Unit 9 - The actions of a company: capacity and representation

Question 1

Discuss the capacity of a company.

Answer 1

• From the date and time that the incorporation of a company is registered, as stated in its Registration Certificate, the company is a juristic person.
• It exists continuously until its name is removed from the Companies Register in accordance with the Companies Act.

Question 2

Discuss the validity of company actions.

Answer 2

• An act of a company is not void solely because of lack of capacity because MOI restricts them; or because of such a restriction the directors did not have the authority.
• Cannot rely on restriction to void an action however there certain exceptions.

Question 3

What are the exceptions to restriction by MOI ?

Answer 3

• Action is between a company and its shareholders, directors or prescribed
  officers.
• Between shareholders and directors or prescribed officers.
• This includes a mala fide person.

Question 4

Discuss representation.

Answer 4

A contract concluded by the directors without authority is still valid if the only reason they didn’t have authority is because of a limitation, restriction or qualification on the capacity of the company.

Question 5

What are the different methods of representation ?

Answer 5

• Contractual.
• Actual authority.
• Express authority.
• Implied authority,
• Turquand rule.
• Delictual.

Question 6

What are the two delictual representations ?

Answer 6

• Estoppel.
• Ostensible authority.

Question 7

Discuss estoppel.

Answer 7

• Culpable representation by the principal.
• The presentation must be such that it could reasonably have been expected to mislead the third party.
• Third Party acted on the faith of the representation.
• The third party acted to their prejudice.

Question 8

Discuss ostensible authority.

Answer 8

• The principal by words or conduct has created an appearance that the agent has power to act on its behalf.
• Ostensible authority now a form of actual authority, and therefore the turquand rule can apply.

Vodacom case.

Question 9

What is the turquand rule ?

Answer 9

• The turquand rule essentially provides that when an agent has actual authority to conclude a contract, but that authority is subject to an internal restriction or requirement, third parties dealing with the agent are entitled to assume that the internal requirement has been complied with.
• As long as the agent appears to have the authority to act, the contract will remain valid, even if the internal procedure wasn’t followed.

Question 10

Discuss the central powers of the company.

Answer 10

• Business and affairs managed or directed by the board.
• There is a positive duty on the board and directors to manage the company.
• The board has original power and it is not delegated from the shareholders.
• This means that shareholders do not have the power to act on behalf of the company or step in if the board doesn’t act, unless the Companies Act specifically gives them that authority.