MRL2601 EXAM 27 JUNE 2023 - ANSWERS/SOLUTIONS (MEMO) WITH REFERENCESN
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Course
MRL2601 - ENTREPRENEURIAL LAW (MRL2601)
Institution
University Of South Africa (Unisa)
QUESTION 1
1.1 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 for in the Companies Act 71 of
2008. (5)
1.3 Vela is a shareho...
, QUESTION 1
1.1 The concept of a company as a separate legal person means that:
• The company has its own legal identity, different from its directors and
shareholders, and it can have its own rights and duties.
• The company is the only one liable for its own debts and obligations, and its
directors or shareholders are not (unless the law or the company’s
constitution says otherwise) .
• The company owns its own property and assets, and they are not the property
of its shareholders.
• The company can sue or be sued in its own name. This idea comes from the
case of Salomon v Salomon & Co Ltd, which is also followed in South Africa.
It is also stated in section 19(1)(b) of the Companies Act 71 of 2008 and
section 8(4) of the Constitution of the Republic of South Africa.
But sometimes, the courts may disregard or pierce this idea and hold the directors or
shareholders accountable for the company’s actions. This may happen when:
• The company is used for fraud or dishonest purposes.
• The company is used as a puppet or a tool of another person or entity.
• The company is used to evade a legal duty or obligation.
• The company is used to do something that is very unfair or wrong with its
legal identity.
These situations are based on common law rules and laws, such as section 20(9) of
the Companies Act 71 of 2008, which gives the courts the authority to say that a
company is not a legal person in some cases. Some examples of cases where the
courts have done this are:
• Lategan v Boyes, where the court pierced the idea to hold a director
accountable for transferring his property to a company to avoid paying his
creditors.
• Botha v Van Niekerk, where the court pierced the idea to hold a shareholder
accountable for using a company as his personal business.
• Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd, where the court
pierced the idea to hold a parent company accountable for the debts of its
subsidiary, which was used as a way to evade contractual duties.
• Ex Parte Gore and others NNO, where the court pierced the idea to hold a
director accountable for using the legal identity of a company to avoid paying
maintenance to his ex-wife.
1.2 According to the Companies Act 71 of 2008, there are four types of profit
companies and one type of non-profit company. The types of companies are:
• Private company: A company that limits the number of its shareholders (no
more than 50), restricts the transferability of its shares, and does not offer its
shares to the public or trade them on the stock exchange . The abbreviation
for a private company is (Pty) Ltd.
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