I will create a comprehensive study guide by merging the two documents, removing

overlapping content, and providing a shared format. The guide will be structured by week, up
to Week 6, incorporating the information from "entrepreneurial law notes" into the "Week 7
wrap up" slides as a guideline. At the end of each week, I will include a summary, a textual
description of a flow diagram, a set of reflective questions, and a cheat sheet. Finally, I will
provide a textual description of an overall flow diagram discussing all weeks' content.

Please note that I am unable to generate the output in PDF form. I will provide the study
guide in a comprehensive text format, which you can then convert to a PDF if needed.

Entrepreneurial Law Study Guide

Disclaimer
Please note that the content made available on myLMS may deviate slightly from what is
covered in lecturer-led sessions. However, the material on myLMS, along with prescribed
textbooks and any other designated learning resources, constitutes the compulsory content
students are expected to consult and prepare for assessments.

Week 1: Introduction to Companies and

Legal Personality
Core Competencies for this Week

●​ Explain the concept ‘legal personality’.

●​ Distinguish between incorporation and registration, and the effect thereof on a
company’s legal personality.
●​ Discuss the legal status of a company after incorporation, but before registration.
●​ Describe the concept ‘limited liability’ and the practical implications of separate legal
personality.
●​ Discuss the common law concept of ‘lifting the corporate veil’ with reference to case
law and discuss the statutory adoption of the common law concept of ‘lifting the
corporate veil’.
●​ Distinguish between the different types of companies set out in the Companies Act.
●​ Discuss the procedural steps to be followed in the incorporation of a company as well
as the registration process.
●​ Explain the legal effects of registration of a company and discuss pre-incorporation
contracts.
 ●​ Apply the principles to a set of facts.

1.1 Legal Personality and its Implications

Legal Personality refers to a company being a separate legal person with its own rights
and obligations, distinct from its members. A company has the capacity to acquire its own
rights and obligations, own assets, and incur liabilities. This concept inherently leads to
limited liability for its members, meaning shareholders are generally not personally liable
for the company's debts.

Key Cases on Separate Legal Personality:

●​ Salomon v Salomon and Co Ltd: This foundational case established that once a
company is legally incorporated, it must be treated as an independent person with its
own rights, duties, and liabilities. The court held that the extent of Salomon's
shareholding was irrelevant to his liability as a debenture holder, affirming the
company's legal separation from its members.
●​ Daidoo Ltd: The court found that property vests in the company, not in its members,
enabling the company to own land even if its individual members (e.g., Indian people
in the Transvaal at the time) were prohibited from doing so.
●​ Airport Cold Storage (Pty) Ltd: Reaffirmed that a company, as an association of
persons, exists as a separate legal entity from the moment of registration.
●​ Dhlomo v Natal Newspapers: The court allowed a company to sue for defamation,
further solidifying its independent legal standing.
●​ ABSA Bank Ltd v Blignaut and Another and Four Similar Cases: Emphasised
that branches or divisions of a company are part of the company itself and do not
have separate legal existence.

Consequences of Separate Legal Personality:

1.​ The company's estate is assessed separately from individual members' estates.
2.​ Company debts are its own, not those of its members.
3.​ Company profits belong to the company, not its members.
4.​ Company assets are its exclusive property; members have no individual rights in
them.
5.​ No one is qualified by membership alone to act on behalf of the company; specific
authority must be granted.

1.2 Incorporation vs. Registration

●​ Incorporation is affected by the actions of the incorporators.
●​ Registration is affected by the Companies and Intellectual Property Commission
(CIPC) after the company's incorporation.
●​ A Registration Certificate provides evidence that all incorporation requirements
have been met. The date on this certificate is when the company acquires legal
personality and comes into existence as a separate legal entity.
 ●​ The legal effect of registration includes perpetual succession, meaning the company
continues to exist until its name is removed from the register.

1.3 Lifting the Corporate Veil (Disregarding Separate

Legal Personality)
While a company generally maintains its separate legal personality, there are exceptional
circumstances where a court may disregard this separation, treating shareholders or
directors as if they were the true owners or responsible parties. This is often done to prevent
abuse of the corporate structure.

Common Law Principles & Case Law:

●​ Definition: Lifting the corporate veil means ignoring the separate legal existence of
the company and holding shareholders or directors personally liable for company
debts or obligations.
●​ Botha v Van Niekerk: The court required proof that an injustice would be suffered if
the veil were not lifted. In this case, the company had sufficient funds to honour a
contract, so the individual was not held personally liable.
●​ Cape Pacific Ltd: Adopted a more flexible approach, balancing the need to preserve
separate legal identity against policy considerations. It allowed piercing the veil if a
company, though legally established, was misused for an improper purpose.
●​ Goode: Stated that the corporate veil would only be pierced with evidence of misuse
and abuse.
●​ Hulse: Indicated that piercing the corporate veil might be a last resort when no other
remedy is available.
●​ Die Dros (Pty) Ltd and another v Telefon Beverages CC and others: Held that
where fraud, dishonesty, and other improper conduct are present, the need to
preserve separate legal personality must be balanced against policy considerations
favoring piercing the veil.
●​ Le’Bergo Fashions CC v Lee and another: The court will pierce the corporate veil if
a natural person, subject to a restraint of trade, uses a company or close corporation
as a front to engage in prohibited activities.
●​ Airport Cold Storage (Pty) Ltd: Reaffirmed that piercing the corporate veil occurs
only in exceptional circumstances.

Circumstances for Piercing the Corporate Veil:

●​ If the company is used to cover up fraudulent or illegal conduct.

●​ If a director/shareholder treats the company's assets as their own.
●​ When a statute empowers the court to ignore legal personality.

Statutory Adoption of Lifting the Corporate Veil:

●​ Section 20(9) of the Companies Act, 2008: Explicitly provides for this remedy. If a
court finds that the incorporation, any act by or on behalf of, or any use of a company
constitutes an ‘unconscionable abuse’ of its juristic personality, the court may
declare the company not to be a juristic person in respect of a specific right,
 obligation, or liability. This section is notably not a last resort and can be used even
if other remedies are available.
●​ Section 218(2) of the Companies Act, 2008: States that any person who
contravenes any provision of the Act is liable to any other person for any loss or
damage suffered as a result of that contravention. This is wide enough to include
monetary claims against directors personally.

1.4 Types of Companies

The Companies Act, 2008, provides for two main types of companies: profit companies
and non-profit companies.

Profit Companies

Incorporated for the purpose of financial gain for its shareholders. One or more persons can
incorporate a profit company, with no maximum number of members.

There are four types of profit companies:

1.​ Public Company:​

○​ Identified by "Limited" or "Ltd" behind its name (e.g., ABSA Bank Limited).
○​ Allowed to offer shares to the public, and shares are freely transferable.
○​ Shares can be listed on the Johannesburg Stock Exchange (JSE).
○​ Can be formed by one person, but must have at least three directors.
○​ Obliged to hold an Annual General Meeting (AGM), appoint an auditor, a
company secretary, and an audit committee.
○​ Example: Absa Bank Limited.
2.​ State-Owned Company (SOC):​

○​ Identified by "SOC" in its name (e.g., Eskom Hld SOC Limited).

○​ A profit company listed as a public entity in Schedule 2 or 3 of the Public
Finance Management Act or owned by a municipality.
○​ A national government business enterprise, a juristic person under national
executive ownership and control.
○​ Examples: Eskom Hld SOC Limited, Denel SOC Limited.
○​ Obliged to appoint a company secretary and an audit committee.
3.​ Personal Liability Company:​

○​ Identified by "Inc." or "Incorporated" at the end of its name (e.g., Werksmans

Inc.).
○​ A private company whose Memorandum of Incorporation (MOI) states that
directors are jointly and severally liable with the company for all
contractual debts and liabilities incurred during their terms of office.
○​ Mainly used by professional associations (e.g., attorneys, entrepreneurs,
stockbrokers) as an alternative to a partnership to gain benefits like perpetual
succession while retaining unlimited liability for directors.
 ○​ Can be formed by one person and must have at least one director.
○​ Example: Werksmans Inc., a law firm.
○​ Sonnenberg: The court held directors liable for their portion of company
debts based on the MOI, even after the company had paid creditors.
4.​ Private Company:​

○​ Identified by "(Pty) Limited" or "(Pty) Ltd" at the end of its name (e.g., ABC
News (Pty) Ltd).
○​ Prohibits the offering of any securities to the public and restricts the
transferability of its shares.
○​ Formed by one person and must have at least one director.
○​ Smuts v Booyens; (EDMS) bpk v Booyens: Stressed that restricted
transferability of shares is an essential attribute, requiring shareholder
permission to sell shares to the public.

Other Company Classifications:

●​ External Company: A foreign company carrying on business or non-profit activities

within South Africa. Must register with the CIPC within 20 business days of
commencing activities.
●​ Domesticated Company: A foreign company whose registration has been
transferred to South Africa in terms of Section 13 of the Companies Act, 2008.

Non-Profit Companies (NPCs)

●​ These companies are not incorporated for gain.

●​ Objectives include public benefit, cultural/social activities, or communal group
interests.
●​ All assets and income must be used to further the company’s objectives.
●​ Members or directors may not directly or indirectly receive financial benefit (e.g.,
dividends, profits) other than reasonable remuneration for work done or
compensation for expenses.
●​ Do not have to have members; if they do, some may have voting rights and others
may not.
●​ Identified by "NPO" or "NPC" at the end of its name (e.g., The Kindness Project
NPO).
●​ Requires at least three persons for incorporation.

1.5 Incorporation and Registration Process

The registration of a company involves filing specific documents and paying a prescribed
fee.

1.​ Incorporators:​

○​ For a profit company, one or more persons are required.

○​ For a non-profit company, at least three persons are required.
 ○​ These persons are called incorporators.
2.​ Documents to File with CIPC:​

○​ Notice of Incorporation: The official notice informing the CIPC of the

company's incorporation for registration purposes. Must be completed and
signed by the incorporators. The CIPC may reject it if incomplete or if the
initial director number is below the minimum.
○​ Memorandum of Incorporation (MOI): The founding document of the
company, setting out the rights, powers, and duties of all stakeholders, as well
as the nature of the company.
■​ Must be consistent with the Companies Act, 2008; inconsistent
provisions are void.
■​ Determines the company's nature (e.g., private or public).
■​ Contains unalterable provisions (cannot be abolished) and alterable
provisions (default rules that can be changed). The Act applies
automatically if the MOI is silent.
■​ The Board of Directors (BOD) can make rules if the MOI is silent on
governance matters, provided these rules are consistent with the Act
and MOI.
■​ Ring-Fenced Companies: Companies with restrictive conditions
(e.g., cannot sell immovable property). Their name must be followed
by 'RF' to alert outsiders.
■​ Amendment of MOI: Can be done by court order, BOD (for certain
share classifications), or a special resolution by shareholders. Minor
corrections (spelling, grammar) can be done by BOD via notice of
alteration.
■​ Shareholders Agreement: Shareholders may enter into agreements
consistent with the Act and MOI. Inconsistencies are void.
3.​ Payment of Prescribed Fee.​

4.​ CIPC Action:​

○​ Assigns a registration number.

○​ Issues a Registration Certificate. This certificate is conclusive evidence that
all incorporation requirements have been met, and the company is
incorporated from the date stated on it. The date on the certificate is when the
company comes into existence as a separate legal entity.

1.6 Company Names

●​ General Rules: A company name may not generally offend persons of a particular
race, ethnicity, gender, or religion. It must avoid 'passing off' (adopting a competitor's
distinguishing feature) and cannot be the same as (or confusingly similar to) another
company's name.
●​ Prohibited Names: If a proposed name is prohibited or reserved, CIPC will use the
company's registration number as an interim name.
 ●​ Registration Number as Name: A profit company can use its registration number
followed by 'South Africa' as its name. A non-profit company cannot.
●​ Consumer Protection Act, 2008: Requires public members to register business,
trading, sole proprietorship, or partnership names with the CIPC.
●​ Section 32 of Companies Act, 2008: A company must provide its full registered
name or registration number on demand and must not misstate it to mislead.
●​ Reservation of Name: A person can reserve one or more names for later use (new
incorporation or amendment to existing name). The CIPC must reserve a name
unless it's already registered or reserved.
●​ Change of Name: If a registered name is too similar, CIPC can use the registration
number as an interim name. The company then has an opportunity to file an
acceptable name. Any interested person can apply to the Companies Tribunal to
determine if a name complies with the Act.
●​ Name Endings: Different company types have specific endings (e.g., (Pty) Ltd, Ltd,
SOC Ltd, NPO, RF).

1.7 Pre-incorporation Contracts

General Rule: No one can act on behalf of a juristic person until it is incorporated. This
poses problems for securing assets or services before the company officially exists.

Exception: Section 21 of the Companies Act, 2008: This section allows for
pre-incorporation contracts to be entered into on behalf of a company that is not yet
incorporated.

Requirements for a Section 21 Contract:

1.​ Must be entered into by a person acting in the name of, or purporting to act on behalf
of, a company yet to be incorporated.
2.​ The contract must be in writing.
3.​ The contract must be completely, partially, or conditionally ratified or rejected by the
company's board within three months after the company's incorporation. If no
action is taken within three months, it is deemed ratified.

Liability for Pre-incorporation Contracts:

●​ The person who entered the pre-incorporation contract on behalf of the juristic
person will be jointly and severally liable with the juristic person if it:
○​ Does not come into existence (is not incorporated).
○​ Comes into existence but rejects the contract.
●​ The person will not be liable if the juristic person comes into existence and enters a
contract on the same terms or makes a substitution.
●​ Section 21 does not provide for the other party to contractually waive the right to hold
the incorporator liable. Incorporators might use common-law constructions like a
contract for the benefit of a third party (stipulatio alteri) to avoid personal liability,
although this has its own disadvantages (promoter contracts in own name, potentially
incurring personal liability).
Week 1 Summary

Week 1 lays the groundwork for understanding companies by defining legal personality as
the separation of a company's rights and duties from its members, enabling limited liability.
It differentiates incorporation (action by incorporators) from registration (CIPC act, giving
legal personality). The concept of lifting the corporate veil is crucial, allowing courts to
disregard separate personality in cases of "unconscionable abuse" (S20(9)) or fraud, holding
individuals liable. Various types of companies are distinguished (profit: public, state-owned,
personal liability, private; non-profit), each with specific characteristics and naming
conventions. The incorporation and registration process involves filing a Notice of
Incorporation and a Memorandum of Incorporation (MOI), which is the company's founding
document. Finally, pre-incorporation contracts are addressed, allowing contracts to be
made on behalf of an unformed company under specific conditions (S21), with potential
personal liability for the incorporator if the company is not formed or does not ratify.

Week 1 Flow Diagram (Description)

1.​ Start: Idea to form a Company

2.​ Decision Point: Choose Company Type (Profit: Public, Private, SOC, Personal
Liability; Non-Profit)
3.​ Action: Prepare MOI & Notice of Incorporation (Define rights, duties, nature;
includes name selection & reservation)
4.​ Process: Incorporation & Registration (File documents & fees with CIPC)
5.​ Outcome: Legal Personality Granted (Company exists as separate legal entity;
limited liability for members)
6.​ Consequence: Perpetual Succession (Company continues indefinitely)
7.​ Special Circumstance: Pre-incorporation Contracts (Entered before registration;
requires ratification by board after registration to bind company)
8.​ Potential Issue: Abuse of Legal Personality
9.​ Remedy: Lifting the Corporate Veil (Common Law & Statutory S20(9); holds
individuals liable for company acts in cases of unconscionable abuse/fraud).

Week 1 Reflective Questions

1.​ How does the concept of separate legal personality fundamentally change the risk
profile for individuals starting a business compared to a sole proprietorship or
partnership?
2.​ In what specific scenarios might a court be justified in "lifting the corporate veil," and
what are the practical implications for directors and shareholders?
3.​ Compare and contrast a public company with a private company, highlighting the key
differences relevant to an entrepreneur seeking funding or managing shareholder
relations.
4.​ An entrepreneur wants to secure a prime office location before their company is
officially registered. What legal mechanism should they use, and what are the risks
involved for them personally?
5.​ Discuss how the Companies Act, 2008, attempts to balance the benefits of corporate
personality (like limited liability) with the need to prevent its abuse.
Week 1 Cheat Sheet

●​ Legal Personality: Company = separate legal entity from members.

●​ Limited Liability: Shareholders generally not liable for company debts.
●​ Incorporation: Action by incorporators. Registration: CIPC action, grants legal
personality.
●​ Lifting the Corporate Veil: Court ignores separate personality due to
"unconscionable abuse" (S20(9)) or fraud. Cases: Salomon, Dadoo, Cape Pacific,
Die Dros, Le’Bergo Fashions.
●​ Types of Profit Companies:
○​ Public: "Ltd", offers shares to public, 3+ directors.
○​ Private: "(Pty) Ltd", prohibits public share offers, 1+ director.
○​ SOC: "SOC Ltd", state-owned enterprise.
○​ Personal Liability: "Inc.", directors jointly/severally liable for debts.
●​ Non-Profit Companies (NPC): Not for gain, public/social/cultural objectives, 3+
persons.
●​ MOI: Founding document, sets rights/duties, must be Act-consistent.
●​ Pre-incorporation Contracts (S21): Written contract before registration, requires
company ratification within 3 months, personal liability for incorporator if not
ratified/company not formed.

Week 2: Corporate Finance: Shares,

Debentures, and Distributions
Core Competencies for this Week

●​ Distinguish the sources of funding available to the directors of a company.

●​ Distinguish the two forms of equity.
●​ Define the terms ‘shares’, ‘authorised’, ‘issued’ and ‘unissued’ shares and
pre-emptive rights.
●​ Distinguish between the different classes of shares.
●​ Identify the absolute rights that are attached to shares.
●​ Explain the relationship between the capital maintenance system and the solvency
and liquidity tests.
●​ Discuss the solvency and liquidity tests and the circumstances under which these
tests are to be applied.
●​ Discuss distributions.
●​ Apply the principles to a set of facts.

2.1 Sources of Funding

Companies can obtain funding through two main sources: debt and equity.
 ●​ Debt: Money or assets obtained through debt instruments (e.g., debentures),
long/short-term loans, lease agreements, credit terms, or overdraft facilities.
●​ Equity: Represented by shares, which are units dividing the proprietary interest in a
profit company.

2.2 Shares: Definition, Types, and Rights

Definition of a Share: A share is one of the units in which the proprietary interest in a profit
company is divided. It is personal incorporeal movable property, representing a measure of a
shareholder’s interest in a company. This interest consists of a complex bundle of personal
rights entitling the shareholder to a certain interest in the company, its assets, and dividends.

●​ Shareholders are investors, not creditors, of the company.

●​ Cooper v Boyes No: Discussed the nature of a share as representing an interest in
a company, consisting of personal rights.
●​ Standard Bank of SA Ltd v Ocean Commodities Inc: Affirmed that a share
consists of a bundle of personal rights.

Types of Shares

●​ Authorised Shares: The class and number of shares a company is legally permitted
to issue, as stated in its MOI.
●​ Issued Shares: Shares that have actually been allotted to specific shareholders.
●​ Unissued Shares: Authorised shares that have not yet been issued.
●​ Par Value Shares: Abolished by the 2008 Act. Existing par value shares will continue
to have their assigned value, with regulations for conversion to no-par value shares,
preserving rights where possible.
●​ Non-Par Value Shares: The current standard, where only the number of shares is
authorised, not their value.
●​ Unclassified Shares: Authorised shares that are subject to classification by the
board.
●​ Blank Shares: Classes of shares where preferences, rights, limitations, or other
terms are not specified, to be determined by the board before issue.

Classes of Shares

1.​ Preference Shares:​

○​ Holders enjoy preference over other classes regarding dividend payments

and sometimes return of capital on winding-up.
○​ Usually carry a modest income return with fixed percentage dividends.
○​ Generally have few voting rights, but always an irrevocable right to vote on
proposals to amend their associated terms.
○​ A company cannot have preference shares unless it also has ordinary shares
or another class.
○​ Types include:
 ■​ Cumulative Preference Shares: If a dividend is not declared in a
year, the right carries over to the next year.
■​ Non-Cumulative Preference Shares: Dividend rights do not carry
over.
■​ Participating Preference Shares: Holders may receive normal
dividends along with or after ordinary shareholders, in addition to their
preference dividends.
■​ Redeemable Preference Shares: Can be repurchased by the
company out of proceeds from fresh share issues or divisible profits.
■​ Convertible Preference Shares: Carry the right to convert to another
class of shares after a certain date.
2.​ Ordinary Shares:​

○​ The residual class of share, forming the equity share capital.

○​ Dividend amount is not fixed.
○​ Usually enjoy the right to vote at general meetings.
○​ Entitled to a return of capital and a share in surplus assets on winding-up,
after preference shareholders.

Issue of Shares

●​ The board of directors typically has the power to issue shares and increase
authorised share capital, subject to MOI limitations.
●​ Shareholder approval by special resolution is required when shares are issued to:
○​ Directors (including future directors) or certain prescribed officers.
○​ Related or inter-related persons.
○​ Nominees of any of the above persons.
●​ No special resolution is required for issues:
○​ Under an underwriting agreement.
○​ In the exercise of pre-emptive rights.
○​ In proportion to existing shareholders and on same terms.
○​ In pursuance of an employee share scheme.
○​ In pursuance of an offer of shares to the public.
●​ If new shares' voting power equals or exceeds 30% of existing voting power, a
special resolution is required.
●​ Consideration for Shares: The board must determine the consideration (money,
assets, conversion rights, or as capitalisation shares) for which shares are issued.
●​ Shares for Future Payments/Services (S40(5)): Can be issued for future
consideration, but held in trust without voting/appraisal rights until the event occurs.

Capitalisation Shares

●​ Also known as "bonus shares", issued instead of dividends, leading to capitalisation

of profits.
●​ Not considered a "distribution" and thus not subject to the solvency and liquidity
test.
●​ However, if a shareholder opts for a cash payment instead of shares, this is a
distribution and must comply with the solvency and liquidity test.
Pre-emptive Rights (Section 39)

●​ A right conferred on shareholders, primarily in private companies (and personal

liability companies), to subscribe for new shares in proportion to their voting rights
before they are offered to outsiders.
●​ Aim: To alleviate dilution effects on existing shareholders and prevent outsiders from
entering shareholding without consent.
●​ Exceptions:
○​ Shares issued under options or conversion rights.
○​ Capitalisation shares.
○​ Allotment for employee share schemes.
○​ Shares issued by a company under business rescue.
○​ Where consideration for shares is not immediately payable.
●​ MOI may limit, restrict, or negate pre-emptive rights.

2.3 Debentures
●​ Definition: A debt instrument (excluding shares, promissory notes, and loans)
acknowledging indebtedness to the debenture holder. Can be secured or unsecured.
●​ Debenture Holder: A creditor of the company, not a member or shareholder.
Entitled to repayment of the loaned sum and interest at a predetermined rate,
irrespective of company profits. Can receive a copy of annual financial statements.
●​ Difference from Shares: | Feature | Share | Debenture | | :-------------- |
:------------------------------------------ | :------------------------------------------------- | | Nature |
Proprietary interest, bundle of rights | Evidence of debt | | Holder Status |
Shareholder (investor) | Creditor | | Income | Dividends (declared from profits) |
Interest (fixed, payable irrespective of profit) | | Payment Source | Not out of capital |
Can be paid out of capital | | Voting Rights | Generally yes | Generally no |

2.4 Solvency and Liquidity Test (Section 4)

This test is a critical safeguard for creditors, replacing the old capital maintenance rules.

A company satisfies the solvency and liquidity test if, at a particular time:

1.​ Solvency: The assets of the company, as fairly valued, equal or exceed the
liabilities of the company, as fairly valued.
2.​ Liquidity: It appears that the company will be able to pay its debts as they become
due in the ordinary course of business for a period of:
○​ 12 months after the date on which the test is considered; OR
○​ 12 months following a distribution.

Circumstances where the Solvency and Liquidity Test must be applied:

●​ When providing financial assistance for the subscription of its securities (S44).
●​ When granting loans or other financial assistance to directors and others (S45).
●​ Before making any distribution (S46).
 ●​ When paying cash in lieu of issuing capitalisation shares (S47).
●​ When acquiring its own shares (S48).
●​ If more than 120 business days have passed since the board's acknowledgement of
satisfying the test, and the distribution/action has not been completed, the test must
be reconsidered.

2.5 Distributions (Section 46)

Definition: A direct or indirect transfer of money or other property of the company (except its
own shares) to shareholders in their capacity as shareholders, whether out of capital or
profits.

Examples of Distributions:

1.​ Direct or indirect transfer of money or other property (excluding company's own
shares).
2.​ Dividends.
3.​ Payment instead of a capitalisation share.
4.​ Consideration for the acquisition of its own shares or those of another group
company.
5.​ Transfer of money or property in respect of shares.
6.​ Incurring a debt for a shareholder's benefit or another group company.
7.​ Waiver of a debt to a shareholder or group company.

Requirements for Distributions:

●​ Must be authorised by the board of directors (no special/ordinary resolution of

members required).
●​ Must comply with the solvency and liquidity test.
●​ Must be effected or completed within 120 days of the board's authorisation.
●​ Directors who voted for or assented to an unauthorised distribution are personally
liable for the unauthorised amount.

2.6 Capital Maintenance System and Share

Repurchases
Historically, South African company law enforced a capital maintenance concept, requiring
companies to maintain their share capital (e.g., no buying back own shares, no issuing
shares at a discount, no dividends from capital).

The Companies Act, 2008, abolished the par value concept and replaced the capital
maintenance concept with the solvency and liquidity tests as a primary safeguard for
creditors.

Share Repurchases (Section 48):

 ●​ Companies are now allowed to repurchase their own shares, provided they meet the
solvency and liquidity test immediately after the repurchase.
●​ The board must acknowledge it has applied the test and reasonably concluded the
company will satisfy it.
●​ Repurchased shares must be cancelled (cannot be held as treasury shares).
●​ A subsidiary can acquire a maximum of 10% of its holding company's shares, but
these shares cannot be voted.
●​ If a company cannot fulfil its obligations under a repurchase agreement, it may apply
to court for an order to suspend or adjust the repurchase.
●​ Directors are personally liable if they fail to vote against a share repurchase despite
knowing the solvency and liquidity test was not met.

2.7 Financial Assistance for the Purchase of Shares

(Section 44)
The 2008 Act also relaxed previous prohibitions on companies financing the purchase of
their own shares.

Conditions for Authorising Financial Assistance (S44):

1.​ Restrictions in the company’s MOI have been complied with.

2.​ The assistance is for an employee share scheme.
3.​ It is approved by a special resolution passed within the previous two years.
4.​ The board is satisfied that the company will comply with the solvency and liquidity
test immediately after providing assistance.
5.​ The board is satisfied that the terms are fair and reasonable to the company.
●​ Failure to comply with S44 renders the transaction null and void, and responsible
directors incur personal liability.
●​ Impoverishment Test (Gradwell, Fidelity Bank v Three Woman (Pty) Ltd):
Determines if financial assistance was given by assessing if the transaction will leave
the company poorer.

Week 2 Summary

Week 2 explores how companies are funded, distinguishing between debt (e.g., debentures)
and equity (shares). It defines shares as units of proprietary interest, outlining authorised,
issued, unissued, unclassified, and blank shares, as well as the different classes of
shares (preference and ordinary) with their respective rights (dividends, voting, capital
return). The board of directors primarily controls share issuance, though some situations
require shareholder approval. Capitalisation shares are bonus shares, not a distribution
unless cash is chosen. Pre-emptive rights protect existing private company shareholders
from dilution. A critical concept is the solvency and liquidity test, which must be met for
various financial actions, including distributions (e.g., dividends) and share repurchases
(S48), effectively replacing the older capital maintenance rules. Finally, financial assistance
for share purchases (S44) is allowed under strict conditions, also subject to the solvency
and liquidity test.
Week 2 Flow Diagram (Description)

1.​ Start: Company Funding Needs

2.​ Option 1: Equity (Shares)
○​ Definition & Nature
○​ Types & Classes (Ordinary, Preference - Cumulative, Participating,
Redeemable)
○​ Issue of Shares (Board vs. Special Resolution; Consideration)
○​ Pre-emptive Rights (Protection for Private Companies)
○​ Capitalisation Shares (Bonus shares; cash option = distribution)
3.​ Option 2: Debt (Debentures)
○​ Definition & Nature (Creditor status, interest)
○​ Comparison with Shares (Rights, voting, payment source)
4.​ Key Financial Gateway: Solvency & Liquidity Test (S4)
○​ Conditions: Assets >= Liabilities (Solvency); Pay Debts for 12 months
(Liquidity)
○​ Applicable to:
■​ Distributions (S46)
■​ Share Repurchases (S48)
■​ Financial Assistance for Share Purchase (S44)
■​ Cash in lieu of Capitalisation Shares (S47)
■​ Loans/Financial Assistance to Directors (S45)
5.​ Action: Distributions (S46)
○​ Definition: Transfer of money/property to shareholders
○​ Requirement: Must pass S&L Test
6.​ Action: Share Repurchases (S48)
○​ Requirement: Must pass S&L Test; Shares cancelled
7.​ Action: Financial Assistance (S44)
○​ Requirement: Special Resolution, S&L Test, Fair/Reasonable terms.
8.​ End: Sustainable Corporate Finance

Week 2 Reflective Questions

1.​ An entrepreneur is seeking funding for their new private company. Should they
prioritise issuing ordinary shares or preference shares, and why, considering both
voting rights and dividend expectations?
2.​ How does the abolition of "par value" shares simplify corporate finance, and what
role does "authorised share capital" still play in the 2008 Companies Act?
3.​ Explain the importance of the solvency and liquidity test as a safeguard for creditors,
providing specific examples of financial actions that necessitate its application.
4.​ A company wants to reward its shareholders with a "bonus issue" of shares. Under
what conditions would this not be considered a distribution, and when would it trigger
the solvency and liquidity test?
5.​ Discuss the rationale behind pre-emptive rights for private companies and how they
protect the interests of existing shareholders.

Week 2 Cheat Sheet

 ●​ Shares: Units of proprietary interest in a company.
●​ Classes: Ordinary (residual, voting) & Preference (fixed dividends, priority, limited
voting).
●​ Issue of Shares: Board power, but special resolution for directors/related persons or
>30% voting power.
●​ Capitalisation Shares: Bonus shares. Cash option = distribution, requires S&L Test.
●​ Pre-emptive Rights (S39): Private company shareholders can subscribe for new
shares pro rata.
●​ Debentures: Debt instrument, debenture holder is a creditor, receives interest.
●​ Solvency & Liquidity Test (S4): Assets ≥ Liabilities AND able to pay debts for 12
months. Required for distributions, share repurchases, financial assistance.
●​ Distributions (S46): Transfer of money/property to shareholders. Requires board
authorisation & S&L Test.
●​ Share Repurchases (S48): Company buys own shares. Requires S&L Test, shares
cancelled.
●​ Financial Assistance (S44): For share purchases. Requires special resolution, S&L
Test, fair/reasonable terms.

Week 3: Shareholders and Company

Meetings
Core Competencies for this Week

●​ Define the concepts of ‘share’, ‘shareholder’, ‘shareholders’ meeting’, ‘record date’,

‘quorum’, ‘voting right’, and ‘voting power’.
●​ Discuss the principles and requirements pertaining to the proper calling of a
shareholders meeting.
●​ Discuss the adjournment and postponement of shareholders’ meetings.
●​ Describe the purpose and appointment procedure of a proxy.
●​ Distinguish the various methods of voting available to shareholders.
●​ Describe how shareholders can act (take decisions) outside of a meeting.
●​ Discuss the requirements for calling an annual general meeting (AGM) and the types
of matters that may only be addressed at this forum.
●​ Distinguish between an ordinary and a special resolution and describe how
resolutions are proposed.
●​ Apply the principles to a set of facts.

3.1 Key Definitions

●​ Shareholder: A person who holds shares issued by the company and is entitled to
exercise voting rights. Shareholders do not have duties to the company unless
stipulated by a shareholders' agreement.
 ●​ Shareholders' Meeting: A formal gathering of shareholders to discuss and make
decisions regarding the company's affairs.
●​ Record Date: The date on which a company determines the identity of its
shareholders and their shareholdings for various purposes, such as receiving notice
or voting at a meeting.
●​ Quorum: The minimum number or percentage of persons or voting rights that must
be present at a meeting before it can validly commence.
●​ Voting Right: The right associated with a share to cast a vote on resolutions at a
shareholders' meeting.
●​ Voting Power: The aggregate influence a shareholder or group of shareholders has
due to their number of shares and associated voting rights.

3.2 Calling of Shareholders' Meetings

Meetings must be properly called and convened.

When a Meeting Must Be Convened:

1.​ Whenever the board is obligated to refer a matter for shareholder decision as
outlined in the Companies Act or MOI (e.g., director election).
2.​ Upon shareholder demand, provided the demand is signed by holders representing
at least 10% of the voting rights related to the matter to be considered (MOI may
specify a lower %).
○​ The demand must specify the purpose of the meeting.
○​ A company or shareholder can seek a court order to set aside a frivolous,
vexatious, or re-consideration demand.
○​ A shareholder can withdraw their demand before the meeting.

Court Intervention:

●​ If a company fails to convene a meeting upon shareholder demand, a shareholder

can apply to court for an order compelling the meeting.
●​ CDH Invest NV v Petrotank South Africa: Court intervention is not automatic and
requires genuine need, as courts typically avoid meddling in company affairs.
●​ Butler v Van Zyl: Affirmed the right of majority shareholders to demand a meeting for
director removal, even if contested by the director.

3.3 Notice of Meetings (Section 62)

●​ Proper Notice: Must be given by authorised persons to all entitled recipients.
●​ Accessibility: Meeting must be convened at a time, date, and place accessible to
shareholders.
●​ Minimum Notice Periods:
○​ 15 business days: for public companies and non-profit companies.
○​ 10 business days: for other companies (private, personal liability).
○​ MOI may provide for longer periods.
●​ Content of Notice:
 ○​Record date (if set).
○​Date, time, and place.
○​General purpose, and any specific purpose if demanded by shareholders.
○​A copy of the proposed resolution and required voting percentage.
○​Proxy form.
○​Summary of financial statements to be presented and guidance on obtaining
full copies.
○​ Information on electronic participation option.
●​ Improperly Constituted Meeting (S62(4)):
○​ A meeting held without proper notice, or with a material defect, may proceed
if all persons entitled to vote on each agenda item:
■​ Acknowledge actual receipt of notice.
■​ Are present at the meeting.
■​ Waive notice.
■​ In case of material defect, ratify the defective notice.

3.4 Postponement and Adjournment of Meetings

●​ Quorum Not Present: If a quorum is not present within one hour of the scheduled
start, the meeting is postponed for one week. At the next meeting, those present will
constitute the quorum. The MOI can alter this default provision.
●​ Chairperson's Discretion: The chairperson may extend the one-hour period in
exceptional circumstances (e.g., bad weather, transport issues).
●​ Adjournment without Notice: A meeting can be adjourned by a majority vote of
those present.
●​ Time Limits: A meeting cannot be adjourned more than 120 days after the record
date or 60 business days after the adjournment occurred.

3.5 Appointment of a Proxy (Section 58)

●​ Purpose: A shareholder can appoint any individual (even a non-shareholder) as a
proxy to participate, speak, and vote at a shareholders' meeting on their behalf, or
give/withhold written consent to a decision.
●​ Common Law vs. Act: At common law, there was no right to appoint a proxy; the
Act now explicitly allows it.
●​ Appointment Procedure:
○​ Must be in writing and signed by the shareholder.
○​ Valid for one year, or a specific period.
○​ A shareholder may appoint two or more proxies concurrently for different
shares.
○​ Proxy may delegate authority.
○​ A copy of the proxy form must be delivered to the company before the proxy
exercises rights.
○​ Shareholder can revoke appointment in writing.
●​ Ingre v Maxwell: Held that at least two persons must be present to constitute a valid
meeting, even if one person holds proxies for all others.
3.6 Voting Methods and Electronic Participation
(Section 63)
●​ Voting Methods:
○​ Show of Hands: Each person present and entitled to vote has one vote,
regardless of shares held.
○​ Poll: Members can exercise all their voting rights attached to their shares. A
poll can be demanded by 5 members or members representing at least 10%
of voting rights/issued share capital.
●​ Electronic Participation:
○​ Electronic communication must enable concurrent communication without
intermediaries.
○​ Notices should inform shareholders of the electronic option and provide
necessary access information.
○​ Shareholders generally bear the cost of electronic access.
●​ Abstaining/Not Voting: Treated as a vote against the resolution.

3.7 Shareholders Acting Outside a Meeting (Section 60)

●​ For matters not required to be conducted at an AGM, shareholders can take
decisions outside a physical meeting.
●​ An ordinary resolution can be proposed to entitled voters, who have 20 days to
respond in writing. It is adopted if supported by sufficient voting rights, having the
same effect as if approved at a meeting.
●​ Director elections can be conducted by written polling.
●​ Results must be delivered to shareholders within 10 business days.
●​ Gohlke and Schneider v Westies Minerale: Held that directors could be validly
appointed without a formal meeting due to unanimous consent.
●​ In re Duomatic Ltd: Unanimous approval of director remuneration by directors
holding all voting shares was treated as a general meeting resolution.

3.8 Annual General Meeting (AGM)

●​ Public Companies: Must hold an AGM.
○​ First AGM: within 18 months of incorporation.
○​ Subsequent AGMs: within 15 months of the previous AGM.
○​ Extensions may be granted by the Companies Tribunal for valid reasons.
●​ Matters Discussed at an AGM (S61(8)):
○​ Presentation of directors' report, audited financial statements, and audit
committee report for the previous financial year.
○​ Election of directors.
○​ Appointment of an auditor for the upcoming financial year and appointment of
the audit committee.
○​ Discussion of any matters raised by shareholders.
 ●​ Other Companies: A particular AGM may not be held if all members entitled to
attend consent in writing.

3.9 Shareholder Resolutions

Decisions taken by members are typically made through ordinary or special resolutions.

1.​ Ordinary Resolution:​

○​ Adopted with the support of at least 50% of the voting rights exercised at
the meeting on the resolution.
○​ The MOI may specify a different (higher) percentage, but there must always
be at least a 10% difference between the requirements for ordinary and
special resolutions.
○​ Exception: Resolution for removal of a director cannot require more than
50%.
○​ Comes into operation as soon as the decision is made.
2.​ Special Resolution:​

○​ Adopted with the support of at least 75% of the voting rights exercised at
the quorate meeting on the resolution.
○​ The MOI may specify a different percentage, but there must always be at
least a 10% difference between the requirements for ordinary and special
resolutions.
○​ Applies in the following circumstances:
■​ Amending the MOI of the company.
■​ Approving the voluntary winding-up of the company.
■​ Approving the sale of assets, a merger, an amalgamation, or scheme
of arrangement.
■​ Approving directors' remuneration (if not in MOI).
■​ Otherwise required by the MOI.

Week 3 Summary

Week 3 focuses on the mechanics of shareholders' meetings and decision-making within a

company. Key definitions like shareholder, record date, quorum, and voting rights are
established. Meetings must be properly called with specific notice requirements (15/10
days), and shareholders can even demand a meeting which the court may enforce.
Proxies allow shareholders to be represented. Meetings can be postponed or adjourned if
a quorum is not met. Voting can occur by show of hands or poll, with electronic
participation permitted. Notably, shareholders can act outside a meeting by written
resolution for most matters. While public companies have mandatory Annual General
Meetings (AGMs) with specific agendas, other companies may waive them. Decisions are
formalised through ordinary resolutions (50% vote) or special resolutions (75% vote), the
latter required for fundamental changes like MOI amendments or company winding-up.

Week 3 Flow Diagram (Description)

 1.​ Start: Shareholder Decision Needed
2.​ Decision Point: Formal Meeting or Action Outside Meeting?
○​ If Formal Meeting:
■​ Trigger: Board obligation OR Shareholder Demand (10% voting
rights)
■​ Pre-Meeting: Notice (15/10 days, content), Record Date, Proxy
Appointment (S58)
■​ Meeting Setup: Quorum Check (25% default, MOI may vary;
Postponement/Adjournment if no quorum)
■​ Meeting Conduct (S63): Voting (Show of Hands/Poll), Electronic
Participation
■​ Special Case: AGM (Public Co. mandatory, specific agenda, timing)
○​ If Action Outside Meeting (S60):
■​ Process: Written resolution submitted to shareholders
■​ Outcome: Adopted if sufficient voting rights; results communicated
within 10 days
3.​ Decision Point: Type of Resolution?
○​ Ordinary Resolution: >50% vote (e.g., Director Removal)
○​ Special Resolution: >75% vote (e.g., MOI Amendment, Winding-up, Merger)
4.​ End: Company Decision Implemented

Week 3 Reflective Questions

1.​ Imagine you are a minority shareholder. How do the rules for calling a shareholders'
meeting and the ability to appoint a proxy empower you to influence company
decisions, even against a dominant majority?
2.​ Discuss the rationale behind requiring a higher percentage vote for a special
resolution compared to an ordinary resolution, and provide examples of decisions
that necessitate a special resolution.
3.​ In what circumstances would it be more advantageous for shareholders to take
decisions outside of a formal meeting, and what are the limitations or potential
drawbacks of this approach?
4.​ Critically evaluate the provisions for electronic participation in shareholders'
meetings. What are its benefits and potential challenges for ensuring equitable
access and participation?
5.​ What are the key differences in the agenda and requirements for an Annual General
Meeting (AGM) for a public company compared to other types of companies, and
why do these differences exist?

Week 3 Cheat Sheet

●​ Shareholder: Holds shares, entitled to vote.

●​ Record Date: Identifies shareholders for meeting/voting rights.
●​ Quorum: Minimum attendees for valid meeting (default 25% for voting rights).
●​ Notice: 15 days (public/NPO), 10 days (others). Content: purpose, proposed
resolution, proxy form, financials.
●​ Proxy (S58): Appointed by shareholder to attend, speak, vote. Written, signed, valid
1 year.
 ●​ Voting: Show of hands (1 person = 1 vote) or Poll (votes proportional to shares).
Electronic participation allowed.
●​ Shareholders Acting Outside Meeting (S60): Written resolutions (not for AGM
matters). Same effect as meeting.
●​ AGM: Mandatory for public companies (18 months of incorp, then every 15 months).
Agenda: reports, director/auditor elections.
●​ Ordinary Resolution: >50% vote. Default for many decisions (e.g., director
removal).
●​ Special Resolution: >75% vote. For fundamental changes (e.g., MOI amendment,
winding-up, merger, director remuneration approval).
●​ 10% Margin: Mandatory difference between ordinary and special resolution
percentages.

Week 4: Directors and Board

Committees
Core Competencies for this Week

●​ Define the term ‘director’ in the context of a company.

●​ Distinguish the different types of directors in the context of a company.
●​ Analyse the development of the common law with regards to the duties and liabilities
of directors, and how this part of the common law continues to apply in the context of
the 2008 Companies Act.
●​ Discuss the statutory provisions contained in S75, 76, 77 and 218(2) of the
Companies Act governing the duties and liabilities of directors.
●​ Discuss the business judgement rule/test and analyse arguments for and against this
rule/test.
●​ Discuss the provisions of S 78 of the Companies Act in respect of indemnification of
directors and directors’ insurance.
●​ Distinguish between ineligibility and disqualification from holding a directorship
position in terms of S 69 of the Companies Act and discuss the exemption provided
by S 69 (11) of the Companies Act.
●​ Discuss delinquency and probation in terms of S 162 of the Companies Act.
●​ Describe the circumstances under which a vacancy arises on the board of directors,
and the procedure that must be followed in order for that vacancy to be filled.
●​ Describe the procedure to be followed upon the removal of a director.
●​ Differentiate between a board committee and an audit committee.
●​ Identify and discuss the audit, audit committees and the company secretary.
●​ Distinguish an auditor from an audit committee.
●​ Identify the functions, appointment and removal of an auditor and audit committee.
●​ Identify the functions, appointment and removal of a company secretary.
●​ Apply the principles to a set of facts.
4.1 Definition and Types of Directors
Definition of a Director: A person becomes a director when they give written consent to
serve and have been appointed, elected, or hold office in accordance with Section 66 of the
Companies Act. The term "director" has an extended meaning in Sections 75 and 76,
including alternate directors, prescribed officers, and members of board or audit committees.

Types of Directors:

1.​ Ex Officio Director: Holds office solely due to holding another office, title, or status.
Not appointed by shareholders and subject to normal director liabilities.
2.​ MOI Appointed Director: Appointed as per the company's MOI, not necessarily by
shareholders.
3.​ Alternate Director: Elected to serve as a substitute for another appointed director. In
a profit company, at least 50% must be appointed by shareholders.
4.​ Elected Director: At least 50% of elected directors in a profit company must be
appointed by shareholders.
5.​ Temporary Director: MOI may provide for their appointment.
6.​ "Shadow Director": Not officially appointed, but gives instructions that the board
acts upon.

4.2 Directors vs. Managers (Prescribed Officers)

●​ Manager: Generally an employee of the company.
●​ Director: Does not necessarily have to be an employee.
●​ Prescribed Officer: Any person who exercises general executive control over, or
regularly participates in the management of, the whole or a significant part of the
company’s business, regardless of title. Prescribed officers are subject to many of a
director’s duties, liabilities, and disqualifications.

Key Differences:

Feature Directors Managers

Role Protect assets, reputation; Implement decisions; carry through

strategic direction; approve policy strategy

Duties Fiduciary duties; duty of Cannot act contrary to employer's

reasonable care, skill, diligence interests

Accountability Accountable to shareholders; can Usually appointed/dismissed by

be removed by them directors/management

Liability Personally liable for breach of Control over employment rests with
duties (civil/criminal) board

Administration Responsible for company Can be delegated company admin

administration (can delegate)
 Disqualificatio Can be disqualified under Controlled by board as per
n Act/MOI employment contract

4.3 Duties and Liabilities of Directors (Common Law &

Statutory)
The 2008 Companies Act partially codified directors' duties. Common law principles
continue to apply where not narrowed or in the absence of contrary statutory provisions.

Common Law Duties

●​ Fiduciary Duty: To act in good faith for the benefit of the company as a whole and to
avoid conflicts of interest.
●​ Duty of Care, Skill, and Diligence: To act with a certain degree of care, skill, and
diligence. The extent of this duty depends on the company's business.
○​ Fisheries Development Corporation v Jorgensen: Established that
directors are not required to have special business acumen, may rely on
officials, and are not bound to continuous attention.

Statutory Duties (Partially Codified by Section 76)

Section 76(3) provides that a director must exercise powers and perform functions:

1.​ In good faith and for a proper purpose.

2.​ In the best interests of the company.
3.​ With the degree of care, skill, and diligence that may reasonably be expected of a
person:
○​ Carrying out the same functions as that director.
○​ Having the general knowledge, skill, and experience of that director
(combining objective and subjective tests).

Further Codified Duties:

●​ To disclose to the board any personal financial interest (S75).

●​ Not to use the position of director or information obtained to gain an advantage or
cause harm to the company (S76(2)(a)).
●​ To disclose material information that comes to the director’s attention.

Directors' Personal Financial Interests (Section 75)

●​ If a director has a personal financial interest in a matter, or knows a related person

does, they must disclose the interest and its general nature before the matter is
considered.
●​ The director must disclose material information known to them and then leave the
meeting, not taking part in the discussion or voting.
 ●​ A decision is valid despite a director's interest if approved/ratified by an ordinary
resolution of shareholders.
●​ Extended meaning of "director" for S75: includes alternate directors, prescribed
officers, board committee members, and audit committee members.
●​ Exceptions: Does not apply if the decision affects all directors generally or is a
proposal to remove that director, or if one person holds all beneficial interests and is
the sole director.
●​ Conflict of Interest: Directors have a legal duty to prevent conflicts between
personal interests and company interests (Robinson). They cannot make secret
profits from their office (Regal Hastings), or use information gained as a director for
personal gain (Cooley). This duty applies even after resignation if information was
acquired while a director.
●​ Duty to Communicate: Directors must communicate material information to the
board unless immaterial, public, or known to other directors, or if confidentiality
obligations apply (Kukama v Lobelo).

4.4 The Business Judgment Rule (Section 76(4))

Introduced as a statutory defence for directors. A director satisfies their obligations if:

1.​ They have taken reasonably diligent steps to become informed about the matter.
2.​ Either:
○​ They had no material personal financial interest in the matter (and no
reasonable basis to know a related person did).
○​ They disclosed the conflict of interest as required by S75.
3.​ They had a rational basis for believing, and did believe, the decision was in the
best interest of the company.
●​ Reliance on Others: A director is entitled to rely on the performance of certain
people or committees (e.g., employees, legal counsel, expert professionals, board
committees).
●​ Rationale: Directors should not be liable for undesirable outcomes if decisions were
made in good faith, with care, on an informed basis, and believed to be in the
company's interest. It incentivises capable people to take directorships and
encourages safe risk-taking.
●​ Arguments Against: Concerns about a low standard of care, reluctance of courts to
"second-guess" decisions, and difficulty in defining its exact content.

4.5 Liability of Directors (Section 77 and Section 218)

Section 77: Liability of Directors and Prescribed Officers

A company may recover loss, damages, or costs from a director under several
circumstances:

●​ Breach of common law fiduciary duties or duty of care/skill.​

 ●​ Acting on behalf of the company without authority.​

●​ Conducting business recklessly, with gross negligence, or fraudulently.​

●​ Being party to an act calculated to defraud creditors, employees, or shareholders.​

●​ Signing/consenting to materially false/misleading financial statements or

prospectuses.​

●​ Failing to vote against a decision despite knowing non-compliance (e.g., issuing

unauthorised shares).​

●​ Acquisition of company's shares contrary to S46 or S48.​

●​ Joint and Several Liability: A director is jointly and severally liable with any other
person liable for the same act.​

●​ Time Limit: Proceedings cannot be commenced more than three years after the act
or omission.​

●​ Statutory Defence: The business judgment test is a defence.​

●​ Court Relief (S77(9)): A court may relieve a director, wholly or partly, if they acted
honestly and reasonably, or if it would be fair to excuse them, provided there was no
wilful misconduct or wilful breach of trust.​

●​ Anticipating Claims (S77(10)): A director can apply to court for relief if they believe
a claim may be made against them (except for willful misconduct/breach of trust).​

Section 218: Civil Actions

Any person who contravenes any provision of the Act is liable to any other person for any
loss or damage suffered as a result of that contravention. This is a wide provision
potentially allowing any person to claim monetary loss from a director (or any other person)
who contravened the Act.

4.6 Indemnification and Directors' Insurance (Section

78)
●​ A company cannot indemnify a director for breach of duties if it purports to
relieve them of a duty.
●​ Advance Expenses: Company may advance expenses to a director to defend
litigation arising from their service.
●​ Insurance: Company can take out indemnity insurance to protect directors against
liabilities/expenses for which the company is permitted to indemnify them.
 ●​ Former Directors: S78 also applies to former directors.
●​ Prohibited Indemnification: A company cannot pay fines for national legislation
offences, or indemnify directors for liability arising from:
○​ Acting without authority.
○​ Acquiescing in reckless/insolvent trading.
○​ Being party to fraudulent acts.
○​ Loss due to wilful misconduct or wilful breach of trust.
●​ Restitution: Company can claim restitution from a director for payments inconsistent
with these restrictions.

4.7 Ineligibility and Disqualification from Directorship

(Section 69)
These provisions apply to directors, alternate directors, prescribed officers, and members of
board/audit committees.

Ineligibility

●​ An absolute prohibition from becoming a director, with no exceptions.

●​ Ineligible persons:
○​ A juristic person.
○​ An unemancipated minor or person under similar legal disability.
○​ Any person not satisfying MOI requirements.

Disqualification

●​ Prohibited from being a director.

●​ Disqualified persons:
○​ Prohibited by court order.
○​ Declared a delinquent by the court (see Week 5 for details).
○​ Unrehabilitated insolvent.
○​ Prohibited by public regulation.
○​ Removed from an office of trust due to dishonesty.
○​ Convicted and imprisoned for certain crimes without a fine option (theft,
forgery, perjury, fraud).
○​ Disqualified by the company’s MOI.

Exemptions from Disqualification (S69(11) and S69(12))

●​ Court Exemption (S69(11)): A court may exempt an unrehabilitated insolvent, a

person removed from an office of trust for dishonesty, or a person convicted of a
crime with a dishonesty element. The applicant must prove rehabilitation.
●​ Private Company Exemption (S69(12)): A disqualified person can act as a director
of a private company if:
○​ All shares are held by that disqualified person alone.
○​ All shares are held by the disqualified person and related persons, and each
has consented in writing.
4.8 Appointment and Removal of Directors
Appointment

●​ A person becomes a director upon written consent and appointment/election/holding

office.
●​ Number of Directors:
○​ Private/personal liability company: at least one director.
○​ Public/non-profit company: at least three directors.
○​ MOI can specify a higher number.
●​ First Directors: Incorporators are deemed directors until sufficient directors are
appointed. If below minimum, shareholders' meeting must be called within 40
business days to elect directors.
●​ MOI may provide for persons to be ex officio directors or empower persons to
appoint/remove directors, but minimum elected directors for a profit company must
still be met (at least 50% by shareholders).

Vacancies on the Board

A person ceases to be a director (and a vacancy arises) if:

●​ Fixed term expires (if MOI provides).​

●​ Resigns or dies.​

●​ Ex officio director ceases to hold the relevant office.​

●​ Ceases to reside in SA (if no other resident directors).​

●​ Becomes incapacitated.​

●​ Declared delinquent or placed on probation inconsistent with directorship.​

●​ Becomes ineligible or disqualified.​

●​ Removed by resolution of shareholders, board, or court order.​

●​ Filling Vacancies: Generally by new appointment or election at the next AGM. If no

remaining directors, any shareholder with voting rights may convene a meeting to
elect directors.​

●​ Notice must be filed with CIPC within 10 days of a person becoming or ceasing to be
a director.​

Removal of Directors (Section 71)

 ●​ A director may be removed by ordinary resolution adopted at a shareholders’
meeting, despite any MOI provision or agreement.
●​ Procedure for Shareholder Removal:
○​ Notice of the meeting and resolution must be given to the director.
○​ The director must be allowed a reasonable opportunity to make a
presentation (in person or by representative) to the meeting before the vote.
●​ Removal by the Board of Directors: The board can remove a director on grounds
such as:
○​ Ineligibility or disqualification.
○​ Incapacity.
○​ Non-residence (if no other resident directors).
○​ Negligence or dereliction of duties.
●​ Court Review: A director removed by the board can apply to court to review the
decision within 20 business days.
●​ Breach of Contract: Removal, even if lawful under S71, may constitute a breach of
an employment contract, allowing the director to claim damages.

4.9 Board Committees and Company Secretary

Board Committees (Section 72)

●​ The board may appoint any number of committees and delegate its authority to them,
unless the MOI provides otherwise.
●​ Distinction between Delegation and Abdication: The board remains liable for its
duties despite delegation. A director remains liable for proper performance.
●​ Committees may include non-directors, but these must not be ineligible or
disqualified from being directors.
●​ King Code Recommendations: Public listed companies should ideally have an
Audit Committee and a Remuneration Committee.
○​ Remuneration Committee: Recommends remuneration for executive and
non-executive directors.
○​ Nomination Committee: Assists in board appointments, evaluates board
qualities/diversity, skills, and director contributions.

Audit Committees

●​ Crucially, an Audit Committee is not a board committee as it is appointed by the

general meeting (shareholders), not the board.
●​ Mandatory: Public companies, state-owned enterprises, and some other companies
(voluntarily or by regulation) must elect an audit committee at each AGM.
●​ Composition: At least 3 members. Each member must be a director of the
company but not involved in day-to-day management or a full-time salaried
employee in the past 3 financial years (i.e., non-executive directors who act
independently).
●​ Duties:
○​ Nominate independent registered auditors.
○​ Determine auditor fees and term.
 ○​ Ensure auditor appointment complies with the Act.
○​ Determine nature and extent of non-audit services by auditor.
○​ Pre-approve non-audit services agreements.
○​ Prepare a report on committee functions for the financial year.
○​ Receive and deal with concerns on accounting practices, internal audits,
financial statements, internal controls.
○​ Make submissions to the board on accounting policies, financial controls,
reporting.
○​ Ensure internal audit reports to the committee and its head's
appointment/dismissal has committee concurrence.

Company Secretary

●​ The principal administrative officer of the company.

●​ Mandatory: Every public company or state-owned enterprise must appoint a
company secretary with relevant knowledge/experience.
●​ Voluntary: Private, personal liability, or non-profit companies may voluntarily appoint
one.
●​ Disqualification: A person disqualified under S69(8) from being a director cannot be
a company secretary.
●​ Duties:
○​ Provide directors with guidance on duties, responsibilities, powers.
○​ Make directors aware of relevant laws.
○​ Report to the board any non-compliance by company or director.
○​ Ensure minutes of meetings are properly recorded.
○​ Certify annual financial statements regarding compliance filings.
○​ Ensure annual financial statements are sent to entitled persons.
●​ Resignation/Removal: Secretary can resign with notice. If removed by board, can
require a statement in annual financial statements about removal circumstances.
●​ Vacancy: Board must fill a vacancy within 60 business days.
●​ Registration: Companies must file notice of appointment/termination of secretary
(and auditor) with Registrar within 10 business days.

4.10 Auditors
●​ Role: Examine a company’s financial statements and accounting records to express
an opinion on their truth, fairness, and adherence to financial reporting standards.
●​ Appointment: Public companies and some private companies must appoint an
auditor annually at the AGM.
○​ Must be a registered auditor and independent of the company (not a
director, secretary, employee, or involved in financial documents).
○​ Cannot serve for more than five consecutive years.
○​ A retiring auditor may be automatically re-appointed unless disqualified,
unwilling, objected to by audit committee, or another person is proposed.
○​ If AGM fails to appoint, directors must fill vacancy within 40 business days.
●​ Resignation/Vacancies: Resignation effective when notice filed. Board must appoint
a new auditor within 40 business days of a vacancy.
 ●​ Rights: Access to accounting records, books, documents; may attend general
meetings.
●​ Restrictions: Cannot conduct an audit if there is a conflict of interest.

Week 4 Summary

Week 4 delves into the critical role of directors in a company, defining them, categorising
their types (ex officio, elected, alternate), and distinguishing them from managers (including
prescribed officers). It highlights that directors' duties are a partial codification of
common law, encompassing fiduciary duties (good faith, proper purpose, best interests,
avoiding conflicts, disclosure, S75) and a duty of care, skill, and diligence (S76(3)). The
Business Judgment Rule (S76(4)) acts as a statutory defence, excusing directors from
liability if decisions were informed, rational, in good faith, and without undisclosed conflicts.
Directors face personal liability under S77 for breaches and reckless/fraudulent conduct,
and S218 for general Act contraventions. Indemnification and directors' insurance (S78)
are permitted, with limits for willful misconduct or fraud. Eligibility criteria for directorship are
covered, distinguishing ineligibility (absolute bar) from disqualification (curable, with
exemptions). The procedures for director appointment, removal (S71), and filling
vacancies are detailed. Finally, the structure and roles of Board Committees
(Remuneration, Nomination) and the distinct Audit Committee (shareholder-appointed) are
explained, alongside the functions and responsibilities of Auditors and the Company
Secretary.

Week 4 Flow Diagram (Description)

1.​ Start: Director's Role in Company Governance

2.​ Director Definition & Types (Ex Officio, Elected, Alternate, Prescribed Officer)
3.​ Core Duties (S76):
○​ Fiduciary Duty: Good Faith, Proper Purpose, Best Interests of Company,
Avoid Conflicts (S75, Disclosure requirement)
○​ Duty of Care, Skill, Diligence: Objective & Subjective Test
4.​ Defence Mechanism: Business Judgment Rule (S76(4))
○​ Conditions: Informed, No Undisclosed Conflict, Rational Belief (Best
Interest)
○​ Reliance: Can rely on experts/committees
5.​ Potential Breach / Misconduct
6.​ Consequence: Director Liability
○​ Personal Liability (S77): For specific breaches (lack of authority, reckless
trading, fraud)
○​ Civil Actions (S218): For any Act contravention
○​ Mitigation: Indemnification & Insurance (S78), but not for willful
misconduct/fraud
7.​ Maintaining Board Integrity:
○​ Eligibility & Disqualification (S69): Bars certain individuals (e.g., insolvents,
delinquents) from directorship, with exemptions
○​ Appointment & Removal (S71): Procedures for board changes, shareholder
ordinary resolution for removal
○​ Vacancies: How they arise and are filled
 8.​ Support & Oversight Structures:
○​ Board Committees: (e.g., Remuneration, Nomination) - Delegate board
authority
○​ Audit Committee: (Shareholder-appointed, Independent) - Oversees
auditors, financial reporting
○​ Company Secretary: Administrative officer, guides directors, ensures
compliance
○​ Auditors: Independent examination of financial statements
9.​ End: Accountable and Compliant Governance

Week 4 Reflective Questions

1.​ Discuss how the Companies Act, 2008, balances the need to hold directors
accountable for their actions with the desire to encourage risk-taking and innovation
through the Business Judgment Rule.
2.​ A director discovers a potential conflict of interest involving a company transaction.
Outline the steps they must take under Section 75 of the Companies Act to mitigate
personal liability and ensure the validity of the transaction.
3.​ Compare and contrast the concepts of "ineligibility" and "disqualification" for a
directorship. Provide examples of each and explain the potential for exemptions.
4.​ An entrepreneur is establishing a public company. What are the key considerations
for appointing the initial directors, and what are the mandatory support structures
(committees, secretary, auditor) that must be put in place?
5.​ Critically analyse the implications of the "partial codification" of directors' duties. How
does it affect the relevance of common law principles and past case law in
interpreting directors' responsibilities today?

Week 4 Cheat Sheet

●​ Director: Appointed/elected, gives written consent. Extended meaning for S75/76.

●​ Types: Ex Officio, MOI Appointed, Alternate, Elected, Temporary, Shadow.
●​ Prescribed Officer: Manages significant part of business, subject to director duties.
●​ Duties (S76): Fiduciary (good faith, proper purpose, best interest, S75 disclosure) &
Care/Skill/Diligence.
●​ S75 (Conflict of Interest): Disclose, leave meeting, no vote.
●​ Business Judgment Rule (S76(4)): Defence for directors; informed decision, no
undisclosed conflict, rational belief for company's best interest.
●​ Liability (S77, S218): Personal for breaches, reckless/fraudulent conduct, Act
contraventions. Joint/several, 3-year limit. Court relief possible.
●​ Indemnification/Insurance (S78): Company can indemnify/insure, but not for willful
misconduct, fraud, or fines.
●​ Ineligibility (S69): Absolute bar (juristic person, minor).
●​ Disqualification (S69): Bar (delinquent, insolvent, removed from trust, certain
crimes). Exemptions for court (S69(11)) and certain private companies (S69(12)).
●​ Removal (S71): By ordinary shareholder resolution, despite MOI or agreements.
Director can claim breach of contract.
●​ Audit Committee: Shareholder-appointed (not board), non-executive directors.
Oversees auditors, financial reports.
 ●​ Company Secretary: Admin officer. Mandatory for public/SOC, voluntary for others.
Guides directors, ensures compliance.
●​ Auditor: Independent, examines financial statements, 5-year limit.

Week 5: Remedies, Enforcement

Agencies, and Alternative Dispute
Resolution (ADR)
Core Competencies for this Week

●​ Discuss what is meant by ‘the decriminalisation of company law by the 2008

Companies Act’.
●​ Identify, distinguish and discuss the broad categories under which civil remedies fall
in terms of the 2008 Companies Act.
●​ Identify and distinguish the basic alternatives for addressing complaints regarding
alleged contraventions of the Act or for the enforcement of rights.
●​ Explain the concept ‘Alternative Dispute Resolution’.
●​ Identify the different bodies/agencies responsible for the enforcement of the Act and
discuss the functions of each.
●​ Apply the principles to a set of facts.

5.1 Decriminalisation of Company Law and

Enforcement Approach
The 2008 Companies Act moved away from a system of primary criminal sanctions to one of
administrative enforcement. This is referred to as the 'decriminalisation' of company law,
aiming for alternative methods to ensure compliance.

Enforcement Bodies and Agencies:

1.​ Companies and Intellectual Property Commission (CIPC):

○​ The primary body responsible for the enforcement of the Act.
○​ An organ of state with jurisdiction throughout South Africa, independent and
impartial.
○​ Functions include investigating complaints and issuing compliance notices.
2.​ Takeover Regulation Panel: Responsible for matters within its specific jurisdiction.
3.​ Companies Tribunal:
○​ Functions include reviewing certain decisions of the CIPC.
○​ Serves as a forum for voluntary Alternative Dispute Resolution (ADR) for
matters under the Act.
 4.​ High Court: Remains the primary forum for resolving disputes regarding the
interpretation and enforcement of the Companies Act.

Basic Alternatives for Addressing Complaints/Enforcement:

1.​ Alternative Dispute Resolution (ADR) procedures.

2.​ Application to the Companies Tribunal for adjudication (only for matters allowed by
the Act).
3.​ Application to the High Court for a court order.
4.​ Filing a complaint with the CIPC, which may then investigate and issue a compliance
notice.

5.2 Civil Remedies for Shareholders and Other

Stakeholders
The Act provides various civil remedies to address contraventions or enforce rights. These
fall into several categories.

5.2.1 Application to Declare a Director Delinquent or Under Probation

(Section 162)

●​ A court may declare a director delinquent or place them under probation.

●​ Director in this context: Includes a person who was a director within two years prior
to the application.
●​ Applicants: The company, a shareholder, a director, an employee representative, or
the CIPC.
●​ Consequences:
○​ Delinquent: Disqualified from being a director of any company. Can be for life
or a minimum of seven years.
○​ Probation: Must not serve as a director except as permitted by the probation
order. Subsists for a period determined by court, not exceeding five years.
○​ The CIPC maintains a public register of delinquent or probationed persons.

Grounds for Delinquency (Court is obliged to make order):

1.​ Consenting to act as director while ineligible or disqualified.

2.​ While under probation, acting as a director in contravention of the order.
3.​ While a director, acting in a manner that amounts to gross negligence, wilful
misconduct, or breach of trust.
4.​ Taking personal advantage of information or an opportunity (S76(2)(a)).
5.​ Intentionally or by gross negligence inflicting harm upon the company or subsidiary
(S76(2)(a)).
6.​ Grossly abusing the position of director.

Grounds for Probation (Court may place under probation):

1.​ Acting in a manner materially inconsistent with the duties of a director.

 2.​ Being present at a meeting and failing to vote against a resolution despite the
company's inability to satisfy the solvency and liquidity test (where required).
3.​ Acting in or supporting a decision of the company to act in an oppressive or unfairly
prejudicial manner (S163(1)).
●​ Conditional Declarations: Declarations of delinquency or probation can be subject
to conditions (e.g., remedial education, community service, compensation,
supervision by mentor).
●​ Applications to Suspend/Set Aside Order: A person declared delinquent (unless
for life) can apply to court to suspend or set aside the order after a certain period
(e.g., 3 years for suspension, 2 years after suspension for setting aside),
demonstrating rehabilitation.

5.2.2 Application to Protect Rights of Securities Holders (Section 161)

The holder of issued securities may apply to court for a declaratory order about their rights,
or for an appropriate order to protect their rights or rectify any harm caused by the
company's act or omission.

5.2.3 Relief from Oppressive or Prejudicial Conduct (Section 163 and

Section 20(9))

●​ Provides a remedy for shareholders (and directors) who allege that any act or
omission of the company or its related persons is unfairly prejudicial, unjust,
inequitable, or unfairly disregards their interests. This builds on the former S252
of the 1973 Act.
●​ The court may make any order it considers fit to rectify the matter, including
regulating the company's future affairs or ordering the purchase of a member's
interest.
●​ Donaldson Investments (Pty) Ltd v Anglo-Transvaal Collieries Ltd: Preference
shareholders were unsuccessful when deprived of rights but granted additional
privileges, as court deemed their claim for an inflated share price inappropriate under
S252.
●​ Robson v Wax Works (Pty) Ltd: Court refused to wind up a company at the
instance of a dissatisfied minority shareholder, indicating that S252 could address
their interests.
●​ Kudamane Investment Holding Ltd: Conduct complained of must be something
already done or a continuing state of affairs, not just future potential acts.
●​ Section 20(9): As discussed in Week 1, allows for piercing the corporate veil in
cases of "unconscionable abuse" of juristic personality.

5.2.4 Dissenting Shareholders’ Appraisal Rights (Section 164)

●​ Allows a shareholder to require the company to buy their shares at fair value if the
company adopts a resolution affecting their interests. This is an independent remedy
for dissenting shareholders.
●​ Triggering Actions: Typically, a special resolution to amend the MOI or alter class
rights.
●​ Procedure:
 1.​Shareholder files a written objection to the resolution before the meeting.
2.​Must attend the meeting and vote against the resolution.
3.​If the resolution passes, the company notifies objectors.
4.​The dissenting shareholder demands payment of fair value within 20 business
days of notice.
5.​ Company offers a fair value for shares within 20 business days of notification.
6.​ If dissatisfied, the shareholder can apply to court to determine fair value.
●​ Solvency and Liquidity: Payment for shares under S164 is not considered an
acquisition or distribution for the solvency test. However, if payment risks the
company's debt obligations, the company can apply to court to adjust its obligations.

5.2.5 Statutory Derivative Action (Section 165)

●​ Abolishes the common-law derivative action (from Foss v Harbottle) which held
that only the company could sue for wrongs against it, even if wrongdoers controlled
the company. S165 is a more certain statutory alternative.
●​ Persons who may use: A shareholder, a director (including a prescribed officer), an
employee representative (e.g., trade union), or any other person with court leave.
●​ Purpose: To allow an applicant to bring or continue legal proceedings on the
company's behalf to protect the company's interests, especially against alleged
wrongdoers who control the company.
●​ Procedure (Five Steps):
1.​ Applicant serves a demand on the company to commence/continue legal
proceedings.
2.​ Company must appoint an independent and impartial person or
committee to investigate the demand and report to the board on whether
legal action is in the company's best interests.
3.​ Within 60 business days, the company must either initiate/continue
proceedings or serve a notice refusing to comply.
4.​ If the company refuses, the applicant may apply to court for leave to
bring/continue proceedings on the company’s behalf.
5.​ Court grants leave if satisfied the company failed to comply with statutory
requirements, the applicant acts in good faith, the matter is of material
consequence, and it is in the company's best interests.
●​ Ratification: Shareholder ratification of conduct does not prevent a demand or
application under S165, but the court may consider it.
●​ TWK Agriculture Ltd v NCT Forestry Co-operative Ltd: Re-examined the nature
of derivative actions, affirming the general rule that the company seeks redress for
wrongs against it.
●​ Thurgood v Dirk Kruger Traders (Pty) Ltd: Highlighted the need for a curator ad
litem in the old Act, replaced by the independent investigator in S165.

Week 5 Summary

Week 5 outlines the decriminalisation of company law under the 2008 Act, shifting
enforcement from criminal sanctions to administrative and civil remedies. It identifies key
enforcement agencies such as the CIPC, Companies Tribunal, and High Court, and
outlines alternative dispute resolution (ADR) as a primary option. The core of the week
focuses on civil remedies available to shareholders and stakeholders. This includes
applications to declare a director delinquent or under probation (S162) based on grounds
like gross negligence or breach of trust, leading to disqualification or conditional limitations.
Section 161 protects the rights of securities holders. Section 163 offers relief from
oppressive or prejudicial conduct, while Section 164 provides dissenting shareholders'
appraisal rights, allowing them to demand fair value for their shares in certain
circumstances. Lastly, the statutory derivative action (S165) replaces the common law
rule, enabling shareholders or others to initiate proceedings on the company's behalf through
a structured demand and investigation process. The concept of lifting the corporate veil
(S20(9)) as a remedy for unconscionable abuse of legal personality is also reiterated.

Week 5 Flow Diagram (Description)

1.​ Start: Alleged Contravention / Harm / Dispute

2.​ Enforcement & Dispute Resolution Options:
○​ Option 1: ADR / Companies Tribunal (For allowed matters)
○​ Option 2: CIPC Complaint (Investigation & Compliance Notice)
○​ Option 3: High Court (Primary forum)
3.​ Specific Civil Remedies:
○​ For Director Misconduct (S162):
■​ Application to Court: Declare Delinquent (Life/7yrs disqualification)
OR Under Probation (Up to 5yrs, conditional)
■​ Grounds: Gross Negligence, Breach of Trust, Ineligibility, Failure to
vote against S&L breach
○​ For Shareholder Protection (S161, S163, S164):
■​ S161: Protect Securities Holders' Rights (Declaratory/Rectification
orders)
■​ S163: Relief from Oppressive/Prejudicial Conduct (Court orders to
rectify)
■​ S164: Dissenting Shareholder Appraisal Rights (Demand company
buy shares at fair value if MOI amended/rights affected; specific
procedure involves objection, demand, company offer, court if no
agreement)
○​ For Wrongs Against the Company (S165 - Statutory Derivative Action):
■​ Process: Demand on company -> Independent investigation ->
Company acts OR refuses -> Applicant seeks Court Leave (if refused)
■​ Outcome: Court grants leave if good faith, material consequence,
best interest of company.
○​ For Abuse of Legal Personality (S20(9)):
■​ Lifting the Corporate Veil: Court declares company not juristic
person for specific liability if "unconscionable abuse"
4.​ End: Compliance / Redress / Resolution

Week 5 Reflective Questions

1.​ Explain how the shift towards "decriminalisation" in company law under the 2008 Act
influences the approach to compliance and enforcement compared to previous
legislation.
 2.​ A minority shareholder believes the board of directors is making decisions that
unfairly prejudice their interests. What specific remedy under the Companies Act,
2008, can they pursue, and what would they need to prove to the court?
3.​ Compare and contrast the declaration of a director as "delinquent" versus being
placed "under probation" under Section 162. What are the key differences in
grounds, consequences, and potential for relief?
4.​ An entrepreneur wants to understand the implications of a major corporate
restructuring on shareholders who disagree with the decision. Describe the rights
available to "dissenting shareholders" under Section 164, outlining the steps they
would need to take.
5.​ Why was the common-law derivative action deemed unsatisfactory, and how does
the statutory derivative action under Section 165 provide a more effective mechanism
for addressing wrongs committed against a company, particularly when the
wrongdoers control the company?

Week 5 Cheat Sheet

●​ Decriminalisation: Shift from criminal to administrative enforcement.

●​ Enforcement Agencies: CIPC (primary), Companies Tribunal (ADR, reviews), High
Court.
●​ Alternatives for Complaints: ADR, Companies Tribunal, High Court, CIPC.
●​ Director Delinquency/Probation (S162):
○​ Delinquent: Gross negligence, wilful misconduct, breach of trust. Leads to
disqualification (life/7yrs).
○​ Probation: Materially inconsistent duties, failing to vote against S&L breach.
Leads to conditional directorship (up to 5yrs).
●​ Oppressive/Prejudicial Conduct (S163): Remedy for unfair conduct against
shareholders.
●​ Dissenting Shareholders' Appraisal Rights (S164): Shareholder can demand fair
value for shares if certain resolutions passed (e.g., MOI amendment). Requires
objection, voting against.
●​ Statutory Derivative Action (S165): Replaces Foss v Harbottle. Allows
shareholder/director to sue on company's behalf through demand, investigation, and
court leave.
●​ Lifting Corporate Veil (S20(9)): Remedy for "unconscionable abuse" of juristic
personality.

Week 6: Partnerships and Close

Corporations
Core Competencies for this Week

●​ Define the concept ‘partnership’ and explain its essential elements.

 ●​ Distinguish between the Entity and Aggregate Theories of partnership and explain
the exceptions that apply to the strict application of the Aggregate Theory of
partnership.
●​ Describe the relationship between partners, including the rights and duties flowing
from such a relationship and the authority of partners to bind the partnership.
●​ Explain the liability of partners.
●​ Identify the various means by which a partnership may be terminated.
●​ List the nature and characteristics of a close corporation as a business entity.
●​ Discuss the effect of the 2008 Companies Act on close corporations and the Close
Corporations Act.
●​ Discuss members’ contributions and members’ interest in respect of a close
corporation.
●​ Discuss the power of members to contract on behalf of the close corporation.
●​ Discuss the advantages and disadvantages of a close corporation.
●​ Apply the principles to a set of facts.

Part A: Partnerships

6.1 Definition and Essential Elements of a Partnership

Definition: A legal relationship created by a contract between two or more persons, where
each partner agrees to contribute to a partnership business carried on for their joint benefit,
with the object of making a profit.

●​ Pezzutto v Dreyer and Others: Confirmed this definition.

●​ A personal liability company can be seen as an incorporated partnership, often
formed by professionals (e.g., attorneys, doctors).

Essential Elements:

1.​ Contribution by Partners: Each partner must contribute something of commercial

value (money, property, skill, knowledge, expertise, contacts).
2.​ Joint Benefit: The business must be carried on for the joint benefit of the partners.
Each partner is entitled to share in the net profit (though shares need not be equal).
One partner cannot solely benefit while another bears all losses.
3.​ Profit Objective: The business must have the object of making a profit. This includes
purely pecuniary profit or achieving material gain like cost saving.
4.​ Legitimate Contract: The contract must be valid and made with the intention of
establishing a partnership.

Other Legal Formalities:

●​ Must comply with the law and not conduct prohibited business.
●​ No limit on the number of partners (but at least two).
●​ No formal requirements for the agreement itself; can be verbal, written, or implied by
conduct, unless partners agree on specific formalities.
6.2 Types of Partnerships
1.​ Universal Partnerships: Not restricted to a particular transaction or business.
○​ Societas universorum bonorum: Partnership of all property, typically in
marriage contexts. Assets are pooled.
○​ Societas universorum quae ex quastu veniunt: Partnership of all profit,
common in commercial undertakings.
2.​ Particular Partnerships: Established for a specific project or transaction.
3.​ Ordinary Partnerships: Partners are jointly and severally liable for all partnership
debts.
4.​ Extraordinary Partnerships: Limit the liability of certain partners to third parties.
○​ Anonymous Partnership: Business conducted by one partner in their own
name, while the anonymous partner is undisclosed and not liable to third
parties, but liable to other partners for their share of losses.
○​ Partnership en Commandite: Business in the name of one or more ordinary
partners. En commandite partners are undisclosed and only liable to other
partners to the extent of their fixed capital contribution.
○​ Special Partnership: Had general partners with joint/several liability and
special partners with limited liability (now repealed).

6.3 Legal Nature: Entity vs. Aggregate Theories

●​ Entity Theory: Views a partnership as an entity separate from its members, with its
own rights, obligations, and perpetual existence despite changes in membership.
(Not adopted in SA law).
●​ Aggregate Theory: South African law generally adopts this theory. A partnership
does not have separate legal personality from its members. Partners own
partnership property as co-owners, and rights/liabilities are individual partners’
rights/liabilities. A change of partner destroys the identity of the partnership.

Exceptions to Aggregate Theory:

1.​ Insolvency: The sequestration of a partnership estate is treated as distinct from the
estates of individual members (S13(1) Insolvency Act).
2.​ Litigation: A partnership may sue and be sued in its own name, rather than in the
names of all individual partners.

6.4 Relationship Between Partners

A partnership is a contract of the utmost good faith.

Rights of Partners:

●​ To share in profits and losses (proportional to contributions, or equally if value

unascertained).
●​ To participate in management.
 ●​ To compensation (unless agreement specifies otherwise).
●​ To inspect partnership books.
●​ To distribution of assets on dissolution.
●​ Actio pro socio: To enforce mutual rights against co-partners.
●​ Actio communi dividundo: To effect physical division of jointly owned tangible
things after dissolution.

Duties of Partners (flowing from fiduciary relationship):

●​ To accept and fulfil partnership agreement obligations.

●​ To acquire benefits for the partnership (not personal interest).
●​ To guard against conflicts of interest.
●​ To disclose all information affecting the partnership.
●​ To make a contribution.
●​ To share in losses.
●​ Duty of Care and Skill: Expected to exercise care reasonably expected from a
person with their knowledge and experience.
●​ Not to compete with the partnership (Mattson v Yiannakis).

Authority of Partners to Bind the Partnership

●​ When a partner contracts on behalf of the partnership, they act as both principal and
agent for other partners, provided they act within the scope of their authority (mutual
mandate).
●​ Actual Authority: Expressly granted or implied by customary dealings.
●​ Ostensible Authority: Where a partner appears to outsiders to be authorised.
Partners may be estopped from denying authority.
●​ A bona fide third party can assume a contract within the scope of business binds the
partnership. If outside scope, express authority is needed.

Liability of Partners

●​ Each partner is jointly and severally liable for partnership debts.

●​ During the subsistence of the partnership, creditors cannot sue partners individually
for partnership debts. However, upon termination, creditors can sue partners
individually, jointly and severally.

6.5 Dissolution of a Partnership

A partnership may be dissolved or terminated by:

1.​ Effluxion of time (agreement for fixed period).

2.​ End of the undertaking (completion of specific project).
3.​ Mutual agreement between partners.
4.​ Change in membership (death, retirement, or admission of new partner).
5.​ Insolvency of the partnership or any member.
6.​ Notice of dissolution given by one of the partners.
 7.​ Partners becoming alien enemies on or after outbreak of war.
8.​ Order of court for good cause (upon application of one or more partners).

Consequences of Termination:

●​ Proper rendering of accounts.

●​ Creditors can sue partners individually, jointly and severally.
●​ No partner has implied authority to bind the partnership.
●​ Each partner may demand an account from co-partners.

Part B: Close Corporations (CCs)

6.6 Nature and Characteristics of a Close Corporation

A Close Corporation (CC) is a simplified business entity that was popular for small
businesses before the 2008 Companies Act.

Distinctive Features and Characteristics:

●​ Acquires legal personality upon incorporation, distinct from its members.

●​ Has perpetual succession.
●​ Courts can pierce the corporate veil in instances of abuse.
●​ Has the same powers and capacities as a natural person, as appropriate.
●​ Only natural persons can be members (with some exceptions for trustees).
●​ Can be formed by a single person.
●​ Does not have to be for gain.
●​ No shares; instead, it has members' interest.
●​ No strict rules relating to maintenance of capital (instead relies on solvency and
liquidity).
●​ All members generally have an equal say in management.
●​ No directors; members manage.
●​ Fiduciary duties and duties of care and skill of members are codified (S42, S43 Close
Corporations Act).

6.7 Effect of the 2008 Companies Act on Close

Corporations
The 2008 Companies Act signifies a major change for CCs:

●​ This business form will no longer be an option for new businesses.

●​ Existing close corporations will continue to exist and be governed by the Close
Corporations Act of 1984, alongside companies. No further registrations of CCs are
permitted.
6.8 Formation and Members' Interest
Formation

●​ Acquires legal personality and corporate status by registration under the Close
Corporations Act.
●​ Requires reserving a name, lodging a founding statement (CK1 Form), a letter
from the accounting officer, and paying the prescribed fee.
●​ The founding statement is the constitutive document, setting out the CC's main
business, financial year-end, members' particulars, and their percentage of members'
interest.
●​ An association agreement is optional but advisable for internal arrangements.
●​ The name must end with "CC" or "BK" and be displayed on all official documents.

Membership

●​ Number of Members: 1 to 10 members. Cannot be joint holders of the same

interest.
●​ Requirements: Only natural persons can be members.
○​ Exceptions: Trustees of testamentary trusts (not juristic
persons/beneficiaries) or persons acting in official capacities (executor,
curator) can hold member's interest.
●​ Commencement: Membership begins on the registration date of the founding
statement. Amended statement needed for new members.
●​ Cessation: Voluntary disposal, insolvency, death, or forced disposal by court order
(S36). Grounds for court order include permanent inability to perform duties,
prejudicial conduct, or making association impossible.

Members' Interest

●​ Each member receives a members' interest in return for their contribution,

expressed as a percentage of the total (100%).
●​ Nature: A personal right against the CC, entitling the holder to a pro rata share in
aggregate members' interest, participation in profit distributions, and remaining
assets on liquidation. It is incorporeal, movable property.
●​ Acquisition: From founding contribution (money, property, services for formation) or
from an existing member (purchase, donation, etc., requiring consent of other
members). Contributions to an existing CC can be money/property, but not services.
●​ Insolvency/Death: Trustee/executor must sell the interest to the CC, remaining
members, or a qualified outsider (often with pre-emption rights). Amended founding
statement required for transfer.

6.9 Internal Relations of a Close Corporation

Fiduciary Duties of Members (Section 42)
 ●​ Members owe fiduciary duties to the CC as a separate legal person (unlike
partnerships, where duties are to each other).
●​ Each member must:
○​ Act honestly and in good faith towards the CC.
○​ Exercise powers in the interest and for the benefit of the corporation.
○​ Avoid material conflicts of interest (e.g., not compete, not gain
unwarranted personal economic benefit).
○​ Disclose any interest in a transaction to other members.
○​ If duties are breached, the member is liable for loss, but the breach can be
ratified by written approval of members.

Duties of Care and Skill (Section 43)

●​ Members must carry on business with the degree of care and skill reasonably
expected from a person with their knowledge and experience.
●​ Failure to do so makes the member liable to the corporation for losses. Breach can
also be ratified by written approval.

Association Agreement

●​ Optional, but highly advisable, written agreement regulating internal relations

between members and the CC.
●​ Default Principles (if no agreement or silent):
○​ Every member entitled to participate in business.
○​ Equal rights in management and representation.
○​ Differences decided by majority vote.
○​ Votes correspond with percentage interest.
○​ Members indemnified for expenditure.
○​ Payments to members proportional to interest.
●​ Certain matters require 75% written consent if not altered by agreement (e.g.,
change in principal business, disposal of undertaking/assets, acquisition of
immovable property).
●​ Not inspectable by outsiders; outsiders not deemed to know its contents.

Management

●​ Every member is generally entitled to participate in management and exercise rights.

●​ Exclusions from Management (S47): Persons under legal disability (except
emancipated minors), and persons disqualified from being directors under the
Companies Act.
●​ Matters are decided by majority vote (each member's vote corresponds to their
percentage interest), unless association agreement states otherwise.
●​ Any member can call a meeting. Only members present in person at meetings may
vote.

Redress by the Court (Section 49)

 ●​ Any member who alleges that an act or omission of the CC or other members is
unfairly prejudicial, unjust, or inequitable may apply to court for rectification.
●​ The court has wide discretion to order remedies, including regulating affairs or
ordering the purchase of a member's interest.
●​ Gatenby v Gatenby: Court ordered sale of assets to enable a prejudiced member to
be bought out.
●​ De Franca v Exhaust Pro CC: Court can order purchase of member's interest by
other members or corporation if just and equitable, requiring proof of value.

Proceedings Against Fellow Members (Section 50 - Statutory Derivative

Action)

●​ Any member can institute proceedings on behalf of the CC against a member/former

member whose actions affect the CC's rights (e.g., failure to make contribution,
breach of fiduciary duty, negligence).
●​ Requires notifying all members of intention to sue.

Payments to Members (Section 51)

●​ Payments (e.g., income distribution, repayment of contribution) can only be made if:
1.​ After payment, CC's assets exceed liabilities (solvency criterion).
2.​ CC is able to pay debts as they become due (liquidity criterion).
3.​ Payment will not render CC unable to pay debts.
●​ Members are liable to the corporation for payments received contrary to these
requirements.

Prohibition on Loans and Security (Section 52)

●​ Without prior written consent of all members, a CC may not make a loan to, or
provide security for, any of its members or juristic persons controlled by them.

6.10 External Relations of a Close Corporation

Pre-incorporation Contracts (Section 53)

●​ S53 is a simplified version of S21 (Companies Act), allowing a CC to ratify a

pre-incorporation contract.
●​ Requirements:
1.​ Contract in writing.
2.​ Entered into by a person professing to act as agent/trustee for an unformed
CC.
3.​ Duly ratified or adopted by the CC after incorporation by written consent
of all members within the specified (or reasonable) time.
●​ If ratified, the contract binds the CC. If not ratified, it lapses. The agent generally
incurs no personal liability unless contract states otherwise.
●​ Alternatives: Stipulatio alteri (contract for benefit of 3rd party), or agent acquiring
rights/assets and ceding/transferring them to CC after formation.
Capacity and Representation of a Close Corporation (Section 54)

●​ No Ultra Vires / Constructive Notice: The common law doctrines of ultra vires and
constructive notice do not apply to CCs.
○​ A CC has the capacity and powers of a natural person.
○​ The main business in the founding statement does not limit its capacity.
○​ Third parties are not deemed to know the contents of the founding statement.
●​ Members as Agents (S54(1),(2)):
○​ Any member is an agent of the CC.
○​ Any act of a member binds the corporation, regardless of whether it's for
carrying on the business, UNLESS:
1.​ The member had no actual power to act for the corporation in that
matter; AND
2.​ The third party knew or ought reasonably to have known of the
member's lack of power.
○​ Bona fide outsiders are entitled to assume each member has necessary
authority (J & K Timbers (Pty) Ltd v GL & S Furniture Enterprises CC).
●​ Non-members as Agents: CC can authorise non-members to act as agents. CC is
bound if non-member had express/implied authority, CC ratifies, or estoppel applies.
●​ Contracts with Members: Voidable if member breached fiduciary duties by not
disclosing interest. Loans/security to members require prior written consent of all
members.

6.11 Personal Liability of Members and Others for CC

Debts
General rule: Members are not liable for CC debts due to separate legal personality.
However, exceptions exist:

●​ Section 23 (Failure to use proper name/registration number): Any member who

authorised or issued a document (bill, note, cheque, order for money/goods) without
the correct CC name/registration number is personally liable to the holder, unless
paid by CC. (Van Der Merwe, Byway Projects).
●​ Section 52 (Loans/Security without consent): Any member who authorised or was
party to a loan/security given without all members' consent is liable for losses to the
CC or others.
●​ Section 63 (Joint and Several Liability in specific situations): Members can be
jointly and severally liable if:
1.​ CC name used without "CC" or "BK" and third party unaware dealing with CC.
2.​ Member fails to make required contribution.
3.​ Number of members exceeds 10 for more than 6 months.
4.​ CC acquires members' interest without complying with S39.
5.​ CC provides financial assistance for member's interest acquisition without
complying with S40 (requires S&L test and all members' written consent).
6.​ Disqualified person takes part in management.
7.​ Accounting officer's office is vacant for 6 months.
 ●​ Section 64 (Reckless, Fraudulent, or Grossly Negligent Trading): Court can
declare any person who knowingly participated personally liable for CC debts.
●​ Section 65 (Gross Abuse of Juristic Personality): Court can declare the CC not a
juristic person, making members personally liable, similar to S20(9) for companies.
●​ Other Circumstances: Deregistration with outstanding liabilities, breach of fiduciary
duty/duty of care and skill.

6.12 Accounting Officer, Records, and Financial

Statements
●​ Every CC must appoint an accounting officer.
●​ CCs must keep accurate and complete accounting records.
●​ Annual financial statements must be drawn up, approved by members holding at
least 51% of interest, and reported on by the accounting officer.
●​ A CC may be compelled to have its financial statements audited in the same
circumstances as a private company (S58(2A) referencing S30(2)(b) and (3)-(6) of
Companies Act).

Week 6 Summary

Week 6 introduces Partnerships and Close Corporations (CCs). A partnership is a

contract-based relationship with specific essential elements (contribution, joint benefit, profit
objective, legitimate contract). SA law follows the Aggregate Theory (no separate legal
personality) with exceptions for insolvency and litigation. Partners have fiduciary duties
(utmost good faith, no conflict, disclosure) and duties of care/skill, rights to profits and
management, and are jointly and severally liable. Partnerships can be dissolved by
agreement, effluxion of time, change in membership, or court order. Close Corporations,
while no longer able to be formed, continue to exist. They possess separate legal
personality and perpetual succession but have no shares (only members' interest) and are
managed by members, not directors. Members owe fiduciary duties (S42) and duties of
care/skill (S43) to the CC itself. The optional association agreement governs internal
relations. CCs are not subject to the ultra vires doctrine. Section 54 governs members'
authority to bind the CC externally. Members can face personal liability in specific
circumstances, such as failure to use the correct name (S23), making unauthorised loans
(S52), specific breaches (S63), reckless/fraudulent trading (S64), or gross abuse of juristic
personality (S65). CCs must appoint an accounting officer and may be required to have
their financial statements audited.

Week 6 Flow Diagram (Description)

1.​ Start: Business Entity Choices

2.​ Option 1: Partnership
○​ Definition: Contract-based, joint benefit, profit
○​ Essentials: Contribution, Joint Benefit, Profit Objective, Legitimate Contract
○​ Types: Universal, Particular, Ordinary, Extraordinary (Anonymous, En
Commandite)
○​ Legal Nature: Aggregate Theory (No separate legal personality)
 ■​ Exceptions: Insolvency, Litigation
○​ Internal Relations: Utmost good faith, Fiduciary duties, Duties of care/skill,
Rights (profits, management)
○​ External Relations: Mutual mandate, Partners jointly & severally liable
○​ Dissolution: Time, completion, agreement, change in membership,
insolvency, notice, court order
3.​ Option 2: Close Corporation (CC)
○​ Status: Existing only (no new registrations after 2008 Act)
○​ Nature: Separate Legal Personality, Perpetual Succession, Members
manage (no directors), Members' Interest (no shares), Solvency & Liquidity
focus
○​ Formation: Founding Statement, Accounting Officer
○​ Membership: Natural persons (1-10 members), Contributions
(money/property/services for formation), Members' Interest (percentage)
○​ Internal Relations: Fiduciary duties (S42 to CC), Duties of care/skill (S43),
Association Agreement (optional, governs internal), Management (S47
exclusions), Payments to Members (S51 - Solvency & Liquidity)
○​ External Relations: No Ultra Vires/Constructive Notice, Members as agents
(S54 - binds CC unless 3P knew lack of power), Pre-incorporation contracts
(S53)
○​ Personal Liability (Exceptions to Limited Liability): S23 (name), S52
(unauthorised loans), S63 (contributions, >10 members, financial assistance
breaches, disqualified management), S64 (reckless/fraudulent trading), S65
(abuse of juristic personality)
○​ Oversight: Accounting Officer
4.​ End: Choice of Entity (Historical Context)

Week 6 Reflective Questions

1.​ Compare the aggregate theory of partnership with the entity theory of a company.
How do the exceptions to the aggregate theory for partnerships aim to mitigate some
of its inherent limitations?
2.​ An entrepreneur is considering forming a close corporation (if still possible) or a
personal liability company. Discuss the advantages and disadvantages of each,
particularly concerning liability and administrative burden.
3.​ Describe the key differences in how the "members' interest" in a close corporation
functions compared to "shares" in a company, and what implications these
differences have for ownership and capital structure.
4.​ A member of a close corporation (CC) enters into a contract on behalf of the CC, but
other members claim the member did not have authority. Based on Section 54 of the
Close Corporations Act, what would a third party need to prove to hold the CC liable?
5.​ In what specific situations can members of a close corporation be held personally
liable for the CC's debts, despite the CC having separate legal personality? Discuss
the rationale behind these exceptions.

Week 6 Cheat Sheet

●​ Partnership: Contract, 2+ persons, contribute, joint benefit, profit objective.

 ●​ Types of Partnership: Universal, Particular, Ordinary (joint/several liability),
Extraordinary (Anonymous, En Commandite - limited liability for some).
●​ Legal Nature (Partnership): Aggregate Theory (no separate legal personality).
Exceptions: Insolvency, Litigation.
●​ Partner Liability: Jointly and severally liable for debts Percentage of total, not
shares.
○​ Fiduciary Duties (S42): To CC, act in good faith, avoid conflict, disclose.
○​ Duties of Care/Skill (S43): Reasonably expected, liable for loss.
○​ Association Agreement: Optional, governs internal affairs.
○​ External Relations: No Ultra Vires/Constructive Notice.
○​ Member as Agent (S54): Binds CC unless 3P knew of lack of authority.
○​ Personal Liability (CC): S23 (name), S52 (unauthorised loans), S63
(non-contribution, >10 members, financial assistance, disqualified
management), S64 (reckless/fraudulent trading), S65 (abuse of juristic
personality).
○​ Accounting Officer: Mandatory.

Overall Flow Diagram (Description of

Entrepreneurial Law Weeks)
This comprehensive flow diagram illustrates the interconnectedness of the various topics
covered in Entrepreneurial Law from Week 1 to Week 6, following the lifecycle of a business
entity and its governance.

1.​ Foundation: Business Entity Choice (Week 1 & 6)​

○​ Decision Point: Start a business.

○​ Options:
■​ Partnership (Week 6, Part A): Contract-based, Aggregate Theory,
Joint & Several Liability.
■​ Close Corporation (CC) (Week 6, Part B): Historical option, separate
legal personality but member-managed, no new registrations.
■​ Company (Week 1): Separate Legal Personality, Limited Liability,
most complex structure, focus of the majority of the course.
2.​ Company Lifecycle: Formation & Structure (Week 1)​

○​ Core Concept: Legal Personality: (Separate from members, limited

liability).
○​ Process: Incorporation & Registration: (Notice of Incorporation,
Memorandum of Incorporation (MOI), CIPC role, legal effects).
○​ Key Issues:
■​ Types of Companies: (Profit: Public, Private, SOC, Personal Liability;
Non-Profit).
 ■​ Pre-incorporation Contracts (S21): (Binding unformed company,
personal liability for incorporator if not ratified).
■​ Abuse of Legal Personality: (Lifting the Corporate Veil, S20(9) for
"unconscionable abuse").
3.​ Funding the Company: Capital & Debt (Week 2)​

○​ Core Concept: Sources of Funding: (Equity vs. Debt).

○​ Equity (Shares): (Definition, types, classes - Ordinary, Preference, Issue of
Shares, Pre-emptive Rights, Capitalisation Shares).
○​ Debt (Debentures): (Definition, comparison to shares, creditor status).
○​ Critical Gateway: Solvency & Liquidity Test (S4): (Assets >= Liabilities
AND ability to pay debts for 12 months). This test underpins:
■​ Distributions (S46): (Dividends, etc., require S&L Test).
■​ Share Repurchases (S48): (Company buying its own shares,
requires S&L Test).
■​ Financial Assistance (S44): (For share purchases, requires% for
fundamental changes).
■​ Acting Outside Meetings (S60): (Written resolutions).
■​ Annual General Meeting (AGM): (Mandatory for Public Co., specific
agenda).
○​ Directors' Role (Week 4):
■​ Definition & Types: (Ex Officio, Elected, Prescribed Officer).
■​ Duties: (Fiduciary S76(3) & S75 - good faith, best interest, avoid
conflict, disclose; Care/Skill/Diligence S76(3)).
■​ Defence: Business Judgment Rule (S76(4)): (Informed, rational, no
undisclosed conflict).
■​ Liability (S77, S218): (Personal for breaches, fraud, reckless trading).
■​ Indemnification & Insurance (S78): (Limits for willful misconduct).
■​ Eligibility & Disqualification (S69): (Bars and exemptions).
■​ Appointment & Removal (S71): (Shareholder ordinary resolution for
removal).
○​ Oversight Structures (Week 4):
■​ Board Committees: (Remuneration, Nomination).
■​ Audit Committee: (Shareholder-appointed, independent, oversees
auditors).
■​ Company Secretary: (Administrative, guides directors, ensures
compliance).
■​ Auditors: (Independent financial examination).
4.​ Addressing Problems: Remedies & Enforcement (Week 5)​

○​ Context: Decriminalisation of Company Law: (Shift to administrative/civil

enforcement).
○​ Enforcement Agencies: (CIPC, Companies Tribunal, High Court).
○​ Alternative Dispute Resolution (ADR): (Options outside court).
○​ Civil Remedies:
■​ Director Delinquency/Probation (S162): (For gross misconduct,
leads to disqualification/restrictions).
 ■​ Relief from Oppressive Conduct (S163): (For unfairly prejudicial
treatment of shareholders).
■​ Dissenting Shareholders' Appraisal Rights (S164): (Demand
company buy shares at fair value if MOI amended/rights affected).
■​ Statutory Derivative Action (S165): (Suing on company's behalf for
wrongs against it).
■​ Abuse of Juristic Personality (S20(9)): (Lifting the corporate veil).
5.​ End: Ongoing Compliance & Ethical Business Practice​

This diagram illustrates how the formation and funding (Weeks 1-2) set the stage for how a
company is managed and governed (Weeks 3-4), with mechanisms in place to address
issues and enforce rights (Week 5), all within the broader context of business entity choices
(Week 6).