Exam Practice Questions

Chapter 1:

Question 1:

C is considering starting a business to sell his peanut butter. He isn’t sure what type
of business enterprise to start. Advise C on 5 (five) factors which will play a role in
his choice of a specific business enterprise. [5]

Question 2:

C is considering starting a business to sell his peanut butter as a sole proprietor and
is trading as Cs PB. He isn’t sure whether he has to register his business name.
Advise C.

[5]

Question 3:

C is considering starting a business to sell his peanut butter. He isn’t sure whether
he has to register a company or if he can continue his business as a sole
proprietorship.

Advise C on the most important aspects to take into account in this respect. [5]

Chapter 6
Question 1
P (Pty) Limited bought goods from F (Pty) Limited on credit. When P was liquidated
F did not receive a dividend as the P had no assets. F subsequently tried to hold the
directors who are also shareholders liable for the debts of P.

Discuss under what circumstances the directors of P (Pty) Limited could be held
responsible for the debts of P. Your answer should include a full discussion of
separate legal personality as well as a discussion of Airport Cold Storage (Pty)
Limited v Ebrahim 2008 (6) SA 585 SCA. [10]

Question 2:

The Queen Sisters operate a group of various companies. The manner in which they
operate the companies is to treat them all as one entity through the holding
company. They have essentially been operating a sham taking investors’ money.

One of the investors approaches you for advice. He does not know which of the
companies they would have to sue. Must he sue a specific company or can he sue
any of the companies within the group? Provide him with advice.
[Your answer must also include a discussion of how the legal personality of the
companies is treated in a group generally, and thereafter a discussion of Ex parte
Gore NO and Others NNO 2013 All SA 437 (WCC)]. [10]

Question 3
S worked at a company called Pin Fashions (Pty) Limited. While she was working
there she signed a restraint of trade agreement with them. She resigned. In order to
avoid the restraint of trade agreement, she started a company called Black (Pty)
Limited. This company competes directly with her former employer, Pin Fashions
(Pty) Limited. Pin Fashions (Pty) Limited want to bring an interdict against Black
(Pty) Limited but they have been told that they will be unsuccessful because Black
(Pty) Limited is a separate legal person.

Discuss whether this assertion is correct. Your answer should include a full
discussion of separate legal personality as well as a discussion of the most relevant
case law to suit the facts. [10]
Chapter 11
Question 1

The main business of N (Pty) Limited is to act as a property developer. Despite this,
the CEO of the Company enters into an agreement in the amount of R10 million rand
to buy two luxury boats.

The shareholders approach you for your urgent advice and want to know what
remedies are available to assist them in these circumstances. Set out the remedies
available and discuss each one. Also set out the remedy that you believe would be
the most beneficial to the shareholders. [10]

Question 2:
The main business of N (Pty) Limited is to act as a property developer. Despite this,
the CEO of the Company enters into an agreement in the amount of R10 million rand
to buy two luxury boats. The sports cars have already been delivered.

The shareholders approach you for your urgent advice and want to know whether
the agreement is valid. Advise them with reference to the following: the Ultra vires
doctrine under the common law, the impact of Section 20 (1) (a) of the Companies
Act, 2008 and the most suitable remedy that is available to the shareholders. [10]

Question 3:
C & B (Pty) Limited is in the process of being registered. Before registration K acts
on behalf of C & B (Pty) Limited and enters into a contract with Chocolate (Pty)
Limited for the purchase of chocolates for R100 000.00. Subsequently, C and B (Pty)
Limited is successfully incorporated and after incorporation, the company refuses to
ratify the contract that K entered into on its behalf with Chocolate (Pty) Limited. They
also refuse to pay Chocolate (Pty) Limited for the chocolate, as it states that it does
not have the funds available. Despite this C & B (Pty) Limited proceeds to sell the
chocolates with their champagne to their customers and make a profit.

Discuss the type of agreement that was entered into and what recourse is available
to Chocolate (Pty) Limited. [10]

Chapter 12:
Question 1:
FP (Pty) Limited has one million ordinary shares. Each ordinary share carries one
voting right. The company wants to issue a further one million ordinary shares in
terms of its general authority to issue shares granted in Section 36 of the Companies
Act, 2008.

The Company secretary doubts the validity of the proposed issue and is of the
opinion that a special resolution would have to be passed. Is the company secretary
correct? Provide an explanation for your answer. [7]

Question 2:

S (Pty) Limited has had a really rough financial year and is struggling to pay its
creditors. It has a piece of land that is owns, however, it is struggling to sell this piece
of land. This piece of land is however more valuable than the amount it owes to its
creditors. But due to the fact that it does not have any cash money available it
cannot meet the claims of its creditors. The shareholders have expressed frustration
at not having received a dividend in 2017, and are demanding a dividend in 2018.

Discuss whether or not the company may pay a dividend to its shareholders to keep
them happy? Your answer should include an application of the solvency and liquidity
test as well as the requirements for payment of dividends in the context of this
question. [10]

Question 3:
FP (Pty) Limited as issued one million ordinary shares. The company wants to issue
1 000 ordinary shares to its directors for their hard work in terms of its general
authority to issue shares granted in Section 36 of the Companies Act, 2008. The
Company secretary doubts the validity of the proposed issue and is of the opinion
that a special resolution would have to be passed.

Discuss whether or not the company secretary is correct? Provide an explanation for
your answer.

[7]

Question 4:
W is a promising young man and he has great ideas for a company that he would
like to join as a shareholder. He just does not have the financial ability to buy shares
in the company. The company wants to assist W with buying shares in the company.
The company’s assets currently exceed its liabilities and it is able to pay its creditors.
The Memorandum of Incorporation of the Company is silent on the issue.

Discuss whether or not the company may provide the financial assistance?
[Your answer should include a discussion of what constitutes financial assistance,
who must authorise the provision of the financial assistance, the requirements
thereof and who must agree thereto.] [10]

Question 5:
FP (Pty) Limited has issued one million ordinary shares. The company wants to
issue an additional ordinary 1 000 shares to its employees under an employee share
scheme for their hard work in terms of its general authority to issue shares granted in
Section 36 of the Companies Act, 2008.
The Company secretary doubts the validity of the proposed issue and is of the
opinion that a special resolution would have to be passed. Discuss whether or not
the company secretary is correct. Provide an explanation for your answer. [7]

Question 6:
J has great ideas for a company that he would like to join. He just does not have the
financial ability to buy shares in the company. The company wants to assist J with
buying shares in the company. The company’s liabilities currently exceed its assets
and it is unable to pay its creditors. The Memorandum of Incorporation of the
Company also states that before assistance may be provided to someone to
purchase shares in the company a special resolution must be held. To date, such a
special resolution has not been held.

Discuss whether the company may provide the financial assistance to J.

Chapter 13:
Question 1:
FP Limited plan on issuing an additional 10 000 shares to raise capital for new pipes
to be laid. C holds 1 000 shares in the company, which equates to 10 percent of the
voting rights in the company. She insists that the company is obligated to offer her 1
000 of the new shares before issuing them to members of the public in terms of her
right of pre-emption. The Memorandum of Incorporation of the Company is silent on
the issue.

Discuss whether or not C is correct in her assertion. [9]

Question 2:
The auditor of GP (Pty) Limited failed to detect fictitious invoicing taking place. What
two remedies does the company have against the auditor? What must the company
prove in respect of each of those remedies? Which of the two remedies would you
advise the company to pursue and why? [10]
Question 3:
The auditor of GP (Pty) Limited created misleading financial statements. What
remedies does the Bank that has lost money as a result, have against the auditor?
What must the Bank prove in respect of this remedy? Refer to the International
Shipping v Bentley (1990) SA 680 (A) case in your answer. [10]

Question 4:
The auditor of GP (Pty) Limited created a fraudulent financial opinion in order to
obtain investments into the company. Discuss whether the auditor can incur liability
in terms of the Auditing Profession Act 26 of 2005? [10]

Chapter 18:
Question 1:
K is the minority shareholder of ABC (Pty) Limited. The company has given a notice
to K in terms of which she has been advised that a resolution is going to be passed
in terms of which her class of share will no longer have any voting rights attached to
it.

Discuss the process for dissenting shareholder’s appraisal rights in the context of K’s
options. [6]

Chapter 19
Question 1:
A received the following notice for a shareholders’ meeting via email:
“Dear Shareholder
Please note a meeting will take place on 18 August 2018 at which various topics will
be discussed.”
There was nothing attached to the notice.

Discuss whether or not A received a valid notice? [10 x ½ = 5]

Question 3
A (Pty) Limited has taken a decision to amend the Companies Memorandum of
Incorporation. What type of resolution is required and what are the requirements for
such a resolution? [5]

Chapter 20:
Question 1:
A is a director of a company. He failed to read a contract before signing it and as a
result the company lost millions of Rands. Discuss whether or not he can be held
liable. [5]

Question 2:
A is a director of a company. He failed to advise the company against signing a
contract with J when he knew J was an unrehabilitated insolvent and would not pay
the company in terms of the contract. He did this because J is his cousin. As a result
the company lost millions. Can he be held liable? Discuss in relation to breach of
trust. [5]

Question 3:
A wants to appoint his son, C as director. C’s own business has failed and he has
been advised to apply for the sequestration of his estate.

Should C proceed with the application for sequestration of his estate in light of the
offer as director? [5]
Question 4:
A is a director of a company. He allowed the company to continue trading, despite
knowing that it was trading under insolvent circumstances. As a result, a creditor of
the company has lost millions.

Can A be held liable? Discuss in relation to reckless trading. Refer to relevant case
law. [7]