2022 JUNE Exam ANSWERS - Entrepreneurial Law MRL2601

ANSWERS FOR THE 2022 JUNE EXAM QUESTION 1 1.1 Name the different types of companies provided for in the Companies Act 71 of 2008. (5) 1.2 Describe the procedure for amending the Memorandum of Incorporation of a company. (5) 1.3 Explain whether it is possible to pass a shareholders’ resolution without holding a face-to-face meeting where the decision is one that should be taken at an annual general meeting. Refer to relevant case law in your answer. (10) 1.4 Read the following statement and explain whether or not it is correct: “In terms of the Companies Act 71 of 2008 companies have all the legal capacity and powers of a natural person and such capacity cannot be restricted in order to render any contract concluded by the company invalid”. (5) 1.5 Discuss the circumstances under which a company may declare dividends and the procedure that must be followed to do so. (5) 1.6 Dylane is a newly appointed director of Rentsure Ltd. He is not familiar with the workings of a company. Briefly explain the differences between a shareholder and a debenture holder to Dylane. (5) TOTAL QUESTION 1: 35 marks QUESTION 2 2.1 John and Rina want to incorporate a catering company by the name of Delish (Pty) Ltd, together. Before the company is registered, John sees a delivery vehicle that would be perfect for use in their catering business. List (do not discuss) the different methods that can be used to conclude a contract that would bind Delish (Pty) Ltd once it is eventually registered. (5) 2.2 Abednego, who had been a manager of The Joint CC before termination of his employment, approached the Commission for Conciliation, Mediation and Arbitration (the CCMA) seeking severance pay after he was retrenched. The trade union that Abednego belongs to cited The Joint CC as the respondent in a referral to the CCMA. The sole member of The Joint CC, Bongani Khumalo, during conciliation indicated that The Joint CC was insolvent, and that Abednego had been dismissed for operational reasons. The commissioner advised Abednego to refer an unfair dismissal dispute. After hearing the matter, the commissioner ordered The Joint CC to pay Abednego an amount of R250 000 for his unfair dismissal. However, it was discovered that The Joint CC had no assets. It was also revealed that Bongani Khumalo had provided financial assistance to The Joint CC and he had secured claims against the close corporation for repayment of the loan amounts the payment of which would render the close corporation completely insolvent. Abednego intends to apply for an order from the Labour Court declaring that Bongani Khumalo was his true employer and that he (Bongani Khumalo) and not The Joint CC must pay him (Abednego) the amount of R250 000. With reference to relevant case law, indicate what stipulation and/ or common law principle applied in company law Abednego must rely on in order to hold Bongani Khumalo liable instead of the close corporation. (6) 2.3 Briefly set out the information that must be contained in a notice convening a meeting of a private company in terms of the Companies Act 71of 2008. (6) 2.4 Timothy is a director of Fedosa Ltd. A meeting is held where a decision has to be taken regarding the provision of financial assistance to one of Timothy’s close friends, Linda. Timothy, knowing that the transaction would render Fedosa Ltd unable to pay its debts as they become payable in the ordinary course of business for the next twelve months, attends the meeting, participates in the vote and allows the decision to be passed in favour of providing financial assistance to Linda. With reference to the above-mentioned facts, explain the procedure that may be followed against Timothy in terms of section 162 of the Companies Act 71 of 2008. In your answer, you must discuss the following: 2.4.1 Who can bring such an application. (6) 2.4.2 The specific grounds upon which such an application can be brought against Timothy. (3) [9] 2.5 The main object of Mnandi (Pty) Ltd is manufacturing food products. The Memorandum of Incorporation of Mnandi (Pty) Ltd provides that the board of directors may appoint a managing director who will be authorised to enter into contracts on behalf of the company. However, should the amount of the contract exceed the amount of R200 000, prior consent of the shareholders is required. Godfried, one of Mnandi (Pty) Ltd’s directors, buys a racing horse for R2,5 million from Fast Freddy on behalf of Mnandi (Pty) Ltd. Godfried had contracted with Fast Freddy on behalf of Mnandi (Pty) Ltd before. What would Fast Freddy have to prove if Mnandi (Pty) Ltd denies being bound by the contract on the basis that Godfried lacked express authority to conclude the contract? Refer to relevant case law in your answer. (7) TOTAL QUESTION 2: 33 marks QUESTION 3 3.1 Three friends, Sello, Tokelo and Bonang want to start a business together. Sello believes that a close corporation is exactly the same as a company. Advise Sello of the distinguishing features of a close corporation. (5) 3.2 Indicate which of the following persons are eligible to become members of a close corporation. In each case also indicate whether any additional requirements must be met to enable such persons to become members and if so, what they these requirements are. e.g. Question: a married man Answer: Yes. No additional requirements. 3.2.1 A woman married in community of property (1) 3.2.2 An insolvent person (1) 3.2.3 A trustee of a testamentary trust in his or her capacity as such (1) 3.2.4 A minor; and (1) 3.2.5 A company (1) [5] 3.3 Phineas, Mariah and Precious are the members of Cadenza CC. Precious has a gambling problem. Her car has recently been repossessed by Payless Bank Ltd as a result of her failure to settle her debts. Precious informs Phineas and Mariah about her financial problems and enquires whether it would be possible for Cadenza CC to provide her with a loan. Advise Mariah and Phineas regarding the following: 3.3.1 Explain what the Close Corporations Act 69 of 1984 stipulates regarding the requested loan and indicate whether it would be possible for Cadenza CC to provide the loan. (4) 3.3.2 Should Precious be declared insolvent, indicate whether it would have any effect on the personal estates of Phineas and Mariah. (3) 3.3.3 Explain how Precious’ member’s interest will be disposed of if she is declared insolvent. (6) 3.3.4 Indicate whether it is possible to include a stipulation in the founding statement of Cadenza CC to ensure that the member’s interest will be disposed of in accordance with the wishes of the members of the close corporation, if Precious is declared insolvent. (4) [17] 3.4 The founding statement of Gangnam’s Tile CC describes the principal business of the close corporation as, “the manufacture and sale of wall and floor tiles”. In terms of the close corporation’s association agreement only one member, Thando, is authorised to contract on behalf of the close corporation. Asanda, a member of the close corporation, concludes a contract to buy tile grouting on behalf of Gangnam’s Tile CC. The other members of Gangnam’s Tile CC reject the contract as invalid, because Asanda did not have express authority. Explain to the members of Gangnam’s Tile CC whether or not the close corporation will be bound to the contract concluded by Asanda. Refer to relevant case law in your answer. (5)