ENTREPRENEURIAL LAW (MRL2601)
QUESTION 1
Section 19(1)(b) of the Companies Act provides that a company has all the legal
capacity and the powers of a natural person, except to the extent that a juristic
person is incapable of exercising any such power, or the company’s Memorandum of
Incorporation provides otherwise. Therefore, the capacity of a company is no longer
limited by its main or ancillary objects or business, and these objects need not even
be stated in the Memorandum of Incorporation. Although the company’s
Memorandum of Incorporation may limit, restrict or qualify the purposes, powers or
activities of the company (in other words, impose restrictions on the legal capacity of
the company) in terms of section 19(1)(b)(ii), any such restrictions would not render
any contract invalid that conflicts with these restrictions (section 20(1)(a)). Therefore,
the contract remains valid and binding on the company and the other party to the
contract even if it is an ultra vires transaction.
Furthermore, the Companies Act no longer requires that a company’s principal
business be stated in its Memorandum of Incorporation, as was the case under the
previous legislation. Although the company’s Memorandum of Incorporation may
restrict the company’s legal capacity, such restriction will not, in terms of section
19(1)(b)(ii), invalidate a contract that is in conflict with the restrictions (section 20(1)
(a)). Thus the contract will remain valid and binding on the company and the other
contracting party.
QUESTION 2
The doctrine of constructive notice provides that third parties dealing with a company
are deemed to be fully acquainted with the contents of the public documents of the
company. Section 19(4) of the Companies Act partly abolishes this doctrine.
Therefore, third parties contracting with the company will no longer be deemed to
have had notice of the contents of the public documents of a company merely
because they have been filed with the Commission or are accessible for inspection at
the office of the company. However, section 19(5) of the Companies Act provides for
two exceptions: Firstly, a person is deemed to have knowledge of any provision of a
company’s Memorandum of Incorporation in terms of section 15(2)(b) (relating to
special conditions applicable to the company and additional requirements regarding
their amendment). This is subject to the condition that the name of the company
includes the ending “RF” and that the company’s Notice of Incorporation contains a
prominent statement drawing attention to such a provision as required by section
13(3). In other words, the doctrine of constructive notice still applies to “ring-fenced”
companies.
QUESTION 3
In terms of section 165 of the Companies Act 71 of 2008 Zingapi must in writing
request that the company institute legal action to protect the interests of the
company. An independent person or committee must be appointed to investigate the
claim. The independent person or committee must then report to the board of
directors. The company must within 60 days from receipt of the written request
institute the legal action or serve a reason for not doing so on Zingapi. Zingapi can
then approach the court to continue with the legal action or institute the claim.
QUESTION 1
Section 19(1)(b) of the Companies Act provides that a company has all the legal
capacity and the powers of a natural person, except to the extent that a juristic
person is incapable of exercising any such power, or the company’s Memorandum of
Incorporation provides otherwise. Therefore, the capacity of a company is no longer
limited by its main or ancillary objects or business, and these objects need not even
be stated in the Memorandum of Incorporation. Although the company’s
Memorandum of Incorporation may limit, restrict or qualify the purposes, powers or
activities of the company (in other words, impose restrictions on the legal capacity of
the company) in terms of section 19(1)(b)(ii), any such restrictions would not render
any contract invalid that conflicts with these restrictions (section 20(1)(a)). Therefore,
the contract remains valid and binding on the company and the other party to the
contract even if it is an ultra vires transaction.
Furthermore, the Companies Act no longer requires that a company’s principal
business be stated in its Memorandum of Incorporation, as was the case under the
previous legislation. Although the company’s Memorandum of Incorporation may
restrict the company’s legal capacity, such restriction will not, in terms of section
19(1)(b)(ii), invalidate a contract that is in conflict with the restrictions (section 20(1)
(a)). Thus the contract will remain valid and binding on the company and the other
contracting party.
QUESTION 2
The doctrine of constructive notice provides that third parties dealing with a company
are deemed to be fully acquainted with the contents of the public documents of the
company. Section 19(4) of the Companies Act partly abolishes this doctrine.
Therefore, third parties contracting with the company will no longer be deemed to
have had notice of the contents of the public documents of a company merely
because they have been filed with the Commission or are accessible for inspection at
the office of the company. However, section 19(5) of the Companies Act provides for
two exceptions: Firstly, a person is deemed to have knowledge of any provision of a
company’s Memorandum of Incorporation in terms of section 15(2)(b) (relating to
special conditions applicable to the company and additional requirements regarding
their amendment). This is subject to the condition that the name of the company
includes the ending “RF” and that the company’s Notice of Incorporation contains a
prominent statement drawing attention to such a provision as required by section
13(3). In other words, the doctrine of constructive notice still applies to “ring-fenced”
companies.
QUESTION 3
In terms of section 165 of the Companies Act 71 of 2008 Zingapi must in writing
request that the company institute legal action to protect the interests of the
company. An independent person or committee must be appointed to investigate the
claim. The independent person or committee must then report to the board of
directors. The company must within 60 days from receipt of the written request
institute the legal action or serve a reason for not doing so on Zingapi. Zingapi can
then approach the court to continue with the legal action or institute the claim.
