CLA201-V/101/3/2006

DEPARTMENT OF MERCANTILE LAW

COMMERCIAL LAW 2A CLA201-V Tutorial Letter 101/3/2006 Semesters I and II

Contents
1 2 3 4 5 6 7 A WORD OF WELCOME COMMUNICATION WITH YOUR LECTURERS COMMUNICATION WITH THE UNIVERSITY ADMINISTRATION STUDENT SUPPORT TUTORIAL MATERIAL EXAMINATION AND ADMISSION TO THE EXAMINATION ASSIGNMENTS

2 1 A WORD OF WELCOME

We are pleased to welcome you to this module and hope that you will find it interesting and rewarding. The content of this module is extensive and we strongly suggest that you commence your studies immediately. We suggest that you compile a study plan which takes the assignment dates in all the modules for which you have registered into account. You should try to complete all the assignments, even the non-compulsory ones. This will help you to assess your own progress and will also prepare you for the examination. PLEASE NOTE: The University now requires that every student submit at least one assignment in each module for evaluation. The mark obtained for Assignment 01 will contribute to the students final mark for this module.

This module is presented in both the first and the second semester and this Tutorial Letter 101 is issued for both semesters. You must read all the tutorial letters you receive during the semester immediately and carefully - they always contain important and, sometimes, urgent information. This tutorial letter contains important information concerning this module. We urge you to read it carefully and to keep it at hand when working through the tutorial material, completing the assignments, preparing for the examination, and addressing questions to your lecturers. You will find the assignments for this module and instructions on the preparation and submission of the assignments in this tutorial letter. It also provides all the information you need with regard to the prescribed tutorial material and how to obtain it. Please study this information carefully and make sure that you obtain the prescribed material as soon as possible. Finally, we include certain general and administrative information in regard to this module. Please study this section of the letter carefully. We hope that you will enjoy this module and wish you all the best!

COMMUNICATION WITH YOUR LECTURERS

All queries that are not of a purely administrative nature but are about the contents of this module should be addressed to us. Letters should be sent to: The Lecturer (CLA201-V) Department of Mercantile Law PO Box 392 UNISA 0003

3 PLEASE NOTE:

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Letters to lecturers may not be enclosed with or inserted into assignments.

Letters may be faxed to us. Our telefax number is (012) 429 3343. You may contact us by telephone. Early in the semester, the names of the lecturers for this module and their contact details will be given to you in a tutorial letter. The general number for the Department of Mercantile Law is (012) 429 8579. Use this number until you have been given the names of the lecturers involved in this module. Please have your tutorial material with you when you contact us by telephone. Phone calls made to us when we are not available will be forwarded to an answering machine. You can therefore leave voicemail messages for your lecturers. We shall reply as soon as possible. You are welcome to visit us to discuss any queries about or problems with the contents of this module. However, please make an appointment beforehand, otherwise you run the risk of the lecturer not being available to see you. Our offices are situated in the Cas van Vuuren Building, Main Campus, Muckleneuk Ridge, Pretoria. Early in the semester, the office numbers of the lecturers for this module will be given to you in a tutorial letter. Students who have access to the Internet can contact the lecturers by e-mail via the Cool- or SOLsystems. The brochure you received on registration contains information on these systems. They will be replaced by the myUNISA system during 2006. We will notify you when this happens. 3 COMMUNICATION WITH THE UNIVERSITY ADMINISTRATION

Students must address all queries on administrative matters to: The Registrar (Academic) PO Box 392 UNISA 0003 Telephone enquiries about administrative matters should be addressed to the sections concerned with those specific matters. Consult the brochure Unisa: services and procedures in this regard. Please specifically note the following telephone numbers: Assignment Section: Student Affairs: Despatch: Examination Section: (012) 429 4155 (012) 429 4116 (012) 429 4104 (012) 429 4122

If you have access to the Internet you can also contact the University on the myUNISA facility.

4 PLEASE NOTE: . You may enclose more than one letter in the same envelope. However, do not write to more than one department in one letter - this will cause delay. Write a separate letter to each department and mark each letter clearly: For attention: and then indicate the relevant departments name, for example, Assignments, Despatch or Examination Section. . When writing to the University, always give your student number, the name of the course and the course code at the beginning of the letter. . Please include your address and telephone number in your letter if you want a reply. . Remember to have your student number ready whenever you phone the University.

STUDENT SUPPORT

Students who wish to obtain more information about the student support services, which include a peer help programme and tutorial programmes offered at the learning centres, and the study skills book entitled Effective Study, should consult the brochure Unisa: services and procedures. For a comprehensive description of the services offered at the main campus and at the regional centres, including the Peer Help Volunteer Programme, you can visit the web page of the Bureau for Counselling, Career and Academic Development (BCCAD) at http://www.unisa.ac.za/counselling/. Students who wish to obtain more information about the learning centres and tutorial support services should direct their enquiries to the Department of Student Support at (012) 429 3538.

TUTORIAL MATERIAL

5.1 INVENTORY When you register you will receive (in addition to the available tutorial material) an INVENTORY FOR THE CURRENT SEMESTER which lists only the items available from the Department of Despatch or the regional offices at the time of registration. Students who register at a regional office will receive the rest of their tutorial material by registered post from Pretoria. Check the tutorial material you received against the inventory. You should have received all the items specified in the inventory, unless there is a statement like out of stock. If any item is missing, follow the instructions on the back of the inventory without delay. PLEASE NOTE: Your lecturers cannot help you with missing tutorial material. Please contact the Department of Despatch at (012) 429 4104.

More details about the inventory letter are contained in the brochure Unisa: services and procedures, which you received with your tutorial material.

5 5.2 TUTORIAL MATERIAL The tutorial material for this module consists of the following:

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(1) the prescribed textbook (which you should purchase yourself). See paragraph 5.3.

The textbook Entrepreneurial Law 3ed (2003) by ML Benade, JJ Henning, JJ du Plessis, PA Delport, L de Koker and JT Pretorius, Butterworths, Durban is prescribed for this module.

(2) a study guide

The study guide is based on the textbook, but also contains additional material and activities and self-assessment questions which will enable you to assess your own progress. You should read the introduction to the study guide before anything else. It explains, amongst other things, how to use the study guide with the textbook.

(3) tutorial letters (which you will receive during the semester) Of this tutorial material, the Department of Despatch should supply you with the study guide and the tutorial letters. PLEASE NOTE: All the above-mentioned tutorial material will not necessarily be available when you register. If this is the case, outstanding material will be sent to students as soon as it becomes available.

5.3 PRESCRIBED TEXTBOOK

Your prescribed textbook for this module is: Entrepreneurial Law (3ed) by ML Benade, JJ Henning, JJ du Plessis, PA Delport, L de Koker and JT Pretorius (2003) Butterworths, Durban. Please ensure that you obtain the third edition of this book. The previous editions are outdated and do not contain the latest developments in corporate law, on which you will be assessed.

6 Please consult the list of official booksellers and their addresses provided to you in the brochure Unisa: services and procedures. Should you encounter any difficulties with obtaining books from the official bookshops, please contact the University (Prescribed Books) as soon as possible at (012) 429 4152. You may also order the book directly from the publishers. Their address and telephone number are: Butterworths Publishers (Pty) Ltd PO Box 4 MAYVILLE 4058 Telephone number: (031) 268 3283 Since these avenues of assistance are available to you, we will not accept the fact that you experienced problems obtaining the prescribed textbook as a valid excuse for the late submission of assignments. 5.4 STUDY GUIDE The study guide contains information that does not necessarily appear in the textbook. The study guide is intended to accompany you through the textbook and should be studied with the textbook. The study guide also tells you which chapters or parts of chapters in the textbook are prescribed for this course, and which are not. Read the guidelines on how to use the study guide in the introduction to the study guide carefully before you start working through the prescribed material. Try to do as many of the activities and self-assessment questions as possible. The type of questions you may expect in the examination are similar.

PLEASE NOTE THE FOLLOWING CORRECTION: Page 152 of the study guide and specifically the prescribed material for Study Unit 18 refer. For purposes of Study Unit 18 you should study Entrepreneurial Law chapter 20 in its entirety, excluding pars 20.12-20.16 and pars 20.2720.29. Entrepreneurial Law par 20.06-20.09 is therefore part of your prescribed tutorial matter.

5.5 FURTHER TUTORIAL LETTERS Apart from tutorial letter 101, you will receive other tutorial letters for CLA201-V during the semester.

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PLEASE NOTE:

Tutorial letters are part of your tutorial material for assignment and examination purposes. Read each tutorial letter and keep all of them for reference purposes.

Students who have access to the Internet, can view the study guides and tutorial letters for the courses for which they are registered on Universitys myUNISA facility. 5.6 PRESCRIBED CASES AND LEGISLATION It is COMPULSORY that you study the cases and legislation discussed in your study guide and prescribed textbook. You must study the cases and legislation as they appear in your study guide and prescribed textbook (but it is not necessary to obtain or study the complete reported case or the entire Act). This will help you to gain greater insight into the relevant principles and their application. Read more in this regard in the introduction to the study guide.

EXAMINATION AND ADMISSION TO THE EXAMINATION

6.1 EXAMINATION At the end of the semester you will write one two-hour paper that counts 100 marks. Fortyfive percent of the examination paper will consist of multiple-choice questions, while the balance of the paper will consist of short and medium length discussion-type questions. For the examination you have to study the study guide, the prescribed sections of your textbook (which may include cases and legislation) as well as all the tutorial letters you receive during the course of the semester. 6.2 ASSIGNMENT 01 CONTRIBUTES TO FINAL MARK PLEASE NOTE: The University now requires that every student submit at least one assignment in each module each semester for evaluation. The mark obtained for Assignment 01 will contribute to the students final mark for this module.

Assignment 01 will count 10 percent towards a students final mark for the course. The examination will then count 90 percent towards a students final mark. 6.3 ADMISSION TO THE EXAMINATION Students registered for the first semester must submit Assignment 01 on or before 15 March 2006 in order to gain admission to the examination. Students registered for the second semester must submit Assignment 01 on or before 15 August 2006 in order to gain admission to the examination.

8 6.4 PREVIOUS EXAMINATION PAPERS Previous examination papers in this module are NOT made available to students. The two assignments contain examples of the kind of questions you can expect in the examination. In addition to the assignments, the study guide contains many activities and self-assessment questions, with feedback, which you can use in your preparation. In the course of the semester, we shall also send you an extract from a previous examination paper in a tutorial letter.

ASSIGNMENTS

7.1 GENERAL As mentioned above, the University requires that a student should submit at least one assignment in each module for evaluation.

The timely submission of Assignment 01 is compulsory for gaining admission to the examination and for your continued registration as a student in this module. Note that, according to the subsidy rules of the Department of National Education, you will not qualify for Government subsidy if you fail to submit this assignment, and so your registration will automatically be cancelled. Different Assignments 01 have been set for the first and second semesters. You must ensure that you complete the correct assignment for the semester for which you have registered. No marks or credit will be given for submission of the wrong Assignment 01 or if an assignment is received late.

Assignments form an extremely important part of the module. In the assignments, you can test your ability to deal with the subject-matter. There are two assignments in this module. PLEASE NOTE: Enquiries about assignments (eg whether or not the University has received your assignment, or the date on which an assignment was returned to you) must be addressed to the Assignment Section at (012) 429 4155. It is advisable to phone the Assignment Section after sending your assignment to ensure that the assignment has in fact reached the Assignment Section.

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Assignments should be addressed to: The Registrar PO Box 392 UNISA 0003 PLEASE NOTE: Assignments should not be sent to the department or to the lecturer.

NO ASSIGNMENTS MAY BE SUBMITTED BY E-MAIL, FAX, FLOPPY DISK OR STIFFY! Assignment 01 should be completed on the mark reading sheet provided to you as part of your tutorial matter on registration. You are advised to read through the brochure Unisa: services and procedures for detailed information and requirements in this regard. Assignment 02 must be submitted in typed, printed or hand-written format. If you have access to the Internet, you may submit your assignment electronically by using the Universitys myUNISA facility. . Remember that your assignment must be numbered number 01 or 02. You should also provide the unique number for Assignment 01. Check whether you are answering the correct Assignment 01 for the semester in which you have registered. Assignment 02 does not have a unique number. . Please ensure that your name, address, student number, course code and assignment number appear on the cover of the assignment and at the top of the first page of your answer, and that this information is correct. Every successive page should show at least your student number and the module code. . Ensure that the pages of your answer are stapled together properly and in the correct order, but do not join answers to different assignments together. Submit each assignment separately. . Please do NOT write on both sides of the page. Leave a margin that is sufficiently wide for your lecturers comments on the right-hand side. . Answers to all the questions in the assignment should be submitted simultaneously. . State the module code and assignment number in all enquiries about assignments. . Students who use word processors should consult the brochure Unisa: services and procedures about the format and paper to be used for assignments. . It is wise to make a copy of the assignment before submitting it, in case it gets lost in the post. . On the due date for the assignment, the commentary on the assignment will be sent to students. As a result, no extension for submission of the assignment will be granted

10 under any circumstances. You need not even apply for an extension, as no extensions will be granted. Assignments received after the due date will be returned unmarked. . Some students form study groups or discussion groups for a particular module. While we encourage peer support and assistance in general terms, this does not mean that you may answer assignments with the assistance from anyone else. Your assignment must be your own work. If we find that students have submitted identical or substantially similar answers, all students concerned will be given a zero grade. PLEASE NOTE: No extension for submission of assignments will be granted under any circumstances.

7.2 ASSIGNMENT 01 Assignment 01 comprises ten multiple-choice questions, similar to the type of question you will be given in the examination. As was explained above, this assignment must be submitted by the due date in order to gain admission to the examination and for your continued registration as a student in this course. Due dates for Assignment 01: 15 March 2006 Unique number: 251060 15 August 2006 Unique number: 368579

First semester: Second semester: 7.3 ASSIGNMENT 02

Assignment 02 is an optional self-evaluation assignment and contains short to medium length problem-type questions. It is up to you to decide whether you wish to submit Assignment 02 or not. Should you choose to submit the assignment, we will mark and return it to you. However, to obtain the full benefit of completing the assignment, you should, after receiving it back, also go through the process of self-assessment in accordance with the guidelines that will be provided to you in a tutorial letter. The purpose of the self-evaluation assignment is: . to assist you to work through the study material . to teach you the necessary reading and writing skills . to teach you to make a synthesis from various sources, in other words, to gather material and present it in a logical, ordered fashion and with convincing arguments (merely copying the tutorial material is totally unacceptable). . self-evaluation The fact that Assignment 02 is a self-evaluation assignment implies that you have to complete the assignment; you have to determine whether your answer meets the required minimum standard; and you must evaluate the assignment yourself by using the memorandum which we will send to all students in a tutorial letter during the course of the semester.

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The value of Assignment 02 lies in its completion. Because the type of questions in the assignment are similar to the type of questions which you can expect in the examination, you should try to answer them under examination conditions. Had the assignment been an examination counting 50 marks, you would have been given one hour to complete it. This means that you cannot write an answer that is pages long for a 5-mark question. The background knowledge that you obtain by doing the assignment and marking it, provides a good opportunity to increase your knowledge and understanding of the work to such a degree that you will be able to approach the examination with more confidence. Due dates for Assignment 02: First semester: 8 April 2006 Second semester: 8 September 2006 7.4 GENERAL APPROACH TO PROBLEM-TYPE QUESTIONS In order to answer problem-type questions in assignments satisfactorily, you must work through the prescribed tutorial material carefully. The following basic guidelines may assist you in this regard: . Students normally complain that they find it difficult to rewrite the tutorial material in their own words. Unfortunately you have to get used to this, because you will not have your tutorial matter with you during the examination. However, there are three easy steps to assist you in answering problem-type questions: O O O Study the relevant tutorial material until you understand it. While you are reading the particular section or chapter, make notes or lists of the key words and concepts. Put away your tutorial material and try to summarise that particular section in your own words by using your notes and list of key words. Use the tutorial material to finalise your summary with references to case law and other relevant authority.

. In order to complete your assignments satisfactorily you are expected to consult your study guide, prescribed textbook and tutorial letters. Carefully read the questions, determine what they pertain to, and use the relevant information in your tutorial material to answer the questions. You should make sure that you have identified the relevant legal aspect, set out the legal principles briefly with reference to applicable case law and other authorities; that you have applied these principles to the facts given in the question; reached a conclusion and have answered any specific question that may have been asked. . Neatness is essential. Plan your answers in advance. . Restrict the length of assignment answers to teach you to write concise and logical legal arguments. It is very easy to write a long, rambling answer encompassing everything which could possibly have a connection with the problem, but such an answer does not earn good marks. You must learn to summarise your tutorial material so that you can answer a

question in a factually correct, concise and similar answers in an examination.

12 logical manner. This will also teach you to give

ASSIGNMENT 01/2006 FOR FIRST SEMESTER UNIQUE NUMBER: 251060 DUE DATE: 15 MARCH 2006 You must submit this assignment in time to remain registered as a student in this module and to be admitted to the examination!

Remember that Assignment 01 should be completed on the mark reading sheet provided to you as part of your tutorial matter on registration. The due date for submission of the assignment is quite early in the semester. This is unfortunately dictated by the Department of Educations cut-off date for determining subsidies and cannot be changed by us. Although you may not have had time to study all the work in detail, it is important that you are able to answer multiple choice questions on all the prescribed material. We have therefore indicated the relevant sections for each question. QUESTION 1 Refer to Study Unit 1 and the prescribed tutorial material in Entrepreneurial Law, chapter 3. Consider the following relationships: A B C D Petrus bequeathes his farm to his two sons in his will and stipulates that they must farm in partnership. Lena, a 52 year old unmarried woman and Max (Pty) Ltd conclude an agreement. A few pharmacists enter into an agreement with the object of repackaging and selling stolen medicines. Gogga, an 18 year old heir, assisted by his guardian, enters into an agreement with Pluto CC with the object of marketing and distributing toys.

Which of the above relationships could constitute a valid partnership agreement? (1) (2) (3) (4) A and C only. A, B, C and D. B, C and D only. B and D only.

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QUESTION 2
Refer to Study Unit 1 and the prescribed tutorial material in Entrepreneurial Law, chapter 3. Consider the following statements: A B C One of the essentialia (essential elements) of a partnership is that the partnership agreement must be in writing. The Partnership Act 75 of 1998 provides that a partnership agreement will only be valid if it contains all the essentialia of a partnership. If any one of the essentialia of a partnership is not present, but the parties intended to conclude a partnership agreement, the agreement will not constitute a partnership agreement.

Indicate the CORRECT statement(s): (1) (2) (3) (4) A, B and C. B and C only. A and C only. C only.

QUESTION 3 Refer to Study Unit 1 and the prescribed tutorial material in Entrepreneurial Law, chapter 3. QUESTION 3 Johannes, Ernest and Moseki are partners in a transporting business. Johannes wants to use the partnerships truck to move his own furniture to his new flat. Consider the following statements: A B If Johannes personal use of the partnerships truck is in conflict with the interests of the partnership, but his co-partners consent to it, he can use the partnerships truck. Johannes can use the partnerships truck only if his co-partners consent to it and his personal use of the truck is so limited that it does not conflict with the interests of the partnership.

14 If Johanness co-partners are unaware of his personal use of the partnerships truck, but this use is so limited that it does not conflict with the interests of the partnership, he can use the partnerships truck.

Indicate the CORRECT statement(s): (1) (2) (3) A only. B only. A and C only.

QUESTION 4 Refer to Study Unit 6 and the prescribed tutorial material in Entrepreneurial Law, chapter 9. Which one of the following statements about a section 53(b) company is CORRECT? (1) (2) (3) (4) The directors are liable for the companys contractual debts and liabilities, but not for the companys delictual liabilities. The company is considered to be a public company and must have at least seven members. The companys name must end wit the words Ltd. The companys articles of association must prohibit the payment of dividends to its members.

QUESTION 5 Refer to Study Unit 5 and the prescribed tutorial material in Entrepreneurial Law, chapter 7. Indicate the CORRECT statement: In Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995 (4) SA 790 (A) the court held that the corporate veil can be pierced... (1) (2) (3) (4) only if some person has suffered an unconscionable injustice as a result of dealing with the corporate entity. whenever the court deems it to be just as the court has a general discretion to pierce the corporate veil. if the persons who control the company abuse its separate existence, thereby enabling them to take an unfair advantage. if the circumstances of a particular case justify it, even if there is another remedy at the disposal of the plaintiffs.

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QUESTION 6 Refer to Study Unit 13 and the prescribed tutorial material in Entrepreneurial Law, chapter 15. The articles of a company may NOT exclude the voting rights of a holder of preference shares in respect of The missing words in the sentence above are: (1) (2) (3) (4) the declaration of a final dividend. the dismissal of directors. the liquidation of the company. the issue and allocation of shares.

QUESTION 7 Refer to Study Unit 17 and the prescribed tutorial material in Entrepreneurial Law, chapter 17. Section 90 of the Companies Act 61 of 1973, as amended, regulates the making of payments by a company to its shareholders. To which one of the following payments does the section apply? (1) (2) (3) (4) Payments for the acquisition of a shareholders shares in terms of section 85. Payments of dividends to shareholders. The issue of capitalisation shares. The redemption of redeemable preference shares in terms of section 98.

QUESTION 8 Refer to Study Unit 11 and the prescribed tutorial material in Entrepreneurial Law, chapter 13. Brian is a director of Flare Ltd, a company managing a chain of Italian restaurants. At one of the board meetings of Flare Ltd, the directors decide to conclude a contract with Fromato CC for the supply of tomatoes to all the restaurants of the company. Brian is a member of Fromato CC and disclosed this fact to the other directors at the meeting. The articles of association of Flare Ltd contain no provision regulating contracts between the company and its directors.

16 The contract with Fromato CC will be... (1) (2) (3) (4) void, because it constitutes a breach of Brians fiduciary duties. void, because the articles of association of Flare Ltd do not provide for contracts with its directors. valid, because Brian has disclosed his interest in the contract to the board of directors. voidable at the option of Flare Ltd, because it was not approved by the company in general meeting.

QUESTION 9 Refer to Study Unit 18 and the prescribed tutorial material in Entrepreneurial Law, chapter 20. Which of the following persons is NOT disqualified from appointment as auditor of Multistore Ltd? (1) (2) (3) (4) Bertram, the managing director of Multistore Ltd. Alice, an ordinary director of Multistore Ltd. Nicolas, who resigned as director of Multistore Ltd at the end of the previous financial year. Sally, a registered accountant and auditor, who regularly performs the duties of bookkeeper of Multistore Ltd.

QUESTION 10 Refer to Study Unit 16 and the prescribed tutorial material in Entrepreneurial Law, chapter 16. Kwame is the executor of a deceased estate which owns a substantial number of shares in listed and unlisted public companies. Kwame has to sell these shares but has been given conflicting advice on the statutory provisions and requirements which apply when offering shares for sale. Consider the following statements: A B Kwame may not offer the shares in the unlisted public companies to the public but may sell such shares by private negotiation only. Kwame may offer the shares in the unlisted public companies to the public on condition that the offer is accompanied by a written statement containing certain prescribed information.

17 C D

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Kwame may offer the listed shares for sale to the public on condition that the offer is accompanied by a prospectus containing prescribed information.

Kwame may in his capacity as executor offer all the shares to the public without a prospectus or written statement. Which of the abovementioned statements apply to the sale of the shares? (1) (2) (3) (4) (5) A and C only. B and C only. B only. C only. D only.

ASSIGNMENT 02/2006 FOR FIRST SEMESTER NO UNIQUE NUMBER DUE DATE: 8 APRIL 2006

QUESTION 1 Gideon, a shareholder and director of Hanover (Pty) Ltd, agrees to sell his shares in the company to Ben for R20 000. In order to enable Ben to acquire the shares, Hanover (Pty) Ltd agrees to lend Ben the sum of R20 000. Explain whether this loan constitutes a contravention of the Companies Act 61 of 1973. Motivate your answer. (5) QUESTION 2 The articles of association of MotoKing provide that Maite will act as attorney for the company and that all legal matters pertaining to the company will be referred to her. The articles are subsequently amended to provide that the company may refer legal matters to any attorney decided upon by the board of directors. With reference to case law, discuss whether Maite may claim damages from the company on the basis of a breach of contract. (5) QUESTION 3 Roger is a director of Tylatyres (Pty) Ltd, a company which manufactures tyres. Roger obtains information that a limited amount of rubber which is used in the manufacture of tyres is being

18 sold very cheaply by a foreign company. Roger resigns as director of Tylatyres (Pty) Ltd and incorporates Speedytyres (Pty) Ltd which also manufactures tyres. Roger then enters into a contract with the foreign company on behalf of Speedytyres (Pty) Ltd for the purchase of the entire stock of rubber.

Advise Roger whether his conduct constitutes a contravention of his fiduciary duties. QUESTION 4

(10)

Alec, Ronnie and Ivy are members of Alaska Farms CC. In terms of the founding statement, the principal business of the corporation is to make ice cream. The association agreement provides that only Ivy has the authority to represent the close corporation. It is further provided that Ivy may not enter into any contracts of sale on behalf of the close corporation where the value of such contract exceeds R10 000, without first having obtained the permission of Alec and Ronnie. Ivy concludes a contract with Fridges Galore (Pty) Ltd on behalf of the close corporation in terms of which she purchases a freezer for R20 000. Neither Alec nor Ronnie has consented to the contract and both are unaware of it. Discuss whether Alaska Farms CC is bound by the contract. (10) TOTAL: 30 MARKS

ASSIGNMENT 01/2006 FOR SECOND SEMESTER UNIQUE NUMBER: 368578 DUE DATE: 15 AUGUST 2006

Remember that Assignment 01 should be completed on the mark reading sheet provided to you as part of your tutorial matter on registration. The due date for submission of the assignment is quite early in the semester. This is unfortunately dictated by the Department of Educations cut-off date for determining subsidies and cannot be changed by us. Although you may not have had time to study all the work in detail, it is important that you are able to answer multiple choice questions on all aspects of the work. We have therefore indicated the relevant sections for each question. QUESTION 1 Refer to Study Unit 1 and the prescribed tutorial material in Entrepreneurial Law, chapter 3. Ron, Ross and Ryan are partners in a ploughing business. Ron wants to use the partnerships tractor to plough on his own farm.

19 Consider the following statements: A

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If Rons personal use of the partnerships tractor conflicts with the interests of the partnership, but his co-partners consent thereto, Ron is allowed to use the partnerships tractor. Ron can use the partnerships tractor only if his co-partners consent thereto and his personal use of the tractor is so limited that it does not conflict with the interests of the partnership. If Rons co-partners are unaware of his personal use of the partnerships tractor, but this use is so limited that it does not conflict with the interests of the partnership, Ron is allowed to use the partnerships tractor.

Indicate the CORRECT statement(s): (1) (2) (3) A only. B only. A and C only.

QUESTION 2 Refer to Study Unit 3 and the prescribed tutorial material in Entrepreneurial Law, chapter 5. John, William and Peter are partners in a business that sells soft drinks. In terms of their partnership agreement, only John may contract with outsiders on behalf of the partnership. Should he wish to enter into an agreement where the value exceeds R10 000, he must obtain the prior consent of William and Peter. John buys a speedboat in the name of the partnership for R80 000 without the knowledge of his partners. William concludes a contract on behalf of the partnership for the purchase of a fridge to store the soft drinks, without the knowledge of his partners. The purchase price of the fridge is R20 000. Indicate the CORRECT statement: (1) (2) (3) (4) (5) The partnership will be bound by both contracts. The partnership will be bound by the contract entered into by John, but not by the one entered into by William. The partnership will not be bound by either of the two contracts. The partnership will be bound by the contract entered into by William, but not by the one entered into by John. The partnership will be bound by the contract entered into by John, but only up to an amount of R10 000 and will not be bound by the contract entered into by William.

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QUESTION 3 Refer to Study Unit 3 and the prescribed tutorial material in Entrepreneurial Law, chapter 5. Consider the following statements: A B C One of the essentialia (essential elements) of a partnership is that the partnership agreement should be in writing and signed by all the parties thereto. The Partnership Act 75 of 1998 provides that a partnership agreement will only be valid if it contains all the essentialia of a partnership. If all the essentialia of a partnership are present in an agreement, but the parties did not intend to conclude a partnership agreement, the agreement will still constitute a partnership agreement. If any one of the essentialia of a partnership is not present in an agreement, but the parties intended to conclude a partnership agreement, the agreement will not constitute a partnership agreement.

Indicate the CORRECT statement(s): (1) (2) (3) (5) A, B and C only. B, C and D only. B and D only. D only.

QUESTION 4 Refer to study unit 7 and the prescribed tutorial material in Entrepreneurial Law, chapter 10. Which ONE of the following decisions is the BEST AUTHORITY for the statement that a promoter who concluded a contract on behalf of a yet to be incorporated company will not incur personal liability if the company does not ratify the contract, unless the parties to the contract agreed on such liability? (1) (2) McCullogh v Fernwood Estate Ltd 1920 AD 204 Sentrale Kunsmis Korporasie (Edms) Bpk v NKP Kunsmisverspreiders (Edms) Bpk 1970 (3) SA 367 (A)

21 (3) (4) In re Selesnik 1975 (3) SA 696 (A) Nine Hundred Umgeni Road (Pty) Ltd v Bali 1986 (1) SA 1 (A)

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QUESTION 5 Refer to Study Unit 8 and the prescribed tutorial material in Entrepreneurial Law, chapter 11. Which of the following documents need NOT be lodged with the Registrar of Companies to obtain registration of a company? (1) (2) (3) (4) (5) Memorandum of association. Application for the issue of the certificate to commence business. Notarially certified copies of the memorandum and the articles. Notice of the situation of the company's registered office and its postal address. Articles of association.

QUESTION 6 Refer to Study Unit 8 and the prescribed tutorial material in Entrepreneurial Law, chapter 11. Indicate the CORRECT statement: (1) (2) (3) (4) The articles of association of a company constitute a binding contract between the company and its members and between the company and its creditors. The articles of association of a company constitute a binding contract between the company and its members and between the members themselves. The premature removal of a director who has been appointed in terms of the articles of association for five years constitutes a breach of contract by the company. The premature termination of the appointment of the company's legal adviser, appointed in terms of the articles for five years, constitutes a breach of contract by the company.

QUESTION 7 Refer to Study Unit 11 and the prescribed tutorial material in Entrepreneurial Law, chapter 13. Andrew hears from a friend Ben (an employee of the Reserve Bank) that the interest rate will be increased. Andrew immediately informs his broker Charles of this and instructs him to buy

22 Government bonds. Which of the following of insider trading? (1) (2) (3) Andrew, Ben and Charles. Only Andrew and Ben. Only Andrew and Charles. persons have possibly committed the offence

QUESTION 8 Refer to Study Unit 12 and the prescribed tutorial material in Entrepreneurial Law, chapter 14. Indicate the CORRECT statement: (1) (2) (3) (4) Section 36 of the Companies Act 61 of 1973 abolished the ultra vires doctrine. In terms of section 36 a company may be bound by an ultra vires contract even if the other contracting party knows that the company is acting ultra vires. In terms of the common law, the members of the company in a general meeting could validate an ultra vires act. The capacity of a company is determined by the main objects clause as set out in the articles of association.

QUESTION 9 Refer to Study Unit 18 and the prescribed tutorial material in Entrepreneurial Law, chapter 20. The directors of Tremendous Ltd appointed a financial director knowing that he had a previous criminal conviction for theft. The directors of the company never informed the auditors, Fogg & Fogg, of this fact. In their examination of the companys annual financial statements, Fogg & Fogg failed to notice that the financial director of Tremendous Ltd had been stealing huge amounts of money from the company over the last three years. The company now intends instituting an action for damages against Fogg & Fogg based on their negligence in examining the financial statements. Consider the following statements with regard to the above set of facts: A B Tremendous Ltd may institute an action against Fogg & Fogg based on either breach of contract or delict. Fogg & Fogg cannot be held liable because in terms of the Public Accountants and Auditors Act 80 of 1991 an auditor is not liable to his clients for mere negligence in his examination of the annual financial statements.

23 C

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Tremendous Ltd will fail in any action for damages against Fogg & Fogg because the negligence of the company in not informing the auditors about the criminal record of the financial director contributed to the damages suffered. Fogg & Fogg will only be liable for a part of the damages suffered by Tremendous Ltd because the company is also liable as a result of its own negligence.

Indicate the CORRECT statement(s): (1) (2) (3) (4) C only. A and D only. A only. B only.

QUESTION 10 Refer to Study Unit 19 and the prescribed tutorial material in Entrepreneurial Law, chapter 26. Indicate the CORRECT statement (1) (2) (3) An association agreement is not a prerequisite for the formation and running of a close corporation. New members of a close corporation have to sign any existing formal association agreement before they will be bound by it. Where a member institutes proceedings on behalf of a close corporation he will never be personally liable for the cost of the proceedings provided he has duly notified all the other members of his intention to do so. Payment by a corporation to a member for services rendered as an officer of the corporation must comply with the solvency and liquidity criteria of the Close Corporations Act of 1984.

(4)

ASSIGNMENT 02/2006 FOR SECOND SEMESTER NO UNIQUE NUMBER DUE DATE: 8 SEPTEMBER 2006

QUESTION 1

24 Xeno Ltd concludes a contract with Tshepo, one of its shareholders, to obtain Tshepos shares in the company. When payment becomes due, it is apparent that Xeno Ltd can no longer meet the requirements of solvency and liquidity as prescribed in section 85 of the companies Act of 1973. Advise Tshepo whether he can enforce the contract against Xeno Ltd. (10)

QUESTION 2 Jasmine wants to buy shares in Alibaba Ltd from Ally, one of the companys shareholders. She intends to obtain the funds to pay for the shares by selling her truck to Alibaba Ltd for R150 000, which is a fair price. Discuss whether the proposes transaction is likely to contravene section 38 of the Companies Act of 1973. Also explain the consequences of a contravention of section 38 to Jasmine. (10) QUESTION 3 Peter, Paul and Mary are partners. Peter contributed R1 000, Paul contributed R2 000 and Mary contributed R10 000 to the partnership fund. In terms of their partnership agreement, Peter will not be liable for any losses incurred by the partnership. The partnership incurs a net loss of R2000. Advise the partners how this loss will be shared between them. (5) QUESTION 4 The main objects clause in the memorandum of association of ToyzGalore (Pty) Ltd provides that the company is involved in all aspects of the manufacture and sale of educational toys for pre-school children. The board of directors concludes a contract with Kreyan in terms of which ToyzGalore (Pty) Ltd agrees to purchase pre-fabricated huts from him so that the company may sell them at a profit. Discuss whether ToyzGalore (Pty) Ltd is bound by the contract. We hope that you will enjoy this module and we wish you success with your studies. The lecturers UNISA (5)