MRL2601_ ENTREPRENEURIAL LAW_ EXAM PACK 2021.

MRL2601_ ENTREPRENEURIAL LAW_ EXAM REVISION PACK 2021. Explain what a debenture is, and what type of relationship exists between a debenture holder and a company (2) A debenture is a debt instrument for the acknowledgement by a company that the company is indebted to the debenture holder for a certain sum of money, as evidenced by the document. Debenture holders are creditors of the company by virtue of having extended loans to the company. Question 3 3.1 Eddie wishes to start his own business. His friend Chari registered a close corporation in 2007 and wishes to sell his member's interest in the business. Eddie is unsure whether he should register a private company or buy Charl’s member’s interest. Advise Eddie of the characteristics of a close corporation as a business form (6) The close corporations acquire their legal personality upon incorporation. Legal personality is acquired upon registration of the founding document. Close corporation has a separate legal personality to its members. There are instances where the court can be called upon to pierce this corporate veil. Close corporations also enjoy perpetual succession, which means that, unlike partnerships, they remain in existence even if the members should change. Close Corporations are a cheaper option for the incorporation of small enterprises. This form of business is a combination of some of the partnership attributes and some of the corporate attributes. It provides a simple, inexpensive and flexible form of incorporation for the enterprise consisting of a single entrepreneur or small number of participants. A founding statement is the only constitutive document needed upon incorporation of the close corporation. Only natural persons can be members of a close corporation. This means that a company or another close corporation cannot be a member of the close corporation. No new close corporations can be formed under the Companies Act. The disposition of member’s interest is controlled by the members to a large extent. A member’s interest of a member is regarded to be part of his estate; thus, he can bequeath his interest to his heir or legatee. The members are limited, they can only be ten 10 because close corporations are intended for small businesses. A minor or an insolvent or a person under legal disability may become or remain a member of a close corporation with necessary assistance from a guardian, trustee or the court. Every member has the authority to conclude contracts on behalf of the close corporation in relation to a person who is not a member (an outsider or third party). 3.2 Explain what the concept 'transformative constitutionalism' entails. Also provide an example of how this concept applies in Entrepreneurial law (5) The court has a duty to develop the common law so that the law keeps up and remains suitable as the needs of the community it aims to serve, change. Section 39 of the Constitution determines that the court must, when developing the common law promote the spirit, purport, and objects of the Bill of Rights. Our common law has evolved through centuries of feudalism, colonialism, discrimination, sexism, exploitation, and apartheid. In Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd 2012 (1) SA 256 (CC) the highest court considered whether the common law should be developed to require that parties to a contract should be legally required to contract with each other in good faith and on reasonable terms. Shoprite argued that good faith is too vague a concept and should not be enforceable (par 22). The court disagreed. The court noted that the development of our economy and contract law has predominantly been shaped by colonial legal tradition represented by English law, Roman law and Roman Dutch law. The common law of contract regulates the environment within which trade and commerce take place. Its development must take into account the values of the vast majority of people who can after democratization of the country participate in trade and commerce. The approach followed by the majority of South Africans places a higher value on negotiating in good faith than would have prevailed under colonial legal tradition (par 24). The adaptation ofthe common law by infusion of constitutional values is what is meant by transformative constitutionalism. 3.3 Annastacia is a member of a close corporation called Trackmor CC Trackmor CC entered into an agreement with Kobert (Pty) Ltd in terms of which It was awarded certain road surfacing contracts. Initially, and in accordance with the agreement, certain payments were made by Stanford Bank on behalf of Kobert (Pty) Ltd to Trackmor CC. However, later several payments for further work performed in terms of the Agreement were not paid into Trackmor CC's nominated account. Instead the money was paid into the personal account of Willem, another member of Trackmor CC. Annastacia discovered that Willem had misappropriated the funds that were paid into his account and she went to the police station where she laid a charge of criminal fraud against him. After It was discovered that Willem had misappropriated the funds, he (Willem) became completely passive in the management of the business of the close corporation. Refer to the facts above and answer the following questions 3.3.1 What would Annastacia have to prove in order to use the remedy in section 36 of the Close Corporations Act 69 of 1984? (4) In terms of section 36 of the Close Corporations Act, a member(s) may apply for the termination of another member’s membership by order of court. In order to do so, the member(s) will have to prove - that the member is unable to perform his/her part in carrying on the business - that the member’s conduct is likely to have a prejudicial effect on the carrying on of the business of the close corporation - that the member’s conduct has made it reasonably impossible for the other member(s) to associate with him/her in the carrying on of the business of the close corporation - that, in the circumstances, it is just and equitable that such a person should cease to be a member of the close corporation 3.3.2 What Is the purpose and the scope of the remedy provided for in terms of section 49 of the Close Corporations Act 69 of 1984? (3) Section 49 is a remedy available to a member where there was a particular act or omission in the conduct or affairs of the business by the corporation or other member/s which was unfairly prejudicial to such member. The court will only intervene if it is just and equitable to do so. 3.3.3 What orders can the court make in terms of section 49 of the Close Corporations Act 69 of 1984? (2) - The court may then direct that the aggrieved act or omission be stopped, - may order that the corporation amend its founding statement or association agreement, - or, in certain cases upon application, make an order to wind-up the corporation. Section B QUESTION 1 Choose the CORRECT option regarding the conclusion of preincorporation contracts (1) The common law methods of entering into preincorporation contracts are no longer applicable (2) The Companies Act 71 of 2008 requires that preincorporation contracts must be concluded in writing (3) A pre-incorporation contract can be concluded on behalf of an unincorporated close corporation (4) A person concluding a pre-incorporation contract in terms of the Companies Act 71 of 2008 stands no risk of being held personally liable QUESTION 2 Indicate the CORRECT statement (1) Two members may be Joint holders of the same member's interest in a close corporation (2) A trustee of an inter vivostrust may hold a member's interest in a close corporation (3) Insolvents or other legally disabled persons may not become members of a close corporation (4) Only natural persons may hold a member's interest in a close corporation (2) QUESTION 3 Indicate the CORRECT statement (1) An association agreementisnot aprerequisite for the formation and running of a close corporation (2) The manner in which an insolvent member's estate may be disposed of can be regulated in an association agreement (3) The manner in which members will settle disputes may not be regulated in the association agreement (4) The procedure to be followed at meetings may not be regulated in the association agreement (2) QUESTION 4 Choose the CORRECT answer The maximum number of shareholders that Helix (Ply) Ltd may have 1s (2) (1) 20 (2) 10 (3) 50 (4) No restriction Is applicable QUESTION 5 Dikgang contracts with Quality Computers CC represented by Thabo, to build a block of holiday apartments on property owned by the close corporation at a cost of R1 million. The association agreement of Quality Computers CC stipulates that only Mandla, a member of the corporation who holds a 40 per cent member's interest, has the authority to enter into contracts over R500 000 on behalf of the corporation. Dikgang is unaware of this stipulation as he has never read the association agreement Indicate the CORRECT statement (1) The agreement is binding, because every member of a close corporation has the authority to enter into contracts on behalf of the corporation (2) The contract is not binding, because the contract falls outside the scope of business of the corporation (3) The contract is not binding, because Thabo breached his fiduciary duties (4) The contract is binding, because section 20(7) of the Companies Act 71 of 2008 is applicable (2) QUESTION 6 Choose the INCORRECT statement (1) A close corporation has members, not shareholders (2) As a general rule, only natural persons may participate in close corporations (3) There is a limitation on the number of participants permitted in a close corporation (4) CloseCorporations areexemptedfromfinancial reporting QUESTION 7 Choose the CORRECT statement. The doctrine of constructive notice is (1) Applicable to close corporations only (2) Abolished completely by the Companies Act 71 of 2008 (3) Applicable to all public companies (4) Applicable to personal liability companies QUESTION 8 Indicate which one of the following persons/entities is disqualified to act as a director, but may be appointed as a director of a company with thepermission of the court (1) A minor (2) A person who has been convicted of murder (3) An unrehabilitated insolvent (4) A body corporate QUESTION 9 Choose the INCORRECT statement regarding the relief in section 163 of the Companies Act 71 of 2008 for oppressive and prejudicial conduct (1) The action can be instituted by directors who are not also shareholders of the company (2) This remedy Is available if the applicant’s interests have been prejudiced by a single act or omission (3) The remedy can best be described as a derivative action as it is instituted on behalf of the company (4) The court has a wide discretion regarding the relief that it can grant QUESTION 10 In terms of the contract of employment that was concluded between Themba and Thulos Ltd, Themba is appointed as a director of the company for life. However, after a prolonged period of poor financial performance by the company, the shareholders wish to remove Themba from office