LML4806 Semester 1 CONCESSION - 2025
QUESTION 1
1.1 Discuss what the doctrine of constructive notice entails, the circumstances in which this doctrine would
be applicable to a company under the Companies Act 71 of 2008, and the relationship between the
Turquand rule and the doctrine of constructive notice. (10)
1.2 The board of directors of Hamptons (Pty) Ltd resolves to issue some shares in Hamptons (Pty) Ltd to
Takalani, who is currently not a shareholder of Hamptons (Pty) Ltd. Marinette, one of the shareholders of
Hamptons (Pty) Ltd, is opposed to the board’s decision to issue the shares to Takalani. Marinette believes
that she (Marinette), together with the other shareholders of Hamptons (Pty) Ltd, must be consulted on the
matter and must be given an opportunity to subscribe for the shares before they are issued to anyone else.
Advise Marinette on whether she is entitled to be consulted on the matter and whether she has the right to
be first afforded an opportunity to subscribe for the new shares in Hamptons (Pty) Ltd. (10)
1.3 Alex Bank Ltd (‘Alex’) is one of South Africa’s largest banking and financial services companies. It
directly holds and controls 58% of the voting rights associated with the issued ordinary shares of Capital
Savings (Pty) Ltd. In terms of the Memorandum of Incorporation of Digital Wealth Management Ltd
(‘Digital’), a company that provides investment services to a range of clients in South Africa, Alex has the
right to appoint three of its (Alex’s) executive directors to serve as Alex’s representatives on the board of
directors of Digital. The Memorandum of Incorporation further stipulates that these three directors
appointed by Alex shall hold and control 60% of the voting rights to be exercised on any matter at a
meeting of the board of directors of Digital. Accordingly, three of the current directors of Digital were
appointed by Alex. With reference to the Companies Act 71 of 2008, discuss whether the companies in the
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, QUESTION 1
1.1.
Historically, the doctrine of constructive notice implied that any person dealing with a
company was presumed to have knowledge of the contents of the company’s
registered constitutional documents specifically the memorandum of incorporation
(MOI) under previous legislation.1 This meant that if a company’s constitution or filed
documents contained restrictions on the powers of directors or the objects of the
company, a third party was deemed to know of these restrictions, even if the third
party had not actually inspected the documents. 2 The legal consequence was often
harsh: where an internal restriction existed, a third party who did not check the
documents could find their contract unenforceable on the basis that they “should
have known” about that restriction.
The Companies Act 71 of 2008 (“the Act”) largely abolished the doctrine of
constructive notice in order to protect external parties contracting with companies in
good faith.3 According to section 19(4), a person “is not deemed to have knowledge”
of the contents of a company’s MOI or other filed documents merely because they
are publicly available.4 However, the Act does allow for limited exceptions. Most
notably, for a personal liability company, a third party is expected to know that its
directors have unlimited liability, because the company’s name must end with the
abbreviation “Inc” or “Incorporated”. 5 In other words, the Act generally rejects the
idea that external parties must read or be presumed to have read the entire MOI,
except statutory carve-outs.
The Turquand rule (or “indoor management rule”) originated in Royal British Bank v
Turquand (1856).6 Under the rule, third parties contracting with a company are
entitled to assume that internal procedures and formalities have been followed. 7 In
practice, the Turquand rule prevents the company from escaping liability by arguing
that some internal authorisation was lacking, provided the third party did not have
1
FHI Cassim et al (eds), The Law of Business Structures (2nd edn, Juta 2021) 127–128.
2
FHI Cassim et al (eds), The Law of Business Structures (2nd edn, Juta 2021) 127–128.
3
Companies Act 71 of 2008, s 19(4).
4
Companies Act 71 of 2008, s 19(4).
5
s 19(3); Cassim et al (n 1) 129.
6
Royal British Bank v Turquand (1856) 6 E & B 327; 119 ER 886 (QB).
7
FHI Cassim et al (n 1) 130–132.
QUESTION 1
1.1 Discuss what the doctrine of constructive notice entails, the circumstances in which this doctrine would
be applicable to a company under the Companies Act 71 of 2008, and the relationship between the
Turquand rule and the doctrine of constructive notice. (10)
1.2 The board of directors of Hamptons (Pty) Ltd resolves to issue some shares in Hamptons (Pty) Ltd to
Takalani, who is currently not a shareholder of Hamptons (Pty) Ltd. Marinette, one of the shareholders of
Hamptons (Pty) Ltd, is opposed to the board’s decision to issue the shares to Takalani. Marinette believes
that she (Marinette), together with the other shareholders of Hamptons (Pty) Ltd, must be consulted on the
matter and must be given an opportunity to subscribe for the shares before they are issued to anyone else.
Advise Marinette on whether she is entitled to be consulted on the matter and whether she has the right to
be first afforded an opportunity to subscribe for the new shares in Hamptons (Pty) Ltd. (10)
1.3 Alex Bank Ltd (‘Alex’) is one of South Africa’s largest banking and financial services companies. It
directly holds and controls 58% of the voting rights associated with the issued ordinary shares of Capital
Savings (Pty) Ltd. In terms of the Memorandum of Incorporation of Digital Wealth Management Ltd
(‘Digital’), a company that provides investment services to a range of clients in South Africa, Alex has the
right to appoint three of its (Alex’s) executive directors to serve as Alex’s representatives on the board of
directors of Digital. The Memorandum of Incorporation further stipulates that these three directors
appointed by Alex shall hold and control 60% of the voting rights to be exercised on any matter at a
meeting of the board of directors of Digital. Accordingly, three of the current directors of Digital were
appointed by Alex. With reference to the Companies Act 71 of 2008, discuss whether the companies in the
FOR EXAMS, PORTFOLIO, AND ASSIGNMENT ASSISTANCE WHATSAPP
0727679597 EMAIL:
, QUESTION 1
1.1.
Historically, the doctrine of constructive notice implied that any person dealing with a
company was presumed to have knowledge of the contents of the company’s
registered constitutional documents specifically the memorandum of incorporation
(MOI) under previous legislation.1 This meant that if a company’s constitution or filed
documents contained restrictions on the powers of directors or the objects of the
company, a third party was deemed to know of these restrictions, even if the third
party had not actually inspected the documents. 2 The legal consequence was often
harsh: where an internal restriction existed, a third party who did not check the
documents could find their contract unenforceable on the basis that they “should
have known” about that restriction.
The Companies Act 71 of 2008 (“the Act”) largely abolished the doctrine of
constructive notice in order to protect external parties contracting with companies in
good faith.3 According to section 19(4), a person “is not deemed to have knowledge”
of the contents of a company’s MOI or other filed documents merely because they
are publicly available.4 However, the Act does allow for limited exceptions. Most
notably, for a personal liability company, a third party is expected to know that its
directors have unlimited liability, because the company’s name must end with the
abbreviation “Inc” or “Incorporated”. 5 In other words, the Act generally rejects the
idea that external parties must read or be presumed to have read the entire MOI,
except statutory carve-outs.
The Turquand rule (or “indoor management rule”) originated in Royal British Bank v
Turquand (1856).6 Under the rule, third parties contracting with a company are
entitled to assume that internal procedures and formalities have been followed. 7 In
practice, the Turquand rule prevents the company from escaping liability by arguing
that some internal authorisation was lacking, provided the third party did not have
1
FHI Cassim et al (eds), The Law of Business Structures (2nd edn, Juta 2021) 127–128.
2
FHI Cassim et al (eds), The Law of Business Structures (2nd edn, Juta 2021) 127–128.
3
Companies Act 71 of 2008, s 19(4).
4
Companies Act 71 of 2008, s 19(4).
5
s 19(3); Cassim et al (n 1) 129.
6
Royal British Bank v Turquand (1856) 6 E & B 327; 119 ER 886 (QB).
7
FHI Cassim et al (n 1) 130–132.
