Chapter 2

Question 1

Applicable law for a company

Answer 1

Companies Act,2008 and common law

Question 2

Applicable law for a Close Corporation?

Answer 2

Close Corporation Act and common law

Question 3

Applicable law for a Partnership?

Answer 3

Based on the law of contract and common law

Question 4

Applicable law for a Business Trust?

Answer 4

Trust Property Control Act applies to trusts but trust law has been largely developed through decided case law

Question 5

Who controls a Company?

Answer 5

Directors

Question 6

Who controls a Close Corporation?

Answer 6

Members

Question 7

Who controls a Partnership?

Answer 7

The Partnership agreement will determine who controls the partnership business. In certain partnerships, such as partnership en commandite the business is carried on by the disclosed partners and the non-disclosed partners are silent investors.

Question 8

Who controls a business trust?

Answer 8

Trustees

Question 9

Airport Cold Storage (Pty) Ltd v Ebrahim 2008(6)

Answer 9

1. A company is a juristic entity separate from its
   shareholders.
2. Directors and others can be held personally liable for the
   debts of the company when the corporate veil is lifted

Question 10

Dadoo Ltd v Krugersdorp Municipal Council 1920

Answer 10

Property vests in the company is not and cannot be regarded as vesting in any or all of the shareholders of the company.

Question 11

Salomon v Salomon and Co Ltd (1897)

Answer 11

Once a company is incorporated it must be treated like any
other independent person with its rights and liabilities appropriated to it.

Question 12

Section 19(1) of Companies Act,2008.

Answer 12

1. From the date and time that the incorporation of a company is registered…the company- (a) is a juristic person.
2. A registered company is a legal persona distinct from the members who compose it.
3. Distinguishes between incorporation and registration

Question 13

Lifting the corporate veil

Answer 13

When courts disregard the separate legal personality of a
company and treats the liabilities and/or activities of a company as those of directors or shareholders

Question 14

Cape Pacific v Lubner Controlling Investments (Pty) Ltd 1995 (4)

Answer 14

A court will pierce the veil where a company is misused in order to perpetrate fraud, or for a dishonest or improper purpose, there is no reason why its separate legal personality cannot be disregarded

Question 15

Piercing the corporate veil

Answer 15

-Those exceptional circumstances where the court ignores the separate legal existence of the company and treats the shareholders as if they were the owners of the assets and had conducted the business of the company in their personal capacities OR attributes certain rights or obligations of the shareholders to the company.

-Drastic remedy that had been resorted to sparingly and as a last resort in circumstances where justice would not otherwise be done.

Question 16

What laws permit lifting or piercing the veil to be done?

Answer 16

1. In terms of the Common Law; or
2. Section 20(9) of the Companies Act

Question 17

Section 218(2) of the Companies Act, 2008

Answer 17

Provides that directors or any person who fails to comply
with the provisions of the Act is liable to any other person for any loss or damage suffered by that person as a result of failure to comply with the Act.

Question 18

Example of State-Owned Company

Answer 18

South African Airways, Eskom, SABC etc

Question 19

State-owned company

Answer 19

Is a profit company that is either listed as a public entity or owned by municipality

Question 20

Personal liability company

Answer 20

1. Is a private (profit) company used mainly by professional associates such as attorneys, entrepreneurs and stockbrokers.
2. Directors are jointly and severally liable together with the company for all contractual debts and liabilities incurred during their terms of office

Question 21

Private company

Answer 21

1. Is a profit company.
2. Its MOI prohibits the offering of its shares to the
   public and restricts the transferability of its shares.

Question 22

In how many days is an external company compelled to register with the commission after it first begins to conduct activities within SA as an external non profit or external profit company?

Answer 22

Within 20 business days

Question 23

How long does any rule made by the board of directors take effect after the rule is published.

Answer 23

10 business days or on the date, if any, specified in the rule, whichever date is the later

Question 24

Amendment of MOI may be done in 3 ways

Answer 24

1. By court order
2. By a board of directors in terms of section 36(3) and (4)
3. A special resolution to amend is proposed (a) by the board of the company, or (b) by shareholders who are entitled to exercise at least 10 per cent of the voting rights

Question 25

An ultra vires doctrine

Answer 25

Signifies an act or transaction entered into by the company which is beyond the legitimate powers of the company as defined by its objectives in its MOI

Question 26

The Turquand rule

Answer 26

A bona fide third party is entitled to assume that the company has complied with its internal formalities and procedures as specified in its constitution, unless the third party knows for a fact that these internal formalities and procedures had not been complied with or suspects that they were not complied with but has deliberately and willfully shut his or her eyes to the irregularity by not
making any further inquiry
* Royal British Bank v Turquand (1856) 6 El. & Bl.
327; 119 ER 886.