31 October 2023 Exam (Answers) Entrepreneurial Law (MRL2601)

MRL2601 October/November 2023 QUESTION 1 1.1 Beauty, Phineas and Samson are three friends who wish to start their own publishing company. While driving one Sunday afternoon, Samson comes across the perfect office building. He wishes to purchase this building on behalf of the proposed company. Advise Samson on the requirements that would need to be adhered to in terms of the Companies Act 71 of 2008 in order to conclude a valid and binding contract on the company’s behalf before its incorporation. (5) 1.2 Nonhlanhla and Petrus want to start a catering business together called Bayview (Pty) Ltd. Briefly explain the procedure that they must follow in order to incorporate the company. (5) 1.3 Everite Ltd showed an increase in profits for the 2023 financial year. At a board meeting, the directors decide that dividends should be paid out to the company’s shareholders. Indicate what the requirements are in terms of the Companies Act 71 of 2008 that must be adhered to before the dividends may be declared and paid. (5) 1.4 Woodin Ltd intends to convene its annual general meeting on 12 June 2024. List any five ( 5 ) matters t h a t must be discussed at this meeting in terms of the Companies Act 71 of 2008. (5) 1.5 Amos is a registered auditor. Until November 2022 he was a director of Antix Intellectual Services (Pty) Ltd. During October 2022 Amos became seriously ill and resigned due to health reasons. He has now recuperated fully. Indicate which persons are disqualified from being an auditor of a company and explain whether Amos can be appointed with immediate effect as the auditor of Antix Intellectual Services (Pty) Ltd. (5) SUBTOTAL: [25 marks] CONFIDENTIAL Page 10 of 12 MRL2601 October/November 2023 QUESTION 2 2.1 The Memorandum of Incorporation of Contempo (Pty) Ltd contains the following provisions: (1) If the company issues new shares, the shares must first be offered to the company’s existing shareholders. (2) Directors hold their office for life. 2.1.1 Discuss what the provision in clause 1 of the Memorandum of Incorporation entails. Also explain what the purpose of this provision is. (5) 2.1.2 Anthea is a director of Contempo (Pty) Ltd. The board of directors removes Anthea as director. Indicate whether Anthea can invoke clause 2 of the Memorandum of Incorporation to prevent her removal or to claim damages for her premature removal. (5) 2.2 Kim wishes to incorporate a company in order to raise funds for the prevention of and education about HIV/AIDS. Advise Kim what type of company would be most appropriate, and on the requirements for this type of company. (5) 2.3 The main business of Furniture Whole Sales (Pty) Ltd is to manufacture and distribute furniture. The Memorandum of Incorporation contains the following clauses: (1) Any director of the company may conclude contracts on behalf of the company. (2) The right of the directors to enter into loan agreements on behalf of the company is limited to an amount of R1 million. (3) Prior approval by the shareholders in a general meeting is required for loans exceeding R1 million. Furniture Whole Sales (Pty) Ltd’s financial director enters into a loan agreement in the amount of R5 million on behalf of the company. No meeting was held for the approval of the loan by the shareholders. Advise the shareholders of Furniture Whole Sales (Pty) Ltd whether in terms of the Companies Act 71 of 2008 the loan agreement is valid and enforceable against the company. (5) CONFIDENTIAL Page 11 of 12 MRL2601 October/November 2023 2.3 As an alternative to applying for relief to a court, a person entitled to relief or to file a complaint may refer it to various other forums in terms of the Companies Act 71 of 2008. List the alternative forums to which such a person may refer the matter. (5) 2.4 Cool Coals (Pty) Ltd operates within a poor community and made three times the usual profit at the end of 2022. The board of directors of Cool Coals (Pty) Ltd debates whether the company should issue university bursaries to learners who have completed grade 12 in 2022 in the community. Some of the directors are opposed to this view. They claim that the company should be managed exclusively in the interests of the shareholders with the result that: (a) the interests of other stakeholders such as the community and its grade 12 learners cannot be taken into account; and (b) all the profits of the company must be distributed to the shareholders of Cool Coals (Pty) Ltd. As the company secretary, the board of the company approaches you for advice. With reference to the principle of Ubuntu as expressed by Madala J in the case of S v Makwanyane 1995 (6) BCLR 665 (CC) and the facts in the scenario above, advise the board of Cool Coals (Pty) Ltd on whether the payment of university bursaries may be justified on the basis of the principle of Ubuntu, or whether the profits of the company should be distributed exclusively to its shareholders. (5) SUBTOTAL: [30 marks] QUESTION 3 3.1 Lesedi and Zaza are the members of It-out CC. Upon formation of the close corporation, they agree that their respective membership contributions will consist of cash only. Each member was required to contribute R100 000, and these amounts were duly recorded in the founding statement. Apart from the monetary contribution, Lesedi also entered into a lease agreement in terms of which he rents out a building he privately owns to the close corporation for use as an office. Zaza, who is a part-time student at UNISA, also enters into an employment contract with the close corporation. In terms of the contract of employment he is required to be in the office to attend to the corporation’s day-to-day business. CONFIDENTIAL Page 12 of 12 MRL2601 October/November 2023 At a meeting of the members, Lesedi and Zaza decide that due to a lack of profits generated from the business, the corporation will repay each member five percent of their respective contributions to enable them to provide for personal needs. They further agree that the corporation will make some payments to them in respect of their respective rental and employment agreements. Advise the members of It-out CC whether these proposed payments meet the requirements in terms of the Close Corporations Act 69 of 1984. (5) 3.2 Explain whether a close corporation is exempt from financial reporting and if it is required to have its financial statements audited. (10) 3.3 Vela is a member of Mnandi CC. The close corporation is currently contemplating converting into a company, and it also has a few trivial legal problems. Vela concludes a contract on behalf of the close corporation with an attorney, Mr Smooth, despite the fact that the members have never discussed appointing a legal representative. Mr Smooth agrees to act as the legal advisor and representative of the corporation for a period of twelve (12) months in return for a retainer of R20 000 per month. When the other members became aware of this, they were very upset because they had not been consulted before the appointment was made. Furthermore, they argue that they excluded the possibility of the close corporation being bound by this exorbitant agreement by agreeing in an association agreement that all members must consent to contracts exceeding the amount of R10 000. They come to you for advice as to whether or not the close corporation is bound by the agreement. Refer to relevant authority in your answer. (10)