MRL2601
ASSIGNMENT 2
SEMESTER 2 2026
UNIQUE NO.
DUE DATE: 2026
, Entrepreneurial Law - MRL2601
Assignment 2 Semester 2 2026
Question 1
The issue is whether Abahlali (Pty) Ltd can rely on the limitation contained in its
Memorandum of Incorporation (MOI, which requires prior consent of the general
meeting for contracts exceeding R150 000) to avoid liability for the R350 000 beach-
house contract concluded by Gadifele.
Under the Companies Act 71 of 2008, a company is a separate juristic person and
generally has all the legal powers and capacity of an individual, subject to the limitations
permitted by the Act and its MOI. The distinction between the company's capacity and
the authority of its directors is important. A limitation in an MOI may restrict the
authority of directors without necessarily rendering the company's transaction invalid.
Section 20(1) of the Companies Act specifically provides that an action of a company is
not void merely because it was prohibited by a limitation or restriction in the
company's MOI, or because the directors lacked authority to authorise the action as a
result of that limitation. Furthermore, in proceedings involving an outside third party, that
third party generally may not rely on the MOI restriction to argue that the company's
action is void.
In the present case, Abahlali's MOI authorises the managing director to enter into
contracts on behalf of the company but requires the prior consent of the general
meeting where the contract exceeds R150 000. Gadifele nevertheless entered into a
contract with Nawana for R350 000 without obtaining the required consent. The contract
therefore exceeded the internal authority granted under the MOI.
However, this does not mean that the contract is automatically invalid or that Abahlali
can escape liability towards Nawana. Section 20 prevents the company from relying on
the internal restriction in its MOI as a basis for declaring the transaction void merely
because Gadifele exceeded his internal authority. The purpose of this rule is to protect
ASSIGNMENT 2
SEMESTER 2 2026
UNIQUE NO.
DUE DATE: 2026
, Entrepreneurial Law - MRL2601
Assignment 2 Semester 2 2026
Question 1
The issue is whether Abahlali (Pty) Ltd can rely on the limitation contained in its
Memorandum of Incorporation (MOI, which requires prior consent of the general
meeting for contracts exceeding R150 000) to avoid liability for the R350 000 beach-
house contract concluded by Gadifele.
Under the Companies Act 71 of 2008, a company is a separate juristic person and
generally has all the legal powers and capacity of an individual, subject to the limitations
permitted by the Act and its MOI. The distinction between the company's capacity and
the authority of its directors is important. A limitation in an MOI may restrict the
authority of directors without necessarily rendering the company's transaction invalid.
Section 20(1) of the Companies Act specifically provides that an action of a company is
not void merely because it was prohibited by a limitation or restriction in the
company's MOI, or because the directors lacked authority to authorise the action as a
result of that limitation. Furthermore, in proceedings involving an outside third party, that
third party generally may not rely on the MOI restriction to argue that the company's
action is void.
In the present case, Abahlali's MOI authorises the managing director to enter into
contracts on behalf of the company but requires the prior consent of the general
meeting where the contract exceeds R150 000. Gadifele nevertheless entered into a
contract with Nawana for R350 000 without obtaining the required consent. The contract
therefore exceeded the internal authority granted under the MOI.
However, this does not mean that the contract is automatically invalid or that Abahlali
can escape liability towards Nawana. Section 20 prevents the company from relying on
the internal restriction in its MOI as a basis for declaring the transaction void merely
because Gadifele exceeded his internal authority. The purpose of this rule is to protect
