Laes5111 Mo

IIE Learn Module Outline LAES5111
Law of Enterprise Structures

LAES5111
MODULE OUTLINE 2022
(First Edition: 2018)
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© The Independent Institute of Education (Pty) Ltd 2022 Page 1 of 39

Table of Contents
Table of Contents ....................................................................................................................... 2
Introduction ............................................................................................................................... 3
Using this Module Outline .......................................................................................................... 4
This Module on Learn ................................................................................................................. 5
Icons Used in this Document and on Learn ................................................................................ 6
Module Resources ...................................................................................................................... 7
Assessments ............................................................................................................................. 10
Module Pacer ........................................................................................................................... 13
Glossary of Key Terms for this Module .................................................................................... 33

Introduction
The purpose of this module is to introduce you to the South African law of business enterprises
and the different forms of enterprise structures commonly found in South Africa, i.e.,
partnerships, companies, close corporations and business trusts.
After successfully completing this module, you should be able to match a prospective business’
objectives and area of operation with the most appropriate vehicle (legal entity) for that type of
enterprise.
This is a first-year module and is not intended to make you experts in the field of enterprise
law/corporate law. It will, however, provide you with more than just the basic background
knowledge with respect to the various entities with which business may be carried on in South
Africa.
The purpose of this module is two-fold: Firstly, to provide an entry-level view of the
fundamentals of South African corporate law, and secondly, to lay the groundwork for both law
modules (such as Corporate Governance) and non-law modules (such as Financial Accounting)
that you may encounter throughout the programme of your further studies.
Traditionally, company law has often been considered a demanding and complex subject. The
fact that the course is presented here as a first-year module should not make you think of it as
a walkover – that would be a mistake.
It is therefore important that you start working from the word get-go. The exercises, activities
on Learn and online quizzes in particular are very important: Both the test and examination
papers will, to a substantial degree, rely on the material covered in the various exercises,
activities ICE tasks and so forth.
We wish you all the best; we hope that you will enjoy this module; and we hope you learn a great
deal that will be useful to you in your future studies and careers.

Using this Module Outline

This module outline has been developed to support your learning. Please note that the
content of this module is on Learn as well as in the prescribed material. You will not succeed
in this module if you focus on this document alone.
● This document does not reflect all the content on Learn, the links to difference resources,
nor the specific instructions for the group and individual activities.
● Your lecturer will decide when activities are available/open for submission and when these
submissions or contributions are due. Ensure that you take note of announcements made
during lectures and/or posted within Learn in this regard.

This Module on Learn

Learn is an online space, designed to support and maximise your learning in an active manner.
Its main purpose is to guide and pace you through the module. In addition to the information
provided in this document, you will find the following when you access Learn:
● A list of prescribed material;

● A variety of additional online resources (articles, videos, audio, interactive graphics, etc.)
in each learning unit that will further help to explain theoretical concepts;
● Critical questions to guide you through the module’s objectives;
● Collaborative and individual activities (all of which are gradable) with time-on-task
estimates to assist you in managing your time around these;
● Revision questions, or references to revision questions, after each learning unit.
Kindly note:
● Unless you are completing this as a distance module, Learn does not replace your
contact time with your lecturers and/or tutors.
● LAES5111 is a Learn module, and as such, you are required to engage extensively with
the content on the Learn platform. Effective use of this tool will provide you with
opportunities to discuss, debate, and consolidate your understanding of the content
presented in this module.
● You are expected to work through the learning units on Learn in your own time –
especially before class. Any contact sessions will therefore be used to raise and address
any questions or interesting points with your lecturer, and not to cover every aspect
of this module.
● Your lecturer will communicate submission dates for specific activities in class and/or
on Learn.

Icons Used in this Document and on Learn

The following icons are used in all your modules on Learn:
Icon Description
A list of what you should be able to do after working through the

learning unit.
Specific references to sections in the prescribed work.
Questions to help you recognise or think about theoretical concepts to

be covered.
Sections where you get to grapple with the content/theory. This is

mainly presented in the form of questions which focus your attention
and are aimed at helping you to understand the content better. You
will be presented with online resources to work through (in addition to
the textbook or manual references) and find some of the answers to
the questions posed.
Opportunities to make connections between different chunks of

theory in the module or to real life.
Real life or world of work information or examples of application of

theory, using online resources for self-exploration.
You need to log onto Learn to:
• Access online resources such as articles, interactive graphics,

explanations, video clips, etc. which will assist you in mastering
the content; and
• View instructions and submit or post your contributions to
individual or group activities which are managed and tracked on
Learn.

Module Resources
Prescribed Material Davis, D., Geach, W., Mongalo, T. et al. 2019. Companies and other
(PM) for this Module business structures. 4th edition. Oxford University Press. ISBN:
978-019-0745721.
Recommended Please note that a number of additional resources and links to

Readings, Digital, and resources are provided throughout this module on the Learn
Web Resources platform. You are encouraged to engage with these as they will
assist you in mastering the various objectives of this module. They
may also be useful resources for completing any assignments. You
will not, however, be assessed under examination conditions on
any additional or recommended reading material.
Cassim, FHI, Cassim MF et al. 2012. The Law of Business Structures.

1st edition. Juta. ISBN: 978-0-7021-9548-8.
Some useful web links:
● Juta legal-resource database accessible through the IIE

Library on VC Learn under E-shelf, law resources.
● The Southern African Legal Information Institute publishes
legal information for free public access which comprises
mainly of case law and legislation from South Africa
available at: http://www.saflii.org/ [Accessed 26 November
2021].
● Companies and Intellectual Property Commission’s (CIPC’s)
website available at: http://www.cipc.co.za [Accessed 26
November 2021].
● Download the companies Act, 2008 at
http://www.info.gov.za/view/DownloadFileAction?id=98894
[Accessed 26 November 2021].
● The South African Institute of Chartered Accountants’
(SAICA) guide to the Companies Act 71 of 2008
http://www.saica.co.za [Accessed 26 November 2021].
● Independent Regulatory Board for Auditors (IRBA) available
at: http://www.irba.co.za [Accessed 26 November 2021].
● Download or view online the Grindrod Ltd.’s annual report
for 2012 (alternatively, the most recent report is available
at: http://www.grindrod.co.za/Pages/AnnualReport
[Accessed 26 November 2021].

● Find the Close Corporations Act 69 of 1984 on the Jutastat

service in your campus library. You may also locate the Act
directly on the internet, for example at:
http://www.justice.gov.za/legislation/acts/1984-069-
ccorp.pdf [Accessed 26 November 2021].
Find the Trusts Property Control Act 57 of 1988 at

http://www.gov.za/documents/trust-property-control-act-18-may-
2015-1117/act-1988-57.pdf [Accessed 2 February 2022].
Module Overview You will find an overview of this module on Learn under the
Module Information link in the Course Menu.
Assessments Find more information on this module’s assessments in this
document and on the Student Portal.
IMPORTANT NOTE:
All references to the Companies Act are to the Companies Act 71 of 2008, unless specifically
indicated otherwise.

Module Purpose
This module serves to introduce students to the different forms of enterprise structures
commonly found in South Africa, i.e., partnerships, companies, close corporations and
business trusts. On successfully completing this module, students should be able to match a
prospective business’ objectives with the most appropriate vehicle (legal entity) for that kind
of business.
Module Outcomes
Demonstrate knowledge and understanding of the language, terminology,
MO1
concepts and principles of the law of enterprise structures.
Apply the principles of the law of enterprise structures to practical problem
MO2 situations commonly encountered in the management of various business
entities.
Evaluate the elements of the law of enterprise structures in the context of
MO3 matching the most appropriate enterprise structure with the most appropriate
vehicle (legal entity) for that kind of business.

Assessments
Integrated Curriculum Engagement (ICE)
Minimum number of ICE activities to complete 4
Weighting towards the final module mark 10%
Formatives Take Home Test 1 Take Home Test 2
Weighting 25% 30%

Duration 1 hour (21 hours to submit) 1 hour (21 hours to submit)
Total marks 60 60
Write/Submit after LU 2 LU 3
Learning Units covered LU 1 -2 LU 3-5
Open book/ closed book Open book Open book
Resources required Prescribed material Prescribed material
Summative Take Home Examination

Weighting 35%
Duration 2 hours (21 hours to submit)
Total marks 120
Open/Closed book Closed book
Resources required Prescribed material
Learning Units covered All

Assessment Preparation Guidelines

Format of the Assessment Preparation Hints
Take Home Test 1
The test for this module will ● Ensure that you work through all the relevant activities,
assess your understanding exercises and revision questions on Learn and in your
of Learning Units 1 and 2 of textbook.
this module, and will ● Brainstorm possible questions based on the learning
include a series of short and outcomes and objectives provided. Then complete
medium-length questions, these as practise-tests.
as well as one or more ● During both your preparation for the test and during
longer questions. You will the test itself, pay attention to the instruction words
be expected to apply, as (like list, apply, describe etc.) and to the mark
well as recall information as allocations of each question to ensure that you are able
per your objectives for to provide the correct depth and detail in your answers.
these learning units. ● Make sure that you have mastered the objectives in
Learning Units 1 and 2..
Take Home Test 2
The second test for this ● Ensure that you work through all the relevant activities,
module will assess your exercises and revision questions on Learn and in your
understanding of Learning textbook.
Unit 3, 4 and 5 of this ● Brainstorm possible questions based on the learning
module, and will include a outcomes and objectives provided. Then complete
series of short and medium- these as practise-tests.
length questions, as well as ● During both your preparation for the test and during
one or more longer the test itself, pay attention to the instruction words
questions. You will be (like list, apply, describe etc.) and to the mark
expected to apply, as well allocations of each question to ensure that you are able
as recall information as per to provide the correct depth and detail in your answers.
your objectives for these ● Make sure that you have mastered the objectives in
learning units. Learning Units 3, 4 and 5.

Take Home Examination

The examination will assess ● Make sure that you practise answering the sample
all learning units in this questions in the brief so that you become familiar with
module and will include the kinds of questions likely to appear in the examination
both theory and itself.
application-type questions. ● Ensure that you work through all the activities, exercises
and revision questions on Learn and in your textbook.
You will be expected to You must have completed close readings of your
respond to short, theory- prescribed material to ensure that you have prepared
based questions, as well as adequately for your examination for this module.
to three literary analysis ● Pay close attention to the instruction words (like list,
essay-type questions). apply, describe, analyse etc.) and to the mark allocations
of each question to ensure that you provide the correct
depth and detail in your answers.
● Make sure that you are comfortable in responding to all
the objectives for all learning units.
● Brainstorm possible questions based on the learning
outcomes and objectives provided.

Module Pacer
Code Programme Contact Sessions Credits
LAES5111 BAC2; BAA2 48 Lecture+ 5 12
Learn
53
Learning Unit 1 Legal personality, types of company and company formation
Overview:
Any individual can embark on a business venture and engage in trade in their personal
capacity, in their own name. However, there are a number of reasons that an entrepreneur
might instead choose to form a company. Under South Africa law, there are multiple types of
companies that can be registered, each with different trading and governance conditions. An
entrepreneur will choose to register a company type that best suits the nature of their
business venture as well as their personal interests and capacity.
In this learning unit, we will look at the differentiating features of both a sole trader and a
partnership, and we will discuss the application of relevant legislation in each instance. The
concept of legal personality will be explained, specifically how some companies can operate
as independent legal entities to the entrepreneurs that formed them, and how entrepreneurs
have limited liability over the company’s trade and results thereof. The legal practices
governing different types of partnerships will be explored, including formation, authority,
representation, and dissolution.
Different types of companies and how these companies are incorporated and registered
under the Companies Act of South Africa will be investigated. Processes relating to company
formation will be discussed, with particular attention paid to notice of incorporation,
memorandum of incorporation, and pre-incorporation. Legal nuances pertaining to “ring-
fenced” companies will be explained.
Finally, this learning unit will discuss questions of capacity and representation, specifically in
relation to the concepts of ultra vires and the Turquand rule and will explain the Common Law
principles that apply to companies registered under and governed by the Companies Act.
If you are a contact student, you will likely spend 8 sessions on this learning unit.
Please work through Themes 1, 2, 3, 4 and 5 on Learn, together with the relevant sections of
your prescribed source/s. To ensure that you are working towards mastering the objectives
for this learning unit, please also ensure that you complete the following activities on Learn:

Activity Estimated
Time on Task
1.1.1 Understanding Partnerships 30 minutes
1.2.1 Legal Personality and the corporate veil 90 minutes
1.3.1 The essential characteristics of companies 90 minutes
1.4.1 Memorandum of Incorporation 90 minutes
1.5.1 Capacity and representation 30 minutes
Estimated total time for this learning unit’s activities 5 hours 30 min
The challenge you may experience in this learning unit relates to the new legal concepts and
terminology you will encounter in this module. Make sure you understand the language and
terminology used in this course. A useful tip would be to start your own a glossary of new
terms and to update it as you work through the module.

Learning Unit 1: Theme Breakdown

Sessions: Theme 1: Sole trader and partnership Prescribed Material (PM)
1–8
LO1: Discuss the relevant factors to be PM: Chapter 2 para 2.1 and
Related taken into consideration when Chapter 17
Outcomes: deciding on which business
MO001 entity is the most appropriate
MO002 for a given business purpose.
MO003 LO2: Define ‘sole trader’ and
‘partnership’.
LO3: Apply the law as it relates to how
a partnership is formed; the
essentialia, as well as the
naturalia for a partnership; the
requirement that the
partnership should be carried on
for the joint benefit of the
parties; the legal nature of the
partnership and the relationship
between partners.
LO4: Differentiate between the
various types of partnerships.
LO5: Discuss the authority of partners
to contract with third parties,
the authority of a partner to
bind a partnership and the
personal liability of partners.
LO6: Discuss the dissolution of a
partnership.
Theme 2: Legal personality PM: Chapter 2
LO7: Apply the law as it relates to the
legal personality of business
entities, considering which
entities have legal personality and
which not, the meaning of ‘legal
person’ and ‘limited liability’ and
when a company and a Close
Corporation become separate
legal entities.

LO8: Explain what is meant by the

incorporation and registration
of a company.
LO9: Apply the concept of the
“piercing/lifting of the corporate
veil” in these instances:
● The directors are held

personally liable for debts;
● With regards to a restraint
of trade agreements; to a
set of facts.
LO10: Apply the key features of a
company’s juristic personality to
a set of facts.
Theme 3: Types of Companies PM: Chapter 2
LO11: Discuss the various types of
companies that may be
registered in terms of the
Companies Act.
various companies created by
the Companies Act and between
an ‘external’ and a
‘domesticated’ company.
Theme 4: Company formation PM: Chapter 2
processes of incorporation and
registration of a company.
notice of incorporation (NOI)
and the Memorandum of
Incorporation (MOI).
LO15: Discuss the importance of the
MOI, the constitutive
documents of a company (the
MOI & Board of Directors’
(BOD) rules), the unalterable,
alterable and “default
provisions” in the MOI.

LO16: Explain the meaning of “ring-

fenced/(RF) companies” and
when a company will be a ring-
fenced company.
LO17: Explain when and how a
company’s MOI may/must be
amended, including the
requirements for such
amendments.
LO18: Apply to a set of facts, when a
company may enter into a pre-
incorporation contract, as well
as the requirements for such
entry into a pre-incorporation
contract.
LO19: Discuss the incorporation
process and when a company
will be bound to a pre-
incorporation contract.
LO20: Apply company law as it
relates to:
o a company’s registration
number and registration
certificate;
o the pre-incorporation
contract;
o the considerations when
deciding on a
prospective company’s
name;
o and the legal capacity of
a company.
Theme 5: Capacity and representation PM:
LO21: Apply the following concepts: Chapter 2
the ultra vires doctrine, the
doctrine of constructive notice
and the Turquand rule to a set
of facts.
LO22: Explain how the Companies
Act has changed the Common
Law position regarding the

ultra vires doctrine, the

doctrine of constructive notice
and the Turquand rule.
LO23: Explain when the Common
Law principles in respect of the
above concepts still apply after
the entry into force of the
Companies Act.

Learning Unit 2 Corporate Finance: Equity, Debt Instruments, Distributions and

Securities Registration
Overview:
While corporate finance is used in multiple contexts to describe the financial practices of
business, it is important to consider this concept within the field of company law. Companies,
by their very nature, have complex financial needs. For the purposes of business, it is therefore
important to know not only the basic elements of corporate finance but also to have an
understanding of the unique position of the business entity known as a company.
In this learning unit, we will look at the legal definitions of key concepts within Corporate
Finance, including securities, debt instruments, equity, and shares, and will explore how these
different concepts interact with one another. We will then consider the meaning of solvency
and liquidity, and why it is important to test for these two conditions when establishing the
rights of a company to engage in specific financial transactions.
This learning unit will further differentiate between share types, looking at where in the
corporate world each share type is found, as well as how the law and the company’s
Memorandum of Incorporation (MOI) governs the use, rights, function and behaviour of the
different share types. The issuing of shares, and the conditions thereof, will also be explained.
Finally, we will explore the concept of securities in further depth, with particular focus on the
subscription, distribution and transfer of securities, including how this is recorded on a
securities register and how share certificates are issued.
Please work through Themes 1 and 2 on Learn, together with the relevant sections of your
prescribed source/s. To ensure that you are working towards mastering the objectives for this
learning unit, please complete the following activities on Learn:
Activity Estimated Time
on Task
2.1.1 Solvency and Liquidity 120 minutes
Estimated total time for this learning unit’s activities 2 hours
The Terminology and concepts engaged within this Learning Unit can be very confusing for
someone who is encountering this topic for the first time. You are urged to read and re-read
your textbook and consult other (re)sources so as to familiarise yourself with this very
important part of the curriculum. Add new terms to the glossary you started in Learning Unit
1.


Sessions: Theme 1: Corporate finance: Equity, debt Prescribed Material (PM)
19- 14 instruments and distributions
LO1: Define the terms: “corporate PM: Chapter 4 pp. 84-89
finance”, securities, debt Chapter 8
instruments and equity;
LO2: Differentiate between debt and
equity financing;
LO3: Apply the law as it relates to the
meaning and nature of shares and
the types of shares that are
commonly found in the corporate
world;
LO4: Apply the Solvency and Liquidity
test, considering the operation,
function and application of the test
to a set of facts.
Related Theme 2: Securities registration and PM: Chapter 8
Outcomes: transfer
MO001 LO5: Differentiate between authorised,
MO002 issued and unissued shares as well
as certificated and uncertificated
shares by providing examples of the
rights attached to classes of shares
and which may not be altered by the
MOI;
LO6: Explain what is meant by the
‘consideration’ to be received by the
company in the context of the
issuing of shares and the conditions
under which the issuing of shares
will require shareholder approval.
LO7: List the conditions a company
needs to comply with in order to
provide financial assistance to
persons wishing to subscribe for its
securities;
LO8: List the forms a distribution may
take;

LO9: Explain what is meant by a

securities register, the application of
pre-emptive rights as it applies to
shares and how shares are
transferred;
LO10: Discuss the nature of and the
requirements of a share certificate.

Learning Unit 3 Shareholder and Company Meetings
Overview:
Companies in South Africa are held accountable not only by legislation and regulatory bodies,
but also internally by their own shareholders. These internal “watchdogs” have both rights
and duties to act in ways that support the company, while ensuring that good governance and
best practices are implemented. There are also some business transactions that may only be
completed after authorisation by the company’s shareholders.
This learning unit explores the forum that allows for the duties and rights of shareholders to
be exercised: meetings. Shareholder meetings are regulated in terms of s 62 of the Companies
Act. Shareholders need not be physically present but can nominate a proxy to vote on their
behalf.
In this learning unit, we will examine the differences between different types of motions and
resolutions and will outline the requirements for shareholder meetings to be constituted in a
legal and valid manner. We will also look at the matters that must be discussed at an annual
general meeting (AGM), as well as the differences between general and special resolutions,
and under which circumstances each one is required.
Activity Estimated Time on Task

3.1.1 Shareholder and company meetings 30 minutes
3.1.2 Notice of Shareholder’s meeting 120 minutes
3.2.1 Ordinary and special resolutions 30 minutes
The terminology and concepts engaged within this Learning Unit can be very confusing for
someone who is encountering this topic for the first time. You are urged to read and re-read
your textbook and consult other (re)sources so as to familiarise yourself with this very
important part of the curriculum. Include the new terminology and concepts in your glossary
of terms.


Sessions: Theme 1: Shareholder and company Prescribed Material (PM)
15 -18 meetings
LO1: Define the terms: Share; PM: Chapter 5
Shareholder; AGM; Record date;
Quorum; Proxy and Casting vote;
LO2: Differentiate between a motion and
a resolution.
LO3: Discuss the requirements to call a
valid meeting of a company.
LO4: Explain the importance of the
record date.
LO5: Describe under which conditions a
shareholders meeting must be
convened, the contents the notice
of the meeting must contain and
how shareholders may take a
decision without convening a
meeting.
LO6: Explain the matters that must be
discussed at annual general
meetings.
Related Theme 2: Ordinary and special resolutions PM: Chapter 5
Outcomes: LO7: Differentiate between ordinary and
MO001 special resolutions of the
MO002 shareholders in meeting.
LO8: List the circumstances where a
special resolution of the
shareholders in meeting is required.
LO9: Explain the quorum required for an
ordinary resolution and a special
resolution respectively, as provided
for in the Companies Act.
LO10: Assess the degree of flexibility a
company has (in its MOI) to allocate
voting rights in respect of shares or
classes of shares.

Learning Unit 4 Directors and Board Committees
Overview:
A company, while a legal person in and of itself, still requires agents to act on its behalf. The
board of directors of the company fulfils this function. The Companies Act 71 of 2008, the
company’s memorandum of incorporation (MOI), and the King IV Report offer relevant
regulations that need to be adhered to when acting on behalf of the company.
In this learning unit we will explore what is meant by a director, and how directors can be
appointed to the board. The role and function of directors will be considered, particularly in
relation to their participation in board and audit committees. We will draw on the Companies
Act as well as the King IV Report to determine what constitutes good governance principles
and recommendations. We will also examine the importance of independence in relation to
the board of directors and the functions that they oversee.

on Task
4.1.1 Fiduciary duties 120 minutes
4.2.1 The creation and function of board and audit committees 30 minutes
4.2.2 Board and audit committees 90 minutes


Sessions: Theme 1: Directors and Board Prescribed Material (PM)
19 – 26 Committees
PM:
LO1: Define the concepts of a director and Chapter 6
the board of directors (BOD);
LO2: Differentiate between the different
directors that one may encounter in a
company;
LO3: Briefly discuss the King 4
requirements regarding the
composition of the BOD;
LO4: Discuss the default position
regarding the minimum number of
directors that the various types of
companies may appoint and to what
extent, if allowed, may this default
position be amended by the MOI;
LO5: Apply the business judgement test
and the law as it relates to all duties
of directors to a set of facts;
LO6: Discuss the instances where
directors may incur liability as
provided for in the Companies Act
and whether or not the company
may take out liability insurance on
behalf of its directors.
LO7: Explain the concepts ‘fiduciary duty’,
‘duty of reasonable care’ and
‘conflict of interest’ in the context of
a director’s responsibilities.
LO8: Differentiate between disqualified
person, an ineligible person and a
delinquent person insofar as it
relates to the appointment and
removal of directors.
LO9: Explain when a director may be
declared delinquent, placed on
probation and the effect of such a
declaration.

Related Theme 2: Board and audit committees PM: Chapter 6

Outcomes: LO10: Describe board committees.
MO001 LO11: Explain the appointment and
MO002 function of the audit committee.

Learning Unit 5 Auditors and the Company Secretary
Overview:
Subjecting the financial statements of a company to the scrutiny of an auditor is an important

mechanism through which the interests of key stakeholders (such as the shareholders and
creditors) may be protected from harm caused by the ineptitude, dishonesty or mistakes of
the company’s officers. (Davis et al, 2013).
In this learning unit, we will explore the roles of auditors and the company secretary. The
rights and functions of an auditor and audits will be explained, and distinguished from an audit
review, and we will examine the importance of independence as it relates to the audit.
We will also investigate the role of a company secretary as chief administrative officer, as well
as the conditions of appointment of the company secretary. We will further identify which
companies are required to appoint a company secretary and the function of the company
secretary. Finally, we will look at the primary duties of the company secretary role.

on Task
5.1.1 Auditors and independence 120 minutes
5.1.2 Criteria for the appointment of an auditor 30 minutes
5.2.1 The Company Secretary 60 minutes
Estimated total time for this learning unit’s activities 3 hours 30
minutes


Sessions: Theme 1: Auditors Prescribed Material (PM)
27 – 32
LO1: Differentiate the processes of audit PM:
and audit review and between the PM: Chapter 13
companies must have their financial Read only:
statements audited and which may Chapter 7 para 7.14 only
only have their statements
reviewed.
LO2: Define an auditor as provided for in
s 1 of the Auditing Profession Act 26
of 2005.
LO3: Define ‘audit’ in the context of
financial statements and company
law.
LO4: Describe the rights and restricted
functions of an auditor.
LO5: Explain who may not be appointed
as an auditor of a company and the
concept of the “rotation of
auditors”, and why the Companies
Act requires this rotation.
LO6: Discuss the duties of an audit
committee.
Related Theme 2: Company Secretary PM: Paragraph 13.
Outcomes: LO7: Discuss the duties of the company
MO001 secretary.
MO002

Learning Unit 6 Remedies, enforcement and alternative dispute resolution
Overview:
The Companies Act 61 of 1973 relied heavily on criminal sanctions in order to ensure
compliance with its provisions. The Companies Act 71 of 2008, however, takes another tack
and largely (although not entirely) decriminalises company law (Davis et al, 2013)
Criminal sanctions are now replaced with civil remedies in the Companies Act 2008, in terms
of which the persons injured are given the opportunity to seek financial and other redress.
One of the reasons for the new approach is that the sanctions of the 1973 Act were seldom
enforced – and were therefore somewhat ‘toothless’ and ineffectual deterrents.
In this learning unit, we will explore some of the instances where disputes arise in companies,
including mergers and acquisitions, insider trading, and business rescue. We will outline who
the affected parties are in each instance and what recourse they have to resolve the dispute.
We will investigate different remedies and models of enforcement of those remedies.
We will also cover the basic principles of alternative dispute resolution, and differentiate
between arbitration, mediation, and conciliation.

on Task
6.1.1 Non-criminal (civil) remedies 90 minutes
6.2.1 Alternative dispute resolution 30 minutes
6.2.2 Alternative dispute resolution in terms of the Companies Act 90 minutes
minutes


Sessions: Theme 1: Remedies and enforcement Prescribed Material (PM)
33-40
LO1: Apply the following concepts: to a PPM: Chapter 10, 11 and 12
set of facts:
o Fundamental transaction
o Regulated company
o Affected transaction
o Insider trading
o Insider
o Inside information
o Financially distressed
o Affected person
o Business rescue proceedings
o Compromise
LO2: Name the three fundamental
transactions and provide an
illustrative example of each.
LO3: Apply the shareholders’ appraisal
remedy to a set of facts.
LO4: Explain the application of business
rescue proceedings
LO5: Describe the new approach of the
Companies Act, which aims to
decriminalise company law.
LO6: Classify the non-criminal civil
remedies available under the
Companies Act.
LO7: Discuss the remedies available to
shareholders who are victims of
oppressive or unfairly prejudicial
conduct.
Related Theme 2: Alternative Dispute Resolution PM: Chapter 14
Outcomes: LO8: Discuss Alternative Dispute
MO001 Resolution (ADR) in the context of
MO002 company law and the Companies
Act.

Learning Unit 7 Close corporations and business trusts
Overview:
In addition to the more traditional company types that have been explored in previous
themes, close corporations and business trusts also serve as forms of business entity.
In this learning unit we will explore what characterizes a close corporation, and the rights and
responsibilities of the members of a close corporation. The impact of the Companies Act on
close corporations will also be explained.
We will further describe the different trusts that individuals are able to form in South Africa
and differentiate the processes of trust formation. We will also outline the roles of different
parties involved in setting up, maintaining, and benefiting from a trust.

on Task
7.1.1 Personal liability of member of a Close Corporation 90 minutes
7.2.1 Business Trusts 120 minutes
minutes


Sessions: Theme 1: Close corporations Prescribed Material (PM)
41– 48
LO1: Describe the characteristics of a PM: Chapter 16
close corporation (CC).
LO2: Discuss the meaning of members,
the legal position of the individual
members of a CC, who those
members may be and what a
‘member’s interest’ in a CC is.
LO3: Explain why the ultra vires doctrine
does not apply to CCs.
LO4: Discuss the impact of the Companies
Act on CCs.
LO5: Apply the ‘fiduciary duties’ and ‘duty
of care and skill’ of members to a
set of facts.
LO6: Explain the internal relations
between members inter se.
LO7: Identify the constitutive document/s
of a CC.
LO8: Apply the members’ power to act
and contract on behalf of the CC,
the members’ potential liability
(personal, joint, and joint and
several) and the personal liability of
members to a set of facts.
Related Theme 2: Business trusts PM: Chapter 18
Outcomes: LO9: Define a trust.
MO001 LO10: Name the three parties to a trust
MO002 and explain each of their roles.
MO003 LO11: Apply the characteristics of a
trust to a set of facts.
LO12: Differentiate between the methods
of creating a trust.

Glossary of Key Terms for this Module

Term Definition My Notes
Agent Person (agent) authorised to
represent and legally bind another
person (the principal) in the
principal’s legal transaction with a
third party.
Alternative Resolution of disputes without
Dispute recourse to the courts (without
Resolution litigation). The private resolution of
(ADR) civil disputes utilising, for example,
mediation, arbitration or
conciliation.
Annual Annual meeting of the shareholders
General of a company at which certain
Meeting resolutions must be passed.
(AGM)
Appeal Application to a higher court from a
lower court for the setting-aside of
or the amending of a decision of the
lower court on the grounds that it
was wrongly decided with respect to
either the law or the facts or both.
Arbitration Decision by an impartial third party
and the settling thereby of a dispute
between two other parties. The
disputants are obliged to adhere to
the arbitrator’s decision as it is final
and binding. As such, one cannot
appeal against an arbitration award.
One may, however, take such an
award on review.
Audit A systematic examination of the
financial position and accounting
records of an enterprise by a
qualified auditor. An audit is held so
as to form an audit opinion on
whether the financial statements of

the company fairly represent the

firm’s performance and position.
Authorised Number and classes of shares that
shares the MOI of a company allows the
company to issue to investors.
Beneficiaries In the context of trusts, the
person(s) who benefits from the
trust object, usually by way trust
capital or income being distributed
to them.
Board of Collective of directors who have the
directors responsibility for the profitable
running of the company. The board
of directors is concerned with
overall strategy and responsible for
the direction and control of a
company.
Capacity The legal competency to perform an
act. Where a company acts beyond
its legal capacity (beyond for
example what the MOI would
permit) the company is said to act
ultra vires.
Consideration Something given or taken in return
for something else – a quid pro quo.
Ss sand s40(2) of the Companies Act
state that before a company issues
shares, the board of directors must
decide on the consideration for
which those shares will be issued.

Term Definition My notes

Constructive Knowledge that a person is deemed
notice (assumed) to have received.
Corporate Method by which company assets
finance are financed – usually a combination
of debt and equity (shares).
Debenture A long-term loan owed by a company
and reflected in a document issued
by that company wherein it
acknowledges that debt.
Deferred Class of shares often issued to the
shares founders of the company, and which
defers payment of dividends until all
other shareholders have received
theirs.
Distribution Defined in ss1 of Companies Act. A
transfer of money or assets (not its
own securities) to its shareholders.
Equity In a non-company law sense, it
means ‘fairness’. In a narrower sense
it refers to the money value of
property left over after all debts and
liabilities have been subtracted in an
organisation. In the context of
company law, the amount left over
after all liabilities have been
deducted from the company’s assets.
Essentialia Essential elements of contract that
allows a particular contract to be
classified as of a certain type, for
example a contract of Sale or a
contract of Lease.
Ex officio Someone who is a director simply
director because that person occupies
another formal position or office.
Fiduciary Duty imposed by law on directors
duty and others to act in the best interests
of the company that they have
responsibility for.
Independent Regulatory board established by the
Regulatory Auditing Profession Act 26 of 2005.

Board for
Auditors
(IRBA)
Insolvency When a company’s liabilities exceed
its assets, the company is factually
insolvent.
Inter vivos Trust established when the founder
trust is still alive. Such a trust is created by
means of contract.
Issued share Share capital that has actually been
capital issued to its shareholders in the form
of shares. Issued share capital may
not exceed its authorised share
capital.
Juristic Where a non-human entity (such as a
personality company) is regarded as having legal
rights and duties similar to humans.
Limited Liability of a shareholder to be liable
liability for no more than the price the
shareholder paid for the shares.
Thus, if the company were to suffer
some misfortune, the shareholder
will lose no more than was paid for
the shares; the company carries its
own losses.
Liquidity Ability of a debtor to pay when debts
fall due.
Listed A company listed on the JSE Ltd.
company


Member’s Interest (‘share’) held by a person in
interest a close corporation and always
expressed as a percentage.
(Members’ interest cannot be more
than 100%.)
Minutes of a Written record of a meeting.
meeting
Merger When two or more company’s
combine to become one company or
to establish another company.
MOI Memorandum of Incorporation; a
company’s constitutive document,
together with the directors’ rules, if
applicable.
Nominee Person who is approved to act as the

holder of securities on behalf of
another person(s).
Naturalia Legal consequences of a contract
that flow automatically from a
particular type or class of contract.
Ordinary Residual category of a firm’s shares
shares that does not carry any special class
rights, such as special voting rights or
preferential rights to a dividend.
Participating A class of preference shares where
preference the shareholders share in the
shares distribution of the company’s surplus
profits (if there are any once the
company is liquidated) in addition to
their preferential dividend.
Par value Face value of shares when initially
offered by the company. The
distinction between par value and
no-par value shares was abolished by
the Companies Act.
Perpetual Idea that a company or CC will
succession continue to subsist or exist once its
founders and even their successors
have moved on.

Principal Party for whom an agent acts.

Proxy Person authorised in writing to
represent another at a meeting when
the other person cannot be present.
Ratify To approve or allow something after
the event/fact. In agency,
ratifications is one of the methods in
which authorisation is established.
Securities Securities has a much wider meaning
than merely the shares of a company.
(See s 1 of the Companies Act.)
Share Bundle of personal rights that entitle
the holder to a defined interest in a
company as determined in a
company’s MOI.
Share The authorised share capital of a
capital company, both issued and unissued.
Special Resolution passed by a company’s
resolution shareholders with, unless the
company’s MOI specifies differently,
a 75% majority of the voting rights
exercised on that vote.

Uberrimae Utmost good faith (Latin).

fidei
Ultra vires Rules that apply when a company

doctrine acts outside of the scope of its
powers and competency.
Uncertificated Securities that are not evidence by

securities an actual (paper) document. Shares
that are held and traded
electronically. (See Strate above).
Voting rights Right of a shareholder to vote at

shareholder’s meetings.
(Selected from Davis et al, 2013, pp.443–457).

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IIE Learn Module Outline LAES5111

Law of Enterprise Structures

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Using this Module Outline

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This Module on Learn

● A list of prescribed material;

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Icons Used in this Document and on Learn

A list of what you should be able to do after working through the

Specific references to sections in the prescribed work.

Questions to help you recognise or think about theoretical concepts to

Sections where you get to grapple with the content/theory. This is

Opportunities to make connections between different chunks of

Real life or world of work information or examples of application of

You need to log onto Learn to:

• Access online resources such as articles, interactive graphics,

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Recommended Please note that a number of additional resources and links to

Cassim, FHI, Cassim MF et al. 2012. The Law of Business Structures.

Some useful web links:

● Juta legal-resource database accessible through the IIE

© The Independent Institute of Education (Pty) Ltd 2022 Page 7 of 39

● Find the Close Corporations Act 69 of 1984 on the Jutastat

Find the Trusts Property Control Act 57 of 1988 at

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Formatives Take Home Test 1 Take Home Test 2

Weighting 25% 30%

Summative Take Home Examination

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Assessment Preparation Guidelines

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Take Home Examination

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Learning Unit 1 Legal personality, types of company and company formation

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Learning Unit 1: Theme Breakdown

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LO8: Explain what is meant by the

● The directors are held

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LO16: Explain the meaning of “ring-

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ultra vires doctrine, the

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Learning Unit 2 Corporate Finance: Equity, Debt Instruments, Distributions and

Estimated total time for this learning unit’s activities 2 hours

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Learning Unit 2: Theme Breakdown

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LO9: Explain what is meant by a

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Learning Unit 3 Shareholder and Company Meetings

Activity Estimated Time on Task