LU 4 - Legal Capacity of Company

Question 1

Ito s20 of the Co Act, what legal capacity does a co have?

Answer 1

A co has the legal capacity and the powers of an individual
except to the extent that a juristic person is incapable of exercising any such power
- MOI may impose restrictions on the legal capacity of a co

Question 2

Discuss the legal capacity of a co wrt the ultra vires doctrine

Answer 2

1. If co acts in contravention of limitation, restriction or qualification of its purposes, powers or activities in the MOI:
   a. Contract remains valid and binding
   b. The shareholders, directs and prescribed officers may restrain the company from doing anything that is inconsistent with a limitation or qualification or a co’s powers contained in the MOI, but then bona fide third may claim damages

Question 3

Discuss the ultra vires doctrine ito the Co Act

Answer 3

• Sec19 abolishes ultra vires, but-
  1. The shareholders, directors, prescribed officers or a trade union representing the employees of the co may RESTRAIN the co from doing anything inconsistent with the Act
  2. Each shareholder has a claim for damages against any person who fraudulently or due to gross negligence caused co to do anything inconsistent with the Act or limitations of powers
  3. Shareholders may ratify by special resolution, but not if action in contravention of Act

Question 4

Discuss the doctrine of constructive notice

Answer 4

1. The legal fiction that signifies that a person or entity should have known, as a reasonable person would have, of a legal action taken or to be taken, even if they had no actual knowledge of it
2. A person is regarded as having received notice or knowledge of contents of any documents relating to a Co merely because it has been filed or is available at the co’s office for inspection
3. Abolished by s19 of the Act (no person is regarded as having received notice or knowledge of contents of any document relating to a Co merely because it has been filed or is available at the co’s office)
4. Except wrt:
   a. Special conditions stated in the MOI (“RF” co)
   b. The effect of the personal liability of directs and former directors of a personal liability co

Question 5

What is the Turquand Rule?

Answer 5

A case from the UK which held that people transaction with cos are entitled to assume that internal company rules are complied with, even if they are not.

• AKA ‘indoor management rule’ (USA)
• According to the common law Turquand Rule, where the authority of a director is subject to an internal formality specified in its constitution, a BONA FIDE third party may assume that the company has complied with this formality UNLESS the third party knows that it has not or suspects that they did not comply with
  a. A person (except director, prescribed officer, shareholder) dealing with a company in good faith
  b. Can assume that the company has complied with this formal and procedural requirements in terms of the Act and MoI
  c. Unless the third party knew or is reasonably expected to have known that they were not complied with
• S20 is a codification and a widening of the Turquand rule.

Question 6

Discuss the case of One Stop Financial Services v Neffensaan

Answer 6

1. The Turquand rule has an ameliorative effect, from the perspective of the outsider, on the rule of constructive notice
2. s20 provides that an outsider may presume that the co has complied with any ‘formal and procedural requirements’ unless he knew or ought to have known of a failure to do so
3. Court recognised Turquand and influence of s20l protection for 3rd parties remains.