LML4806 JAN 2022 MEMO AND
GUIIDE
Sivsanker s
Company law - UNISA
Memos included
May 2019
Oct nov 2019
May 2018
Oct 2018
Oct 2017
,LML4806
January/February 2022
QUESTION 1 [20]
1.1 Explain what the principle of corporate social responsibility entails and provide examples of how
this principle is reflected in the Companies Act 71 of 2008.
“Corporate social responsibility” seeks to make companies responsible members of the
community.
It means that businesses have a responsibility towards the societies in which they operate and
that this responsibility needs to be managed.
It is a voluntary commitment by companies to manage their role within society responsibly. The
concept of corporate social responsibility marks a departure from the traditional perception that
the only object of business is to make profits.
Examples:
One of the purposes of the Companies Act is to promote the development of the South African
economy by encouraging transparency and high standards of corporate governance, given the
significant role of enterprises within the social and economic life of the nation (s 7(b)(iii)).
The Companies Act specifically seeks to reaffirm the concept of the company as a means of
achieving economic and social benefits (s 7(d)).
The Companies Act seeks to promote the development of companies within all sectors of the
economy, and to encourage active participation in economic organisation, management and
productivity (s 7(f)).
The Companies Act also seeks to encourage the efficient and responsible management of
companies (s 7(j)). Sound management of companies prevents corporate collapses due to
mismanagement that may also have dire consequences on society.
The Companies Act provides for non-profit companies that are incorporated for social activities,
public benefits, cultural activities or group interests.
Corporate activities may affect a wide circle of stakeholders. As such, the Companies Act has
extended locus standi to a broad category of stakeholders (not only company shareholders) to
enforce its provisions and to seek redress where company directors have abused their position,
,for example, in the application to declare a director delinquent or under probation (s 162). Such
stakeholders may include directors, prescribed officers, trade unions or another representative of
employees.
The Companies Act requires certain categories of companies to appoint a social and ethics
committee to monitor the company’s activities with regard to matters relating to: social and
economic development, good corporate citizenship, the environment, health and public safety,
consumer relationships, and labour and employment issues.
1.2 Shareholders’ resolutions must usually be voted on at properly constituted meetings of the
company's shareholders. However, the Companies Act 71 of 2008 provides for an exception to this
general rule. Explain what this exception under the Companies Act 71 of 2008 entails.
To answer this question successfully, students had to indicate that unanimous assent entails that
resolutions can be adopted without holding a shareholders meeting, provided that all the shareholders
who were entitled to attend and vote at the meeting, were fully aware of the facts pertaining to the
resolution and that they unanimously assented to the adoption of the resolution. They had to further
indicate that in terms of section 60 of the Act, resolutions can still be adopted without holding a formal
meeting, but the adoption of resolutions by unanimous consent is not required as long as the resolution
is adopted by an ordinary resolution or a special resolution in accordance with the requirements of the
Act and the Memorandum of Incorporation of the company. See your module online letter at learning
unit 1, paragraph 1.11 and your prescribed textbook, paragraph 5.12.
1.3 When it is found that the representative of a company did not have actual authority to represent the
company in an agreement with a third party, the third party may under certain circumstances rely on
the doctrine of estoppel to hold the company liable in terms of the agreement. Briefly state what a third
party should allege and prove in order to hold a company liable in terms of an agreement on the basis of
the doctrine of estoppel
To answer this question, students had to note that a third party should allege and prove that the: •
company intentionally or negligently misrepresented the agent concerned as having the necessary
authority to represent the company 10 • the misrepresentation was made by the company • the third
party was induced to deal with the agent by the misrepresentation • the third party was prejudiced by
the misrepresentation
See your module online letter at learning unit 4, paragraph 4.6.
2.1 Sophie wants to buy shares in Knights Construction Ltd. She does not have money available to do so,
but she offers to sell some construction equipment she had left over from an unsuccessful business to
Knights Construction Ltd. The company agrees to pay R250 000 for the construction equipment. Sophie
, then uses the money to purchase 10 000 shares in Knights Construction Ltd. With reference to the
relevant case law and the Companies 71 of 2008, discuss whether or not the purchase of the
construction equipment would qualify as financial assistance for the purchase of securities in Knights
Construction Ltd.
To answer this question successfully, students had to mention that, in order to ascertain
whether an intended transaction constitutes financial assistance in connection with the
purchase of shares, the transaction should pass two phases. The first phase is whether
the transaction constitutes financial assistance and the second phase is whether the
financial assistance is for the purpose of acquiring shares in a company.
To ascertain whether the transaction qualifies as financial assistance, the
impoverishment test as formulated in the case of Gradwell (Pty) Ltd v Rostra Printers Ltd
1959 (4) SA 419 (A) should be relied upon. The impoverishment test considers whether
a transaction will have the effect of leaving the company poorer, and if so, then financial
assistance was provided.
In Lipschitz NO v UDC Bank Ltd 1979 (1) SA 789 (A), the court held that the
impoverishment test is not the only test for determining whether financial assistance has
been provided, but providing security or otherwise exposing the company to risk will also
qualify as financial assistance. The court further held that if the company buys an asset
from a person in order to enable that person to buy shares in the company, it will depend
on the facts whether this constitutes financial assistance.
Factors that have emerged from case law to assist in this regard, are whether the
company needs the asset in its normal business and whether the company paid a fair
price for it.
To ascertain whether the transaction is for the purpose of acquiring shares in a company,
will depend on the facts of each case.
In terms of section 44 of the Companies Act 71 of 2008, if the person obtained a loan to
purchase shares in a company, and the company stood surety for that loan, it will
GUIIDE
Sivsanker s
Company law - UNISA
Memos included
May 2019
Oct nov 2019
May 2018
Oct 2018
Oct 2017
,LML4806
January/February 2022
QUESTION 1 [20]
1.1 Explain what the principle of corporate social responsibility entails and provide examples of how
this principle is reflected in the Companies Act 71 of 2008.
“Corporate social responsibility” seeks to make companies responsible members of the
community.
It means that businesses have a responsibility towards the societies in which they operate and
that this responsibility needs to be managed.
It is a voluntary commitment by companies to manage their role within society responsibly. The
concept of corporate social responsibility marks a departure from the traditional perception that
the only object of business is to make profits.
Examples:
One of the purposes of the Companies Act is to promote the development of the South African
economy by encouraging transparency and high standards of corporate governance, given the
significant role of enterprises within the social and economic life of the nation (s 7(b)(iii)).
The Companies Act specifically seeks to reaffirm the concept of the company as a means of
achieving economic and social benefits (s 7(d)).
The Companies Act seeks to promote the development of companies within all sectors of the
economy, and to encourage active participation in economic organisation, management and
productivity (s 7(f)).
The Companies Act also seeks to encourage the efficient and responsible management of
companies (s 7(j)). Sound management of companies prevents corporate collapses due to
mismanagement that may also have dire consequences on society.
The Companies Act provides for non-profit companies that are incorporated for social activities,
public benefits, cultural activities or group interests.
Corporate activities may affect a wide circle of stakeholders. As such, the Companies Act has
extended locus standi to a broad category of stakeholders (not only company shareholders) to
enforce its provisions and to seek redress where company directors have abused their position,
,for example, in the application to declare a director delinquent or under probation (s 162). Such
stakeholders may include directors, prescribed officers, trade unions or another representative of
employees.
The Companies Act requires certain categories of companies to appoint a social and ethics
committee to monitor the company’s activities with regard to matters relating to: social and
economic development, good corporate citizenship, the environment, health and public safety,
consumer relationships, and labour and employment issues.
1.2 Shareholders’ resolutions must usually be voted on at properly constituted meetings of the
company's shareholders. However, the Companies Act 71 of 2008 provides for an exception to this
general rule. Explain what this exception under the Companies Act 71 of 2008 entails.
To answer this question successfully, students had to indicate that unanimous assent entails that
resolutions can be adopted without holding a shareholders meeting, provided that all the shareholders
who were entitled to attend and vote at the meeting, were fully aware of the facts pertaining to the
resolution and that they unanimously assented to the adoption of the resolution. They had to further
indicate that in terms of section 60 of the Act, resolutions can still be adopted without holding a formal
meeting, but the adoption of resolutions by unanimous consent is not required as long as the resolution
is adopted by an ordinary resolution or a special resolution in accordance with the requirements of the
Act and the Memorandum of Incorporation of the company. See your module online letter at learning
unit 1, paragraph 1.11 and your prescribed textbook, paragraph 5.12.
1.3 When it is found that the representative of a company did not have actual authority to represent the
company in an agreement with a third party, the third party may under certain circumstances rely on
the doctrine of estoppel to hold the company liable in terms of the agreement. Briefly state what a third
party should allege and prove in order to hold a company liable in terms of an agreement on the basis of
the doctrine of estoppel
To answer this question, students had to note that a third party should allege and prove that the: •
company intentionally or negligently misrepresented the agent concerned as having the necessary
authority to represent the company 10 • the misrepresentation was made by the company • the third
party was induced to deal with the agent by the misrepresentation • the third party was prejudiced by
the misrepresentation
See your module online letter at learning unit 4, paragraph 4.6.
2.1 Sophie wants to buy shares in Knights Construction Ltd. She does not have money available to do so,
but she offers to sell some construction equipment she had left over from an unsuccessful business to
Knights Construction Ltd. The company agrees to pay R250 000 for the construction equipment. Sophie
, then uses the money to purchase 10 000 shares in Knights Construction Ltd. With reference to the
relevant case law and the Companies 71 of 2008, discuss whether or not the purchase of the
construction equipment would qualify as financial assistance for the purchase of securities in Knights
Construction Ltd.
To answer this question successfully, students had to mention that, in order to ascertain
whether an intended transaction constitutes financial assistance in connection with the
purchase of shares, the transaction should pass two phases. The first phase is whether
the transaction constitutes financial assistance and the second phase is whether the
financial assistance is for the purpose of acquiring shares in a company.
To ascertain whether the transaction qualifies as financial assistance, the
impoverishment test as formulated in the case of Gradwell (Pty) Ltd v Rostra Printers Ltd
1959 (4) SA 419 (A) should be relied upon. The impoverishment test considers whether
a transaction will have the effect of leaving the company poorer, and if so, then financial
assistance was provided.
In Lipschitz NO v UDC Bank Ltd 1979 (1) SA 789 (A), the court held that the
impoverishment test is not the only test for determining whether financial assistance has
been provided, but providing security or otherwise exposing the company to risk will also
qualify as financial assistance. The court further held that if the company buys an asset
from a person in order to enable that person to buy shares in the company, it will depend
on the facts whether this constitutes financial assistance.
Factors that have emerged from case law to assist in this regard, are whether the
company needs the asset in its normal business and whether the company paid a fair
price for it.
To ascertain whether the transaction is for the purpose of acquiring shares in a company,
will depend on the facts of each case.
In terms of section 44 of the Companies Act 71 of 2008, if the person obtained a loan to
purchase shares in a company, and the company stood surety for that loan, it will
