Aue1601 EXAM PACK
UPDATED 2023.
, AUE1601
Definitions
1 Securities Any shares, debentures or other instruments, irrespective of their
form or title, issued or authorized to be issued by a profit company
2 Incorporator With respect to a company incorporated in terms of this Act,
means a person who incorporated that company, as contemplated
in section 13 ;
with respect to pre-existing company, means a person who took
the relevant actions comparable to those contemplated in section
13 to bring about the incorporation of that company
3 MOI Means the document, as amended from time to time that sets out
rights, duties and responsibilities of shareholders, directors and
others within and in relation to a company, and other matters as
contemplated in section 15
4 Public Interest Is the sum of the points allocated to certain attributes applicable to
score all companies, for example, one point is allocated to every R1m,
or part thereof, of turnover
Is used as a gauge of the interest the public at large (society) has
in the company
The company will be required to satisfy various conditions,
dependent upon its public interest, for example, a company with
the score of at least 350 points will have to be audited externally
5 Security Is a share, debenture or other instrument that is issued by the
company
6 Shares Are units into which company divides its profit
7 Resolution decision
8 Rights Control rights – which relate to voting rights at meetings
Financial rights – which relate to the right to dividends and the
right to any excess upon liquidation
Page 1 of 76
,9 Distribution Includes payment for share buy-back; and
The payment of dividends
10 Ordinary A resolution adopted with the support of more than 50% of the
shareholders’ voting rights exercised on the resolution or a higher percentage
resolution
11 Special In the case of a company, a resolution adopted with support of at
shareholders’ least 75% of the voting rights exercised on the resolution
resolution
12 Director Is a member of the body of people that manages a company
13 Rescue Means that the company is reorganized in order to restore it to a
profitable entity and thereby avoid liquidation
TOPIC 2
INTERPRETATION, PURPOSE, APPLICATION AND FORMATION OF A
COMPANY
Relationships
Consanguinity “blood relationship” Affinity “relationship that exists due to a
valid marriage
1st degree consanguinity a husband and wife are related in the
Parents 1st degree by marriage.
Children
2nd degreeconsanguinity
Brothers/sisters
Grandparents
grandchildren
Section 4: Solvency and Liquidity Test
Page 2 of 76
, Solvency Test = assets, fairly valued, are equal to, or exceeds, liabilities of the
company fairly valued. (Sec 4(a))
Liquidity Test
means that the company will be able to pay its debts
as they become due (Sec 4(b))
in the ordinary course of business
for a period of 12 months after the date of the test
current assets fairly valued are equal to, or exceed current liabilities fairly
valued
Solvency and liquidity tests are used when
when buying back shares
granting financial assistance
declaring a dividend (distributions)
When declaring a dividend
1. in terms of section 46, a company must not make any proposed distribution
unless the distribution
is pursuant to an existing legal obligation of the company, or a court order
the board of the company, by resolution, has authorized the distribution
2. it must reasonably appear that the company has performed the solvency and
liquidity test before the distribution.
3. According to section 77(3), A director is liable for any loss, damages or costs
sustained by the company if the board approved a distribution and failed to
vote against the distribution, despite knowing that the distribution was contrary
to section 46. In such a case, the directors did not perform their duties
regarding the application of the solvency and liquidity test properly; otherwise
they would never have approved the distribution.
Page 3 of 76
UPDATED 2023.
, AUE1601
Definitions
1 Securities Any shares, debentures or other instruments, irrespective of their
form or title, issued or authorized to be issued by a profit company
2 Incorporator With respect to a company incorporated in terms of this Act,
means a person who incorporated that company, as contemplated
in section 13 ;
with respect to pre-existing company, means a person who took
the relevant actions comparable to those contemplated in section
13 to bring about the incorporation of that company
3 MOI Means the document, as amended from time to time that sets out
rights, duties and responsibilities of shareholders, directors and
others within and in relation to a company, and other matters as
contemplated in section 15
4 Public Interest Is the sum of the points allocated to certain attributes applicable to
score all companies, for example, one point is allocated to every R1m,
or part thereof, of turnover
Is used as a gauge of the interest the public at large (society) has
in the company
The company will be required to satisfy various conditions,
dependent upon its public interest, for example, a company with
the score of at least 350 points will have to be audited externally
5 Security Is a share, debenture or other instrument that is issued by the
company
6 Shares Are units into which company divides its profit
7 Resolution decision
8 Rights Control rights – which relate to voting rights at meetings
Financial rights – which relate to the right to dividends and the
right to any excess upon liquidation
Page 1 of 76
,9 Distribution Includes payment for share buy-back; and
The payment of dividends
10 Ordinary A resolution adopted with the support of more than 50% of the
shareholders’ voting rights exercised on the resolution or a higher percentage
resolution
11 Special In the case of a company, a resolution adopted with support of at
shareholders’ least 75% of the voting rights exercised on the resolution
resolution
12 Director Is a member of the body of people that manages a company
13 Rescue Means that the company is reorganized in order to restore it to a
profitable entity and thereby avoid liquidation
TOPIC 2
INTERPRETATION, PURPOSE, APPLICATION AND FORMATION OF A
COMPANY
Relationships
Consanguinity “blood relationship” Affinity “relationship that exists due to a
valid marriage
1st degree consanguinity a husband and wife are related in the
Parents 1st degree by marriage.
Children
2nd degreeconsanguinity
Brothers/sisters
Grandparents
grandchildren
Section 4: Solvency and Liquidity Test
Page 2 of 76
, Solvency Test = assets, fairly valued, are equal to, or exceeds, liabilities of the
company fairly valued. (Sec 4(a))
Liquidity Test
means that the company will be able to pay its debts
as they become due (Sec 4(b))
in the ordinary course of business
for a period of 12 months after the date of the test
current assets fairly valued are equal to, or exceed current liabilities fairly
valued
Solvency and liquidity tests are used when
when buying back shares
granting financial assistance
declaring a dividend (distributions)
When declaring a dividend
1. in terms of section 46, a company must not make any proposed distribution
unless the distribution
is pursuant to an existing legal obligation of the company, or a court order
the board of the company, by resolution, has authorized the distribution
2. it must reasonably appear that the company has performed the solvency and
liquidity test before the distribution.
3. According to section 77(3), A director is liable for any loss, damages or costs
sustained by the company if the board approved a distribution and failed to
vote against the distribution, despite knowing that the distribution was contrary
to section 46. In such a case, the directors did not perform their duties
regarding the application of the solvency and liquidity test properly; otherwise
they would never have approved the distribution.
Page 3 of 76
