MRL2601 MAY/JUNE 2023 EXAM ANSWERS
QUESTION 1
1.1
May/June 2023
With reference to relevant legislation and case law, explain the legal consequences of
the recognition of a company’s separate legal personality.
(10)
1.2
Name the different types of companies that are provided ...
1.1 The legal consequences of the recognition of a company's separate legal personality
are as follows:
a) Limited liability: One of the main consequences is that the liability of the company's
shareholders or members is limited to the amount they have invested or guaranteed to the
company. Their personal assets are protected from the company's debts and obligations.
This principle is known as limited liability, and it encourages investment and
entrepreneurship by mitigating the risk for shareholders.
b) Perpetual succession: A company, being a separate legal entity, has perpetual
succession. It means that the company continues to exist even if its members or
shareholders change. The company's life is not dependent on the lives of its members,
and it can carry on its activities indefinitely unless dissolved or wound up according to the
law.
c) Capacity and rights: A company, as a separate legal entity, has its own capacity to enter
into contracts, own property, sue, and be sued. It can exercise its rights and obligations
independently of its members. This allows the company to engage in legal transactions
and participate in various activities.
d) Separate property: A company's assets and liabilities are separate from those of its
shareholders or members. The company can own property, hold bank accounts, and enter
into agreements in its own name. The shareholders do not have direct ownership of the
company's assets, although they have an indirect interest through their shareholding.
e) Corporate governance: The recognition of a company's separate legal personality
necessitates the establishment of corporate governance structures, such as a board of
directors, to manage the company's affairs. These structures provide a framework for
decision-making, accountability, and compliance with legal obligations.
The legal consequences of a company's separate legal personality provide the foundation
for its distinct existence and functioning as a legal entity.
1.2 The Companies Act 71 of 2008 in South Africa provides for various types of
companies. These include:
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