MRL2601
EXAM PACK
, lOMoARcPSD|21997160
MRL2601/201/2/2024
Dear Student,
The aim of this tutorial letter is to provide you with guidelines to answering the Assignment 02
questions. These guidelines are not model answers. You should also consult the relevant study
units and the prescribed textbook to which you are referred for further details. In order to
succeed in this module, you should study all the prescribed work.
1 FEEDBACK ON ASSIGNMENT 02
QUESTION 1
Johannes, Phineas and Beauty are Mnandi CC’s members. Beauty has discovered that
Phineas concluded a contract on behalf of Mnandi CC for the purchase of a yacht without
consent of any of the other members. She is of the opinion that Mnandi CC should not be
bound to the contract because the corporation’s main business is catering. In addition, she
shows you the association agreement which stipulates that only Johannes is authorised to
conclude contracts on behalf of Mnandi CC. Advise Beauty whether Mnandi CC is bound to
the contract concluded by Phineas. Refer to relevant case law in your answer. (5)
FEEDBACK
Section 54 of the Close Corporations Act 69 of 1984 states that every member has the
authority to conclude contracts on behalf of the close corporation in relation to a person who
is not a member (an outsider or third party). The doctrine of constructive notice does not
apply to close corporations. This means that, even if the association agreement (which is in
any event not a public document) states otherwise, every member can conclude contracts
on behalf of the corporation. It does not matter whether or not the transaction falls within the
scope of the main business of the corporation. In J&K Timbers (Pty) Ltd v GL&S Furniture
, lOMoARcPSD|21997160
Enterprises CC 2005 (3) SA 223 (N), the court confirmed that a member of a close
corporation is an agent, even though no authority, express or implied, has been conferred
upon him or her by the corporation. The corporation is bound by an act performed on its
behalf by a member, unless the third party knew, or reasonably ought to have known of the
absence of the required authority. In this scenario, Mnandi CC will be bound to the contract,
except if the third party knew or reasonably ought to have known that Phineas lacked the
required authority to conclude the contract.
(Refer to study unit 16 sub-unit 10 in the study guide)
QUESTION 2
The main object of ABC (Pty) Ltd is manufacturing furniture. The Memorandum of
Incorporation provides that the board of directors may appoint a managing director who will
be authorised to enter into contracts on behalf of the company. Should the contract,
however, exceed the amount of R150 000, prior consent of the general meeting is required.
Godfried, one of the directors, buys a beach house for R350 000 from Nomagugu on behalf
of ABC (Pty) Ltd. Explain whether ABC (Pty) Ltd can raise the restrictions to its capacity as
contained in its Memorandum of Incorporation as grounds to avoid being bound to the
contract. (5)
FEEDBACK
Section 19(1) of the Companies Act 71 of 2008 determines that a company has all the legal
capacity and powers of an individual, except to the extent that a juristic person is incapable
of exercising any such power, for instance the capacity to enter into a marriage. The
company’s Memorandum of Incorporation may impose additional restrictions. However, in
terms of section 20 of the Companies Act 71 of 2008 no transaction is invalid solely because
it exceeds the company’s capacity. Therefore, ABC (Pty) Ltd cannot raise the restrictions to
its capacity as a ground to be bound.
, lOMoARcPSD|21997160
MRL2601/201/2/2024
(Refer to Study unit 2 sub-unit 2 in the study guide)
QUESTION 3
Zingapi is a minority shareholder in Telemark (Pty) Ltd. In spite of good business the
company’s profits are not increasing. Zingapi suspects that the directors, who are also
majority shareholders are wasting the company’s money on unnecessary business trips and
luxuries for themselves. Zingapi is concerned about the costs that she would incur in a court
action. Advise her of the steps she should take in order to institute a derivative action on
behalf of Telemark (Pty) Ltd. (5)
FEEDBACK
Section 165 of the Companies Act 71 of 2008 is applicable. Zingapi must request in writing
that the company institutes 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.
(Refer to Study unit 13 sub-unit 2.2 in the study guide)
QUESTION 4
Helmut is a member of Belvue CC. He is the oldest of all the members and is concerned
about his deteriorating health. He does not want to sell his member's interest since the
corporation's business is doing very well. Advise Helmut whether or not he can bequeath
his interest in the close corporation to his daughter. In addition, advise him whether or not
EXAM PACK
, lOMoARcPSD|21997160
MRL2601/201/2/2024
Dear Student,
The aim of this tutorial letter is to provide you with guidelines to answering the Assignment 02
questions. These guidelines are not model answers. You should also consult the relevant study
units and the prescribed textbook to which you are referred for further details. In order to
succeed in this module, you should study all the prescribed work.
1 FEEDBACK ON ASSIGNMENT 02
QUESTION 1
Johannes, Phineas and Beauty are Mnandi CC’s members. Beauty has discovered that
Phineas concluded a contract on behalf of Mnandi CC for the purchase of a yacht without
consent of any of the other members. She is of the opinion that Mnandi CC should not be
bound to the contract because the corporation’s main business is catering. In addition, she
shows you the association agreement which stipulates that only Johannes is authorised to
conclude contracts on behalf of Mnandi CC. Advise Beauty whether Mnandi CC is bound to
the contract concluded by Phineas. Refer to relevant case law in your answer. (5)
FEEDBACK
Section 54 of the Close Corporations Act 69 of 1984 states that every member has the
authority to conclude contracts on behalf of the close corporation in relation to a person who
is not a member (an outsider or third party). The doctrine of constructive notice does not
apply to close corporations. This means that, even if the association agreement (which is in
any event not a public document) states otherwise, every member can conclude contracts
on behalf of the corporation. It does not matter whether or not the transaction falls within the
scope of the main business of the corporation. In J&K Timbers (Pty) Ltd v GL&S Furniture
, lOMoARcPSD|21997160
Enterprises CC 2005 (3) SA 223 (N), the court confirmed that a member of a close
corporation is an agent, even though no authority, express or implied, has been conferred
upon him or her by the corporation. The corporation is bound by an act performed on its
behalf by a member, unless the third party knew, or reasonably ought to have known of the
absence of the required authority. In this scenario, Mnandi CC will be bound to the contract,
except if the third party knew or reasonably ought to have known that Phineas lacked the
required authority to conclude the contract.
(Refer to study unit 16 sub-unit 10 in the study guide)
QUESTION 2
The main object of ABC (Pty) Ltd is manufacturing furniture. The Memorandum of
Incorporation provides that the board of directors may appoint a managing director who will
be authorised to enter into contracts on behalf of the company. Should the contract,
however, exceed the amount of R150 000, prior consent of the general meeting is required.
Godfried, one of the directors, buys a beach house for R350 000 from Nomagugu on behalf
of ABC (Pty) Ltd. Explain whether ABC (Pty) Ltd can raise the restrictions to its capacity as
contained in its Memorandum of Incorporation as grounds to avoid being bound to the
contract. (5)
FEEDBACK
Section 19(1) of the Companies Act 71 of 2008 determines that a company has all the legal
capacity and powers of an individual, except to the extent that a juristic person is incapable
of exercising any such power, for instance the capacity to enter into a marriage. The
company’s Memorandum of Incorporation may impose additional restrictions. However, in
terms of section 20 of the Companies Act 71 of 2008 no transaction is invalid solely because
it exceeds the company’s capacity. Therefore, ABC (Pty) Ltd cannot raise the restrictions to
its capacity as a ground to be bound.
, lOMoARcPSD|21997160
MRL2601/201/2/2024
(Refer to Study unit 2 sub-unit 2 in the study guide)
QUESTION 3
Zingapi is a minority shareholder in Telemark (Pty) Ltd. In spite of good business the
company’s profits are not increasing. Zingapi suspects that the directors, who are also
majority shareholders are wasting the company’s money on unnecessary business trips and
luxuries for themselves. Zingapi is concerned about the costs that she would incur in a court
action. Advise her of the steps she should take in order to institute a derivative action on
behalf of Telemark (Pty) Ltd. (5)
FEEDBACK
Section 165 of the Companies Act 71 of 2008 is applicable. Zingapi must request in writing
that the company institutes 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.
(Refer to Study unit 13 sub-unit 2.2 in the study guide)
QUESTION 4
Helmut is a member of Belvue CC. He is the oldest of all the members and is concerned
about his deteriorating health. He does not want to sell his member's interest since the
corporation's business is doing very well. Advise Helmut whether or not he can bequeath
his interest in the close corporation to his daughter. In addition, advise him whether or not
