director
Section 71 – Removal of directors
Section 76 – Standards of directors’ conduct
Section 76(4) – Business judgment rule
Section 77 – Liability of directors and prescribed officers
, lOMoARcPSD|21997160
Section 78 – Indemnification and directors’ insurance
Section 90 – Appointment of auditor
Section 91 – Resignation of auditors and vacancies
Section 92 – Rotation of auditors
Section 93 – Rights and restricted functions of auditors
Section 94 – Audit committees
Section 158 – Remedies to promote purpose of Act
Section 160 – Disputes concerning reservation or registration of company
names
Section 161 – Application to protect rights of securities holders
Section 162 – Application to declare director delinquent or under probation
Section 163 – Relief from oppressive or prejudicial conduct
Section 164 – Dissenting shareholders’ appraisal rights
Section 165 – Derivative actions
Section 166 – Alternative dispute resolution
Schedule 1 – Non-profit companies
Schedule 2 – Conversion of close corporations to companies
CLOSE CORPORATIONS ACT 69 OF 1984:
Section 65 – Abuse of separate juristic personality of corporation
INTRODUCTION
The Companies Act 71 of 2008 (hereinafter the “Companies Act”) came into force on 1 May
2011. It repealed and replaced the Companies Act 61 of 1973, except for Chapter 14 of the
Companies Act of 1973, which will continue to regulate the winding-up of insolvent companies. (The
winding-up of companies is not included in the prescribed work for this module.)
Although we only deal with the provisions of the Companies Act and not those of its
predecessor, the Companies Act 61 of 1973, some principles of our common law continue to
apply insofar as these principles have not been repealed by the Companies Act. Our common law is
featured mainly in decided cases of the High Court, the Supreme Court of Appeal and the
Constitutional Court. The Companies Act is not a complete codification of our company law.
Although the common law will continue to develop under the Companies Act, some important
concepts have already been clarified by our courts.
The common law features in many of the topics dealt with in the company law component of the
course:
(1) The common law is applicable in the discussion concerning agency and representation.
(2) The common law duties of directors remain applicable.
(3) The concept of piercing the corporate veil is a common law concept.
(4) Common law alternatives to concluding pre-incorporation contracts still apply.
(5) The common law Turquand rule has not been repealed.
(6) The common law personal action and representative action can still be used by
shareholders to enforce their rights. Only the derivative action that previously existed at
common law has now been expressly abolished.
Also read chapter 1 of the prescribed textbook, which provides an overview of the purposes of
company law reform and highlights new concepts and entities that have been adopted.
, lOMoARcPSD|21997160
MRL2601/1
STUDY UNIT 1
7KHLPSDFWRIWKH&RQVWLWXWLRQDQG*OREDOLVDWLRQRQ(QWUHSUHQHXULDO
1 Introduction
The values and beliefs that govern the running of business operations are
based on constitutional values and principles and often reflects African values
that comprises the concept of ubuntu.Corporate law and the law regulating
other forms of business enterprises, at first glance is a technical commercial
subject based mainly on statute. However, upon scrutiny several
transformation values are reflected in the module content.
This study unit provides examples to illustrate the importance of constitutional
principles and values in the interpretation and application of the law regulating
different types of enterprises. The Constitution of the Republic of South Africa,
1996 (‘µthe Constitution’¶) and its values that also imbue values of ubuntu plays
an important role particularly in the interpretation of legislation. Promoting
these values in the development of the common law plays a pivotal role in
ensuring that the law adapts to suit the community it serves. This evolving
nature of law is foundational to the principle of transformative constitutionalism.
After studying this study unit, you should be able to answer the following key
questions:
x What African values comprise the concept of ubuntu?
x What is meant by transformative constitutionalism?
x What constitutional principles are important for purposes of South
African business?
x What does µµAfricanisation’¶ mean?
x Which stakeholders are recognised as being affected by corporate
behaviour underlying the concept of corporate social responsibility?
x In what ways would corporate social responsibility be potentially
beneficial to companies?
x How is corporate social responsibility reflected in the Companies Act?
x Which companies are required to appoint a Social and Ethics
Committee?
x What are the functions of the Social and Ethics Committee?
x What is globalisation?
x What are the main characteristics of the modern corporate world?
x In what ways may the various business enterprises in South Africa be
regarded as being global?
x In what ways does the Companies Act recognise globalisation?
x What does the DXGLDOWHUDPSDUWHP rule entail?
x Name three cases in which the court has applied principles of ubuntu.
x Provide examples of how the law relating to different business forms is
imbued by values underlying the ubuntu concept.
x What does corporate social responsibility entail?
NOTES
, lOMoARcPSD|21997160
MRL2601/1
COMPANIES
IMPORTANT SECTIONS OF LEGISLATION:
COMPANIES ACT 71 OF 2008:
Section 1 – Definitions
Section 4 – Solvency and liquidity test
Section 7 – Purposes of the Companies Act
Section 8 – Categories of companies
Section 13 – Right to incorporate a company
Section 14 – Registration of a company
Section 15 – Memorandum of Incorporation, shareholder agreements and
rules of company
Section 16 – Amending Memorandum of Incorporation
Section 19(1) – Legal status of companies
Section 19(3) – Personal liability companies
Section 19(4) & 19(5) – Abolishing the doctrine of constructive notice and exceptions
Section 20 – Validity of company actions
Section 20(7) – Statutory Turquand rule
Section 20(9) – Abuse of juristic personality
Section 21 – Pre-incorporation contracts
Section 38 – Issuing shares
Section 44 – Financial assistance for subscription of securities
Section 46 – Distributions must be authorised by board
Section 48 – Acquisition of company’s own shares
Section 57 – Expanded definition of “shareholder” – Part F of Chapter 2
Section 58 – Shareholder right to be represented by proxy
Section 60 – Shareholders acting other than at meeting
Section 61 – Shareholders’ meetings
Section 62 – Notice of meetings
Section 64 – Meeting quorum and adjournment
Section 65 – Shareholder resolutions
Section 66 – Consent to serve as a director required for appointment
Section 67 – First director or directors
Section 69 – Ineligibility and disqualification of persons to be director
Section 71 – Removal of directors
Section 76 – Standards of directors’ conduct
Section 76(4) – Business judgment rule
Section 77 – Liability of directors and prescribed officers
, lOMoARcPSD|21997160
Section 78 – Indemnification and directors’ insurance
Section 90 – Appointment of auditor
Section 91 – Resignation of auditors and vacancies
Section 92 – Rotation of auditors
Section 93 – Rights and restricted functions of auditors
Section 94 – Audit committees
Section 158 – Remedies to promote purpose of Act
Section 160 – Disputes concerning reservation or registration of company
names
Section 161 – Application to protect rights of securities holders
Section 162 – Application to declare director delinquent or under probation
Section 163 – Relief from oppressive or prejudicial conduct
Section 164 – Dissenting shareholders’ appraisal rights
Section 165 – Derivative actions
Section 166 – Alternative dispute resolution
Schedule 1 – Non-profit companies
Schedule 2 – Conversion of close corporations to companies
CLOSE CORPORATIONS ACT 69 OF 1984:
Section 65 – Abuse of separate juristic personality of corporation
INTRODUCTION
The Companies Act 71 of 2008 (hereinafter the “Companies Act”) came into force on 1 May
2011. It repealed and replaced the Companies Act 61 of 1973, except for Chapter 14 of the
Companies Act of 1973, which will continue to regulate the winding-up of insolvent companies. (The
winding-up of companies is not included in the prescribed work for this module.)
Although we only deal with the provisions of the Companies Act and not those of its
predecessor, the Companies Act 61 of 1973, some principles of our common law continue to
apply insofar as these principles have not been repealed by the Companies Act. Our common law is
featured mainly in decided cases of the High Court, the Supreme Court of Appeal and the
Constitutional Court. The Companies Act is not a complete codification of our company law.
Although the common law will continue to develop under the Companies Act, some important
concepts have already been clarified by our courts.
The common law features in many of the topics dealt with in the company law component of the
course:
(1) The common law is applicable in the discussion concerning agency and representation.
(2) The common law duties of directors remain applicable.
(3) The concept of piercing the corporate veil is a common law concept.
(4) Common law alternatives to concluding pre-incorporation contracts still apply.
(5) The common law Turquand rule has not been repealed.
(6) The common law personal action and representative action can still be used by
shareholders to enforce their rights. Only the derivative action that previously existed at
common law has now been expressly abolished.
Also read chapter 1 of the prescribed textbook, which provides an overview of the purposes of
company law reform and highlights new concepts and entities that have been adopted.
, lOMoARcPSD|21997160
MRL2601/1
STUDY UNIT 1
7KHLPSDFWRIWKH&RQVWLWXWLRQDQG*OREDOLVDWLRQRQ(QWUHSUHQHXULDO
1 Introduction
The values and beliefs that govern the running of business operations are
based on constitutional values and principles and often reflects African values
that comprises the concept of ubuntu.Corporate law and the law regulating
other forms of business enterprises, at first glance is a technical commercial
subject based mainly on statute. However, upon scrutiny several
transformation values are reflected in the module content.
This study unit provides examples to illustrate the importance of constitutional
principles and values in the interpretation and application of the law regulating
different types of enterprises. The Constitution of the Republic of South Africa,
1996 (‘µthe Constitution’¶) and its values that also imbue values of ubuntu plays
an important role particularly in the interpretation of legislation. Promoting
these values in the development of the common law plays a pivotal role in
ensuring that the law adapts to suit the community it serves. This evolving
nature of law is foundational to the principle of transformative constitutionalism.
After studying this study unit, you should be able to answer the following key
questions:
x What African values comprise the concept of ubuntu?
x What is meant by transformative constitutionalism?
x What constitutional principles are important for purposes of South
African business?
x What does µµAfricanisation’¶ mean?
x Which stakeholders are recognised as being affected by corporate
behaviour underlying the concept of corporate social responsibility?
x In what ways would corporate social responsibility be potentially
beneficial to companies?
x How is corporate social responsibility reflected in the Companies Act?
x Which companies are required to appoint a Social and Ethics
Committee?
x What are the functions of the Social and Ethics Committee?
x What is globalisation?
x What are the main characteristics of the modern corporate world?
x In what ways may the various business enterprises in South Africa be
regarded as being global?
x In what ways does the Companies Act recognise globalisation?
x What does the DXGLDOWHUDPSDUWHP rule entail?
x Name three cases in which the court has applied principles of ubuntu.
x Provide examples of how the law relating to different business forms is
imbued by values underlying the ubuntu concept.
x What does corporate social responsibility entail?
