Laes7411 Mo

IIE Learn Module Outline LAES7321; LAES7411; BUEL6212
Law of Enterprise Structures

LAES7321
LAES7411
Business Enterprises Law

BUEL6212
MODULE OUTLINE 2024

(First Edition: 2016)
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© The Independent Institute of Education (Pty) Ltd 2024 Page 1 of 46

Table of Contents
Introduction........................................................................................................................................... 3
Using this Module Outline ................................................................................................................... 4
This Module on Learn........................................................................................................................... 5
Icons Used in this Document and on Learn ....................................................................................... 6
Module Resources ................................................................................................................................ 7
Module Purpose.................................................................................................................................. 10
Module Outcomes .............................................................................................................................. 10
Assessments ........................................................................................................................................ 11
Module Pacer ...................................................................................................................................... 14

Introduction
Entrepreneurship is fundamental to the world of commerce: it finds its seeds in the bartering
that took place between people in early times. Although trading has become more complicated
in the 21st century, it is not, in essence, so different from those early transactions. What has
changed fundamentally is the nature of the entities through which entrepreneurs choose to
operate their businesses. It is not a case of “one size fits all”. Various factors need to be taken
into account by the entrepreneur when choosing the structure for the business. The structure
of the business may also need to be changed to accommodate the changing circumstances in
the life cycle of the business.
This module is intended to introduce the various business structures available, and the nature
and characteristics of each structure. Applicable legislation ruling the establishment and
maintenance of the different structures will be considered, as well as the pros and cons of the
different structures under different circumstances, and the circumstances which may lead to
a change or adjustment of the structure.
Companies may be regarded as the structures of choice and, accordingly, a considerable part
of this module will be devoted to understanding the applicable laws; however, partnerships,
close corporations and business trusts will also be studied.
The King Committee published the King Report on Corporate Governance IV (King IV) on 1 No-
vember 2016 which will be applicable in respect of companies with financial years starting on
or after 1 April 2017. King IV replaces King III in its entirety. It has been drafted as a framework,
and consequently provides less detail than King III.
Furthermore, King IV deals with Corporate Governance, which is the subject matter of the
Corporate Administration and Governance module
(COGA7312/GOET7312/COGO8412/CONR8212) offered elsewhere in your studies. Company
law and corporate governance are inextricably linked and it is not always easy to separate
them. As a generalisation, this module will not deal with corporate governance.

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 different 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 announce-
ments 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 esti-
mates 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 con-
tact time with your lecturers and/or tutors.
• LAES7411/LAES7321/ BUEL6212 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 under-
standing of the content presented in this module.
• You are expected to work through the learning units on Learn in your own time – es-
pecially 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:
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 pre-
sented 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 the-

ory, using online resources for self-exploration.
REMEMBER:
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 Ma- Davis, D (ed) 2021 Companies and Other Business Structures in South
terial (PM) for Africa (5th ed; 1st impression) Oxford University Press: Cape Town
this Module ISBN: 9780190758783
Prescribed Readings:
Stokvels
PLEASE NOTE THAT THIS PRESCRIBED READING CAN BE FOUND UNDER

THIS CODE IN THE STUDENT MATERIAL FILE.
Prescribed case • Airport Cold Storage (Pty) Ltd v Ebrahim 2008 (2) SA 303 (C)
law for this • Basson v on-Point Engineers (Pty) Ltd 2012 JDR 2126 (GNP);
module [2012] ZAGPPHC 251
• Braun v Blann and Botha NNO 1984 (2) SA 850 (A)
• Butters v Mncora 2012 (4) SA 1 (SCA)
• Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995
(4) SA 790 (A)
• Crookes NO v Watson 1956 (1) SA 277 (A)
• Cuninghame and another v First Ready Development 249 (associ-
ation incorporated in terms of section 21) 2010 (1) All SA 473
(SCA)
• CyberScene Ltd v I-Kiosk Internet and Information (Pty) Ltd 2003 3
SA 806 (C)
• Da Franca v Exhaust Pro CC [1996] 4 All SA 503 (SE)
• Da Silva and others v CH Chemicals (Pty) Ltd 2008 (6) SA 620 (SCA)
• Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530
• De Jager v Olifants Tin ‘B” Syndicate 1912 AD 505
• Dorbyl Ltd v Vorster 2011 (5) SA 575 (GSJ)
• Fisheries Development Corporation of SA Ltd v Jorgensen 1980 (4)
SA 156 (W)
• Gatenby v Gatenby 1996 (3) SA 118 (E)
• Ghirsi v Timber Developers (Pty) Ltd 2007 (4) SA 536 (SCA)
• Gold Fields Ltd v Harmony Gold Mining Co Ltd 2005 (2) SA 506
(SCA)
• Hülse-Reutter v Gödde 2001 (4) SA 1336 (SCA)
• J & K Timbers (Pty) Ltd t/a Tegs Timbers v GL & S Furniture CC
2005 (3) SA 223 (N)
• Kukama v Lobelo JDR 0663 (GSJ); [201] ZAGP JHC 60
• La Luca Sands Share Block v Barkhan 2010 (6) SA 421 (SCA);
[2010] ZASCA 132

• Land and Agricultural Bank of South Africa v Parker and Others

2005 (2) SA 77 (SCA)
• Livanos v Oates [2012] ZAGPJHC 30
• MMA Architects v Luyanda Mpahlwa [2011] ZAWCHC
• One Stop Financial Services (Pty) Ltd v Neffensaan Ontwikkelings
(Pty) Ltd and Another (20028/14) [2015] ZAWCHC 89
• Pezzutto v Dreyer 1992 (3) SA 379 (A)
• Phillips v Fieldstone Africa (Pty) Ltd [2004] 1 All SA 150 (A)
• Ponelat v Schrepfer 2012 (1) SA 206 (SCA); [2010] ZAWCHC 196
• Robinson v Randfontein Estate Gold Mining Co Ltd 1921 AD 168
• Royal British Bank v Turquand (1856) 6 E&B 327
• Salomon v Salomon & Co Ltd [1897] AC 22 (HL)
Other pre- • DTI South African Company Law for the 21st Century: Guidelines
scribed material for Corporate Law Reform published in GG 26493 GN 183 dated
for this module 23 June 2004
• Business Partners Limited Choosing a legal entity for your business
enterprise 25 July 2012, available at https://www.uscham-
ber.com/co/start/startup/choosing-legal-entity-for-small-business
• SAICA Mandatory Audit Firm Rotation” Discussion Paper: Consid-
ering Mandatory Audit Firm Rotation (MAFR) (and other Related
Measures) as Possible Means of Enhancing Auditor Independence,
available at http://www.saica.co.za/Portals/0/docu-
ments/MAFRDiscussionPaper.pdf?Reference_ID=45018384
• The King IV Report on Corporate Governance for South Africa
2016 (you only need to know the content of the King codes specifi-
cally referred to in this MG or in the prescribed textbook)
Recommended • The following titles include information related to this module and
Additional Read- may be consulted as additional resources. Please note, however,
ing that you will not be tested on any content from these titles.
• Benade, ML (ed) (2008) Entrepreneurial Law (4th ed) LexisNexis:
Durban
• Cassim, FHI (ed) (2012) The Law of Business Structures (2nd im-
pression) Juta: Cape Town
• Delport, P (2014) New Entrepreneurial Law LexisNexis: Durban
• The King III Report on Corporate Governance for South Africa
2009
Digital and web Additional digital resources are also available for this module.
resources
• IODS King IV Report http://www.iodsa.co.za/page/KingIVReport

• Deloitte King IV: Bolder than Ever

https://www2.deloitte.com/za/en/pages/africa-centre-for-corpo-
rate-governance/articles/kingiv-report-on-corporate-govern-
ance.html
• IRBA How independent is your auditor and audit committee? 11
Jun 2016 http://www.irbalearning.co.za/news-headlines/press-re-
leases/how-independent-is-your-auditor-and-audit-committee
• IRBA The IRBA announces measures to strengthen auditor inde-
pendence and enhance investor protection 29 August 2016
https://www.irba.co.za/news-headlines/press-releases/the-irba-
announces-measures-to-strengthen-auditor-independence-and-
enhance-investor-protection
• SAICA Mandatory Audit Firm Rotation” Discussion Paper: Consid-
ering Mandatory Audit Firm Rotation (MAFR) (and other Related
Measures) as Possible Means of Enhancing Auditor Independence
http://www.saica.co.za/Portals/0/documents/MAFRDiscussionPa-
per.pdf?Reference_ID=45018384
Essential web Refer to the library website on this URL:
resources https://iielibraryconnect.iie.ac.za/e-shelf/law-resources
(You will also find the resources online under “Library/e-shelf”.)
Module Over- You will find an overview of this module on Learn under the Module In-
view formation link in the Course Menu.
Assessments Find more information on this module’s assessments in this document
and on the Student Portal.

Module Purpose
The purpose of this module is 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
Define the language, terminology, concepts and principles of the law of enter-
MO1
prise structures.
Apply the principles of the law of enterprise structures to practical problem sit-
MO2 uations commonly encountered in the management of various business enti-
ties.
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.
MO4 Apply legislative, common law principles and case law to a given scenario.

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

Weighting 25% 30%
Duration 1 hour 1 hour
Write/Submit after LU4 LU8
Learning Units covered 1-4 5-7
Resources required None None
Summative Examination
Weighting 35%
Duration 2 hours
Total marks 120
Open/Closed book Closed book
Resources required None
Learning Units covered All

Assessment Preparation Guidelines

Format of the Assessment Preparation Hints
Test 1
Test 1 will be based on • Ensure that you work through all the relevant activities,
learning units 1-4 • exercises and revision questions on Learn and in your
The test will include both textbook.
theory and application-type • Brainstorm possible questions based on the learning
questions. • outcomes and objectives provided. Then complete
You will be expected to re- these as practise-tests.
spond to short theory- • During both your preparation for the test and during
based questions, as well as the test itself, pay attention to the instruction words
longer application type (like list, apply, describe etc.) and to the mark alloca-
questions. tions of each question to ensure that you are able to
provide the correct depth and detail in your answers.
• Make sure that you have mastered the objectives in
Learning Units 1 to 4.
Test 2
Test 2 will be based on • To prepare effectively for the assignment you can in-
learning units 5-7 clude the following in your preparation:
The test will include both • Ensure that you work through all the revision questions
theory and application-type for all of the learning units.
questions. • Make sure that you have mastered the objectives in
You will be expected to re- Learning Units 5 to 7.
spond to short theory-
based questions, as well as
longer application type
questions.
Examination
The examination will assess • Make sure that you practise answering the sample
all learning units in this questions so that you become familiar with the kinds of
module and will include questions likely to appear in the examination itself.
both theory and applica- • Ensure that you work through all the activities, exer-
tion-type questions. cises and revision questions on Learn and in your text-
book. You must have completed close readings of your
You will be expected to re- prescribed material to ensure that you have prepared
spond to short theory- adequately for your examination for this module.
based questions, as well as • Pay close attention to the instruction words (like list,
longer application-type apply, describe, analyse etc.) and to the mark alloca-
questions. tions 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 out-
comes and objectives provided.

Module Pacer
Code Programme Contact Sessions Credits
LAES7411 LAW4 36 12
LAES7321 BCIL2, BIL2 (Phasing out) 36 15
BUEL6212 BLW2; BML2 48 15
Learning Unit 1 Introduction to Business Enterprise Structures
Overview:
The purpose of this Learning Unit is to introduce the range of legal structures which are
suitable for the conduct of enterprise activities and the law associated therewith. Enterprises
come in different sizes and are intended to achieve a variety of different objects. It is not
therefore a case of “one size fits all” and, even after a structure has been selected, it may
not continue to be appropriate as the business evolves and circumstances change.
Please work through Theme 1 on Learn, together with the relevant sections of your pre-
scribed source/s. To ensure that you are working towards mastering the objectives for this
learning unit, please also ensure that you complete all activities on Learn.
Notwithstanding the fact that this Learning Unit is short it is of crucial importance that you
familiarise yourself with the contents hereof as this Learning Unit is the foundation for the
Learning Units to follow.
Tabulate the pros and cons of each business enterprise structure. Note the pros and cons of
each one as you progress through this module. By the end of the module you will have a
comprehensive schedule of the reasons for and against selecting a particular structure in
specific circumstances.

Learning Unit 1: Introduction to Business Enterprise Structures

Sessions: Theme 1: Business Enterprises in South Prescribed Material (PM)
LAES7321, Africa
LAES7411 and
BUEL6212
1-2
Related Out- LO1: Differentiate between the various PM: Chapter 2

comes: business enterprise structures avail-
MO1 able in South Africa. Para 2.1, 2.5, 2.6, 2.7 and
MO2 LO2: Differentiate between the various 2.8 only.
MO3 types of companies that are al-
MO4 lowed in terms of the Companies
Act, 2008. Prescribed Reading:
L03: Differentiate between an external Stokvels.
company and a domesticated com-
pany.
LO4: Advise clients on the most appropri-
ate business enterprise structure to
use in deciding to establish a busi-
ness.
LO5: Explain the meaning and role of
stokvels, how they are regulated,
and generally how they operate
within the South African economy.
LO6: Apply all concepts to a set of facts

Learning Unit 2 Partnerships
Overview:
Notwithstanding the fact that a partnership does not have separate legal personality, part-
nerships are still used as a business entity for a variety of reasons. At times business needs
dictate the use of a business structure that is easy to form but is also easy to terminate. It is
therefore not uncommon for businesses to form a partnership with a view of tendering for
a contract, based on a joint venture (JV), with a view of formalising the business enterprise
should the tender be awarded by, for example, incorporating a company.
Although JVs and partnerships are fairly similar in nature the main difference is that a JV is
usually aimed at a short-term business relationship whereas a partnership envisages a longer
business relationship. 1
Your ability to identify the essentialia of a partnership is sometimes tested through a set of
facts where the parties have not entered into a written partnership agreement. You should
be able to discern, from the conduct of the parties, whether or not a partnership came into
being.
Please work through Themes 1, 2 and 3 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 all the activities on Learn.
1 http://legal-dictionary.thefreedictionary.com/Joint+Venture (accessed 16 November 2017).

Learning Unit 2: Partnerships

Sessions: Theme 1: Basic requirements for a valid Prescribed Material (PM)
partnership
LAES7321 and
LAES7411:
3-5
BUEL6212: 3 - 6
Related Out- LO1: Apply all concepts relating to part- PM: Chapter 17
comes: nerships to a set of facts.
MO1 LO2: Explain the essentials (essentialia) of Para 17.1, 17.4, and 17.5
MO2 a partnership and apply these to a only.
MO3 set of facts.
MO4 LO3: Evaluate the legal nature of partner- Pezzutto v Dreyer 1992 (3)
ships with reference to the entity SA 379 (A)
and aggregate theories.
LO4: Explain the operation of the excep-
tion to legal personality as it relates
to insolvency law.
LO5: Explain the operation of the excep-
tion to legal personality as it relates
to litigation by or against a partner-
ship.
Theme 2: Type of partnerships PM: Chapter 17
LO6: Differentiate between the various Para 17.3 only.

types of partnerships.
LO7: Fully explain the concept of a part- Ponelat v Schrepfer 2012 (1)
nership universorum bonorum and SA 206 (SCA); [2010] ZAW-
apply to set of facts. CHC 196
Butters v Mncora 2012 (4)

SA 1 (SCA)
Booysen v Stander [2018] 3

All SA 466 (WCC)
Theme 3: Relationship between the part- PM: Chapter 17
ners
LO8: Evaluate the relationship between Para 17.6 – 17.10
the partners inter se with specific

reference to the value of uberrimae De Jager v Olifants Tin ‘B”

fidei; the duties that it entails and Syndicate 1912 AD 505
apply with reference to case law to
a set of facts.
LO9: Explain the authority of partners to
contract with third parties.
LO10: Evaluate the authority of partners
to bind the partnership.
LO11: Discuss the personal liability of
partners.
LO12: Discuss the circumstances under
which a partnership is dissolved and
the consequences thereof.

Learning Unit 3 Close Corporations
Overview:
Close Corporations Act 69 of 1984 (CC Act) enabled business owners to incorporate a close
corporation 2 as opposed to a company as it was easier to register a close corporation than
a company. In addition, close corporations were seen as an ideal business entity for the small
business person’s needs as the running thereof is, although regulated by the CC Act, far less
onerous than that of a company.
The Companies Act 71 of 2008 (Companies Act) prevents the further registration of close
corporations. However, close corporations that had been registered prior to 1 May 2008
continue to exist. The Companies Act brought about a number of changes to the CC Act to
align companies and close corporations as business entities where it was deemed prudent
to do so.
Notwithstanding the fact that legislation forbids the registration of new close corporations,
legal practitioners must still be familiar with the law as it applies to these entities while they
remain part of the South African business landscape.
2
Close corporation and corporation are used interchangeably in this LU unless the context clearly indicates oth-
erwise.

Learning Unit 3: Close Corporations

Sessions: Theme 1: The Nature of Close Corpora- Prescribed Material (PM)
LAES7321 and tions
LAES7411:
6-8
BUEL6212: 7 -
10
Related Out- LO1: Apply all concepts relating to close PM: Chapter 2 para 2.6 only
comes: corporations. Chapter 16 para 16.1 and
MO1 LO2: Discuss the nature and intended 16.2.
MO2 purpose for close corporations.
MO3 LO3: Advise on the relationship between
MO4 close corporations and the Compa-
nies Act 2008 with reference to a
set of facts.
Theme 2: Membership Close Corpora- PM: Chapter 16 para 16.3,
tions 16.4, 16.5, 16.6, 16.8, 16.9,
LO4: Explain the acquisition and disposal 16.11, 16.13
of members’ interest.
LO5: Explain the members’ duties to- J & K Timbers (Pty) Ltd t/a
wards the close corporation. Tegs Timbers v GL & S Furni-
LO6: Evaluate the relationship of mem- ture CC 2005 (3) SA 223 (N)
bers inter se and the relationship
with third parties. Livanos v Oates [2012] ZAGPJHC
30
LO7: Advise on the personal liability of
members for the corporation’s
debts with reference to the Act and
case law.
LO8: Advise on the prohibition of loans to
and security on behalf of members
with reference to Close Corpora-
tions Act.
LO9: Advise on cessation of membership
via court order with reference to
the Close Corporations Act.
Theme 3: Regulation of the Close Corpo- PM: Chapter 16 para 16.7
ration and 16.8 only.
LO10: Discuss the law relating to acquisi-
tion of members’ interest by the CC

LO11: Explain the law relating to financial

assistance by the CC.
LO12: Apply the requirements of the li-
quidity and solvency test to a set of
facts.
LO13: Explain under which circumstances
may payments be made by the cor-
poration to members
LO14: Advise on the content of an associ-
ation agreement in terms of the
Close Corporations Act.

Learning Unit 4 Business Trusts
Overview:
A trust is a useful tool that can be used to structure businesses or to protect assets, due to
their lack of strict formalities regarding their operation and formation, and their relative flex-
ibility. The Trust Property Control Act 57 of 1988 regulates the formation and administration
of trusts, as well as the duties and authority that vests in the trustees.
In this learning unit, we will look at the formation and legal nature of different trusts in South
Africa. We will also look at the rights and duties of the parties to a trust, as well as the ad-
vantages and disadvantages of business trusts.
learning unit, please complete all the activities on Learn.

Learning Unit 4: Business trusts

Sessions: Theme 1: Introduction to trusts Prescribed Material (PM)
LAES7321 and
LAES7411:
9 – 10
BUEL6212:
11 - 13
Related Out- LO1: Differentiate between the various PM: Chapter 18
comes: types of trusts and the methods in
MO001 which they may be created. Para 18.1, 18.4, 18.5, 18.6,
MO002 LO2: Discuss the formation and the legal 18.7, 18.8, 18.9, 18.10,
MO003 nature of a trust. 18.12, 18.13.
MO004 LO3: Apply the rights and duties of the
respective parties to a trust to a set Trust Property Control Act
of facts. 57 of 1988
LO4 Advise on the advantages and disad-
vantages of a business trust with ref- Braun v Blann and Botha
erence to a set of facts NNO 1984 (2) SA 850 (A)
Crookes NO v Watson 1956

(1) SA 277 (A)
Land and Agricultural Bank
of South Africa v Parker and
Others 2005 (2) SA 77 (SCA)

Learning Unit 5 Legal Personality and the Companies Act 71 of 2008
Overview:
One of the main selling points for the incorporation of companies, is that the company is
considered to be a juristic entity or personality that is separate from its shareholders. This
means that the company must be treated as if it is an independent person after incorpora-
tion, together with its rights and liabilities.
However, this protection is not absolute. The courts do not allow for the abuse of this prin-
ciple of limited liability. As a result, they can (in exceptional circumstances) ‘lift the corporate
veil’, thereby holding the directors accountable for the company’s debts.
In this learning unit, we will explore the concept of legal personality and capacity. We will
discuss the corporate veil, and what it means to pierce or lift the corporate veil. Finally, we
will discuss companies acting out of their own capacity, and the way in which the law protects
both companies and third parties.
The Companies Act 71 of 2008 (the Act) provides for different types of companies, the doc-
uments that constitute a company and the registration process. In this learning unit, we dis-
cuss the salient features of these companies and explore their similarities and differences,
including the registration process for the different companies.

Learning Unit 5: Legal Personality and the Companies Act

Sessions: Theme 1: Separate juristic personality of Prescribed Material (PM)
LAES7321 and a company
LAES7411:
11-15
BUEL6212:
14 - 19
Related Out- LO1: Advise on the legal personality of ju- PM: Chapter 2 para 2.2 to
comes: ristic persons with reference to 2.4
MO1 case law and the Companies Act, Salomon v Salomon & Co
MO2 2008. Ltd [1897] AC 22 (HL)
MO3
MO4 Dadoo Ltd v Krugersdorp
Municipal Council 1920 AD
530
Theme 2: The Companies Act and the Prescribed Material (PM)
Common Law
LO2: Advise, with reference to case law, PM: Chapter 1 para 1.9 only
and the Act, the interaction be-
tween the common law and the
Companies Act in terms of:
• Gaps in the Companies Act and
• Interpretation of the Compa-
nies Act
Theme 3: Piercing the corporate veil Prescribed Material (PM)
LO3: Explain the concept of piercing the PM: Chapter 2 para 2.4
corporate veil: only.
• in terms of the common law; Chapter 14 para 14.4 only.
• its adoption and adaptation in
terms of the Companies Act; and Arden, Piercing the corpo-
• apply the concept to a set of facts rate veil – old metaphor,
L04: Advise on the liability of directors modern practice? 2017 (1)
and shareholders in terms of sec- JCCL&P 1.
tion 20(9) of the Companies.
Airport Cold Storage (Pty)
Ltd v Ebrahim 2008 (2) SA
303 (C)

Cape Pacific Ltd v Lubner

Controlling Investments
(Pty) Ltd 1995 (4) SA 790 (A)
Hülse-Reutter v Gödde 2001

(4) SA 1336 (SCA)

Theme 4: Capacity PM: Chapter 2 para 2.12

LO5: Assess the impact of the Companies only.
Act, 2008 on the ultra vires doctrine;
doctrine of constructive notice; and Royal British Bank v Tur-
the Turquand Rule. quand (1856) 6 E&B 327
One Stop Financial Services

(Pty) Ltd v Neffensaan On-
twikkelings (Pty) Ltd and
Another (20028/14) [2015]
ZAWCHC 89
Theme 5: Company Formation PM: Chapter 2 para 2.9 and

LO6: Differentiate between the various 2.10 only.
types of companies
LO7: Advise on the incorporation process Cuninghame and another v
with reference to the Companies First Ready Development
Act, 2008. 249 (association incorpo-
LO8: Distinguish between incorporation rated in terms of section 21)
and registration 2010 (1) All SA 473 (SCA).
LO9: Discuss the memorandum of incor-
poration (MOI) in terms of
• Content
• Legal status
• Flexibility
• Unalterable, alterable and de-
fault provisions; and
• Amendment
L010: Apply the law as it relates to pre-in-
corporation contracts to a set of
facts, including:
• define a pre-incorporation
contract; and
• Advise on the legal conse-
quences of entering into a pre-
incorporation contract.

Learning Unit 6 Groups of companies
Overview:
Since the nature of business, conglomerates and groups of companies have developed over
time they do not have separate legal personality. However, they are recognised in law and
practice. This Learning Unit will assist to expand your knowledge of Groups of Companies.
To further your understanding, you are encouraged to select one of the larger groups of
companies whose shares are listed on the JSE Ltd and whose Annual Report is published
online. Review the group structure as explained by them and identify at least one holding
company and three subsidiary companies. If evident from the Annual Report, identify one
instance where a company “controls” another.

Learning Unit 6: Groups of Companies

Sessions: Theme 1: Definitions Prescribed Material (PM)
LAES7321 and
LAES7411:
16 – 17
BUEL6212:
20 - 22
Related Out- LO1: Explain all relevant terminology re- PM: Chapter 3 Para 3.1, 3.2
comes: lating to groups of companies in & 3.4.
MO1 terms of the Companies Act 2008
MO2 LO2: Discuss the meaning of control with
MO3 reference to section 2 of the Com-
panies Act, 2008
Theme 2: Voting rights PM: Chapter 3 para 3.4.2
only
LO3: Explain how general voting rights
are determined
Theme 3: Legal consequences for groups PM: Chapter 3 para 3.5 and
of companies 3.6 only.
LO4: Discuss in detail the six key conse-
quences as provided for in the
Companies Act 2008.
LO5: Explain when consolidated financial
statements are required

Learning Unit 7 Corporate finance: Equity, Debt Instruments and Distributions
Overview:
The term ‘corporate finance’ influences several areas. However, the focus of this learning
unit will be on corporate finance as it relates to company law.
Directors must make decisions for the benefit of their company, such as those involving the
company’s assets. Such decisions form part of corporate finance. The Companies Act 71 of
2008 contains multiple provisions that influence directors and when they may enforce their
decisions.
Once a decision has been made by the directors, as to what the asset needs are, such assets
need to be funded. The question is how? Assets can be funded either by debt instruments
or equities (usually in the form of shares).
In this learning unit we explore shares and how they pertain to debt and equity. We will also
discuss the applicability of the solvency and liquidity tests and how distribution and financial
assistance function in relation to shares.

Learning Unit 7: Corporate finance: Equity, Debt Instruments and Distributions

Sessions: Theme 1: Introduction to corporate fi- Prescribed Material (PM)
LAES7321 and nancing
LAES7411:
18-20
BUEL6212:
23 - 26
Related Out- LO1: Apply the concepts of debt and eq- PM: Chapter 4 Para 4.1, 4.5
comes: uity as ways of funding a company’s
MO1 activities to a set of facts.
MO2 LO2: Describe the legal nature of a share
MO3 and a debt instrument.
MO4 Theme 2: Sources of Financing, nature of PM: Chapter 4 Para 4.3 –
assets and the solvency and liquidity test 4.8.
LO3: Discuss the rights attached to
shares. Basson v on-Point Engineers
LO4: Differentiate between – (Pty) Ltd 2012 JDR 2126
o authorised, issued and unis- (GNP); [2012] ZAGPPHC 251
sued shares
o the main classes of shares; La Luca Sands Share Block v
o the rights of shareholders and Barkhan 2010 (6) SA 421
that of debenture holders; (SCA); [2010] ZASCA 132
o certificated and uncertificated
securities;
o the issue of shares and the
transfer of shares;
o the beneficial owner of shares
and the nominee or registered
holder.
LO5: Compare the solvency and liquidity
test with the capital maintenance.
LO6: Explain how shares are issued.
Theme 3: Distribution PM: Chapter 4 para 4.7.6
LO7: Explain the meaning and require- and 4.9 only.
ments of a –
o distribution; and
o share buyback/ repurchases.
LO8: Discuss the requirements for a com-
pany wanting to offer financial

assistance to people for the acquisi-

tion of shares.

Learning Unit 8 Shareholders and Company Meetings
Overview:
In Learning Unit1 you learnt that a company is a juristic person and has separate legal per-
sonality. However, as it is not a “natural person” but an “artificial (juristic) person” it cannot
take any actions on its own but must rely on people. To this end, a company has two organs
to take decisions on its behalf, viz. the general meeting (i.e. shareholders’ meetings) and the
board of directors.
Fig. 8.1 sets out these organs, indicating their main function and makes reference to the fact
that usually companies have employees other than shareholders and/or directors of the
company.
Company
Owners Managements
(shareholders) (directors)
Workers
(employees)
In a large public company, there may be many shareholders who have no connection with
each other. It is not therefore feasible for them to agree on actions that need to be taken.
This has led to the development of shareholders acting as a body by way of decisions made
at a meeting. This LU deals with the actions that may be taken by shareholders and matters
relating to shareholders’ meetings, known as “general meetings”.
Please work through Themes 1 and 2 on Learn, together with the relevant sections of your
Familiarise yourself with the contents of sections 57 to 78 of the Companies Act and the
Memorandum of Agreement as two sources of ‘rules’ for determining who may act in re-
spect of a particular matter.

Learning Unit 8: Shareholders and Company Meetings

Sessions: Theme 1: Shareholder meetings Prescribed Material (PM)
LAES7321 and
LAES7411:
21 – 22
BUEL6212:
27 - 29
Related Out- LO1: Explain all terminology relating to PM: Chapter 5 Para 5.3 -
comes: meetings, including: 5.9, 5.12 and 5.15
MO001 • Quorum; and
MO002 • Proxy; and
MO003 • Record date
MO004 LO2: Explain who may call a share-
holder’s meeting and under what
circumstances.
LO3: Discuss the formality requirements
for calling convening, conducting,
postponing and adjourning share-
holder meetings and apply to a set
of facts
LO4: Discuss how and when shareholders
can act other than at meetings.
LO5: Differentiate between ordinary and
special resolutions.
LO6: Explain when a special resolution is
required.
Theme 2: Annual General Meetings PM: Chapter 5 para 5.13
only.
LO7: Explain the time frames for calling
meetings in a public company
LO8: Discuss the matters that must be
dealt with at an AGM

Learning Unit 9 Directors, Committees and Company Officers
Overview:
The board of directors of a company is vital to ensure the sustainability of the company,
through its actual management. Such directors, subject to limitations in the Companies Act
2008 or the company’s MOI, have the authority to exercise powers to perform the functions
of said company. Additionally, other company officers also play a role in the management of
the company.
In this learning unit, we will discuss the appointment of directors and board committees, the
role and duties of directors, the liabilities of directors and the ineligibility and disqualification
of directors. We will also look at the law as it relates to audits, independent reviews and
auditors and the company secretary.
learning unit, please complete all the activities on Learn.

Learning Unit: 9 Directors, Committees and Company Officers

Sessions: Theme 1: Appointment of Directors and Prescribed Material (PM)
LAES7321 and Board Committees
LAES7411:
23 – 26
BUEL6212:
30 - 34
Related Out- LO1: Differentiate between the various PM: Chapter 6 para 6.1 –
comes: types of directors and board com- 6.2, 6.5 – 6.6
MO1 mittees. Familiarise yourself with the
MO2 LO2: Explain the requirement for the pre- contents of tables 6.3 to 6.6
MO3 scribed minimum number of direc-
MO4 tors in relation to the different types PPWAWU National Provi-
of company. dent Fund v Chemical, Engi-
LO3: Explain which of the provisions in neering, Paper, Wood and
the Companies Act concerning direc- Allied Workers’ Union 2008
tors may be varied in a company’s (2) SA 351 (W) as set out in
MOI. textbook.
R v Kritzinger 1971 (2) SA 57
(A) as set out in textbook.
Case studies in this chapter:
Dorbyl Ltd v Vorster 2011
(5) SA 575 (GSJ)
Fisheries Development Cor-
poration of SA Ltd v Jorgen-
sen 1980 (4) SA 156 (W)
Kukama v Lobelo JDR 0663
(GSJ); [201] ZAGP JHC 60
MMA Architects v
LuyandaMpahlwa [2011]
ZAWCHC
Phillips v Fieldstone Africa
(Pty) Ltd [2004] 1 All SA 150
(A)
Robinson v Randfontein Es-
tate Gold Mining Co Ltd
1921 AD 168
Other cases:

I-Kiosk Internet and Infor-

mation (Pty) Ltd 2003 (3) SA
806 (C)
Da Silva and others v CH
Chemicals (Pty) Ltd 2008 (6)
SA 620 (SCA)
Ghirsi v Timber Developers
(Pty) Ltd 2007 (4) SA 536
(SCA)
Theme 2: Duties and Liabilities of Direc- Prescribed Material (PM)
tors
LO4: Differentiate between directors and PM: Chapter 6 para 6.3 –
managers in relation to their roles 6.4
and responsibilities within the com-
pany. SAICA Mandatory Audit
LO5: Fully explain the duties of Directors Firm Rotation” Discussion
and what these duties consist of Paper: Considering Manda-
L06: Explain the personal liability of Direc- tory Audit Firm Rotation
tors. (MAFR) (and other Related
LO7: Explain the potential liability of Di- Measures) as Possible
rectors with reference to the appli- Means of Enhancing Auditor
cation of the business judgement Independence, available at
rule. http://www.saica.co.za/Por-
tals/0/docu-
ments/MAFRDiscussionPa-
per.pdf?Refer-
ence_ID=45018384 (ac-
cessed 16 November 2017)
Theme 3: Ineligibility and disqualification Prescribed Material (PM)

of Directors
LO8: Distinguish between the ineligibility PM: Chapters 6 para 6.7 –
and disqualification of certain per- 6.9 and 14 para 14.2
sons for the purposes of being ap-
pointed as directors of a company;
LO9: Explain the process to
declare a director delinquent or to
place her/him under probation and
the filling of a vacancy on the board.

Theme 4: Audit, Independent Review & Prescribed Material (PM)

Auditors
LO10: Differentiate between an audit and PM: Chapter 13 para 13.1 -
an independent review. 13.4, 13.8
LO11: Explain which company’s financial
statements are subject to an audit.
L012: Briefly explain the duties of the au-
dit committee.
LO13: Discuss the requirements for ap-
pointment, resignation and removal
of the auditor.
Theme 5: Company Secretary PM: Chapter 13 para 13.9
LO14: Explain which Companies must ap-
point a company secretary;
LO15: Discuss the duties of the company
secretary.
LO16: Explain under which circumstances
a person would be disqualified
from appointment as a company
secretary.

Learning Unit 10 Public offers of securities
Overview:
Often, a company may require cash to continue its operation or to finance an expansion. In
order to obtain this cash, a company may offer shares or securities to the public. There is a
high potential for abuse in this case, however, so the process is heavily regulated by the
Companies of 2008. Therefore, companies are required to make honest and full disclosures
of the affairs of the company when making offers of its shares to the public, accompanied
by a prospectus (in certain cases).
In this learning unit, we discuss the different types of public offerings. Further, we explore
the role the prospectus plays when public offerings are made, and how companies are held
liable for untrue information published in the prospectus.

Learning Unit 10: Public offers of securities

Sessions: Theme 1: General restrictions on offers Prescribed Material (PM)
LAES7321 and to the public
LAES7411:
27 – 29
BUEL6212:
35 - 38
Related Out- LO1: Differentiate between: PM: Chapter 9 para 9.3 –
comes: • Primary offering of securities; 9.4
MO1 • Secondary offering of securi-
MO2 ties; Gold Fields Ltd v Harmony
MO3 • Initial public offer of securities. Gold Mining Co Ltd 2005 (2)
MO4 LO2: Explain the meaning of offer to the SA 506 (SCA)
public.
LO3: Explain which actions will not consti-
tute offers to the public
Theme 2: The Prospectus PM: Chapter 9 para 9.5-9.6
LO4: Explain the meaning of prospectus

and the information it must contain,
LO5: Explain the requirements that must
be met when advertising offers of
securities to the public
LO6: Explain the procedure for registra-
tion of a prospectus,
LO7: Explain the purpose of underwriting
statements contained in the pro-
spectus.
LO8: When offering securities to the pub-
lic, explain when a prospectus is re-
quired and when it is not.
LO9: discuss liability in the event of un-
true statements included in the pro-
spectus with regard to
o Who is liable
o How they become liable
o Extent of liability; and
o What must be proven.

Learning Unit 11 Takeovers, Offers and Fundamental Transactions
Overview:
Additional regulation is required by the Companies Act of 2008 in cases where there are
transactions that significantly affect the ownership of a company’s assets or where there is
a potential significant shift in the shareholding of a company. Such transactions are referred
to as fundamental transactions or affected transactions. The Takeover Regulation Panel as-
sumes jurisdiction, in cases where a fundamental transaction qualifies as an affected trans-
action.
In this learning unit, we explore the types of fundamental transactions or affected transac-
tions, and look specifically at the regulations that govern these transactions. We also review
mandatory offers and how these offers come about.

Learning Unit 11: Takeovers, Offers and Fundamental Transactions

Sessions: Theme 1: Fundamental transactions Prescribed Material (PM)
LAES7321 and
LAES7411:
30 – 31
BUEL6212:
39 - 41
Related Out- LO1: Differentiate between the different PM: Chapter 10 Para 10.1,
comes: types of fundamental transactions. 10.2,10.5.1 – 10.5.2
MO1 LO2: Explain the meanings of “affected
MO2 transaction” and “regulated com-
MO3 pany”.
MO4 LO3: Explain the concept of a mandatory
offer as a type of affected transac-
tion and when a mandatory offer is
triggered.
LO4: Briefly explain the concept of a
“squeeze out” transaction as a type
of affected transaction.
Theme 2: Regulation of fundamental PM: Chapter 10 para 10.3,
transactions 10.5
LO5: Explain the role and function of the S112-116 of the Companies
Takeover Regulation Panel in af- Act, 2008
fected transactions.
Theme 3: Remedies PM: Chapters 10 para 10.4
LO6: Fully explain the appraisal remedy and 14
and the procedural steps that a Para 143
shareholder must follow to success-
fully rely on this remedy. S164 of the Companies Act,
2008

Learning Unit 12 Business rescue, compromise, winding-up and deregistration
Overview:
Often, the occurrence of companies failing and closing down, is a symptom of a healthy
economy in a country. Such failing companies will usually, either be liquidated or absorbed
into stronger companies. However, there has been a shift over recent years to attempt to
save failing businesses, through business rescue, instead of simply liquidating them.
In this Learning Unit, we will look at the method of business rescue to save failing companies,
liquidation, the option of a compromise, winding-up and the deregistration of a company.

Learning Unit 12: Business rescue, compromise, winding-up and deregistration

Sessions: Theme 1: Business rescue Prescribed Material (PM)
LAES7321 and
LAES7411:
32 – 34
BUEL6212:
42 - 45
Related Out- LO1: Explain the initiation and process of PM: Chapter 12 para 12.2
comes: Business Rescue entails with refer-
MO1 ence to the definition in section 128
MO2 of the Companies Act;
MO3 LO2: Explain the meaning of –
MO4 o financially distressed;
o affected persons
LO3: Discuss the role of the business res-
cue practitioner
LO4: Advise on the legal consequences of
business rescue proceedings with
reference to a set of facts
Theme 2: Compromise PM: Chapter 12 para 12.9
LO5: Discuss the meaning and purpose
of compromise.
LO6: Compare the process of comprise as
it existed before and after the Com-
panies Act, 2008
LO7: Discuss the information that a pro-
posal for compromise must contain
LO8: Briefly outline the requirements for
a compromise.
Theme 3: Winding up PM: Chapter 15 para 15.1
LO9: Broadly differentiate between wind-
ing-up and deregistration of compa-
nies.

Learning Unit 13 Remedies and Enforcement
Overview:
The Companies Act 71 of 2008 has sought to decriminalise company law as much as possible,
by providing effective remedies in terms of private law, rather than the criminal sanctions
provided by earlier legislation.
In this learning unit, we will look at dispute resolution and the remedies that are available
where there has been an abuse by a director of their position, where shareholders wish to
protect their rights, and where there has been an abuse of the separate juristic personality
of a company. The enforcement of the Companies Act 2008 and the regulation of the rem-
edies by independent bodies will also be assessed.
Please note that paragraphs 14.2.1; 14.3.2 and 14.4 have been prescribed in prior learning
units.

Learning Unit 13: Remedies and Enforcement

Sessions: Theme 1: Remedies Prescribed Material (PM)
LAES7321 and
LAES7411:
35 – 36
BUEL6212:
46 - 48
Related Out- LO1: Discuss the use and application of PM: Chapter 14 para 14.2 –
comes: the statutory derivative action. 14.3
MO1 LO2: Explain which remedy is available to
MO2 directors and shareholders in the
MO3 event of prejudicial or oppressive
MO4 conduct.
LO3: Explain how the holders of issued
securities may further protect their
rights by means of an application for
a declaratory order.
Theme 2: Enforcement and dispute reso- PM: Chapter 14 para 14.4 –
lution 14.5
LO4: Explain how the provisions of the
Act are enforced.
LO5: Discuss the mechanisms available to
an aggrieved party.
LO6: Advise on the three forms of alter-
native dispute resolution with refer-
ence to the s166 of the Companies
Act.

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IIE Learn Module Outline LAES7321; LAES7411; BUEL6212

Law of Enterprise Structures

Business Enterprises Law

MODULE OUTLINE 2024

© The Independent Institute of Education (Pty) Ltd 2024 Page 1 of 46

© The Independent Institute of Education (Pty) Ltd 2024 Page 2 of 46

© The Independent Institute of Education (Pty) Ltd 2024 Page 3 of 46

Using this Module Outline

© The Independent Institute of Education (Pty) Ltd 2024 Page 4 of 46

This Module on Learn

• A list of prescribed material;

© The Independent Institute of Education (Pty) Ltd 2024 Page 5 of 46

Icons Used in this Document and on Learn

Specific references to sections in the prescribed work.

Questions to help you recognise or think about theoretical concepts to be

Opportunities to make connections between different chunks of theory in

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

You need to log onto Learn to:

© The Independent Institute of Education (Pty) Ltd 2024 Page 6 of 46

PLEASE NOTE THAT THIS PRESCRIBED READING CAN BE FOUND UNDER

© The Independent Institute of Education (Pty) Ltd 2024 Page 7 of 46

• Land and Agricultural Bank of South Africa v Parker and Others

© The Independent Institute of Education (Pty) Ltd 2024 Page 8 of 46

• Deloitte King IV: Bolder than Ever

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Formatives Test 1 Test 2

© The Independent Institute of Education (Pty) Ltd 2024 Page 11 of 46

Assessment Preparation Guidelines

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• Make sure that you are comfortable in responding to all

© The Independent Institute of Education (Pty) Ltd 2024 Page 13 of 46

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Learning Unit 1: Introduction to Business Enterprise Structures

Related Out- LO1: Differentiate between the various PM: Chapter 2

© The Independent Institute of Education (Pty) Ltd 2024 Page 15 of 46

Learning Unit 2 Partnerships

1 http://legal-dictionary.thefreedictionary.com/Joint+Venture (accessed 16 November 2017).

© The Independent Institute of Education (Pty) Ltd 2024 Page 16 of 46

Learning Unit 2: Partnerships

LO6: Differentiate between the various Para 17.3 only.

Butters v Mncora 2012 (4)

Booysen v Stander [2018] 3

© The Independent Institute of Education (Pty) Ltd 2024 Page 17 of 46

reference to the value of uberrimae De Jager v Olifants Tin ‘B”

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Learning Unit 3 Close Corporations

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Learning Unit 3: Close Corporations

© The Independent Institute of Education (Pty) Ltd 2024 Page 20 of 46

LO11: Explain the law relating to financial

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Learning Unit 4 Business Trusts

© The Independent Institute of Education (Pty) Ltd 2024 Page 22 of 46

Learning Unit 4: Business trusts

Crookes NO v Watson 1956

© The Independent Institute of Education (Pty) Ltd 2024 Page 23 of 46

Learning Unit 5 Legal Personality and the Companies Act 71 of 2008

© The Independent Institute of Education (Pty) Ltd 2024 Page 24 of 46

Learning Unit 5: Legal Personality and the Companies Act