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Companies Act, 2008 (Act No. 71 of 2008)

Chapter 2 : Formation, Administration and Dissolution of Companies

Part B : Incorporation and legal status of companies

20. Validity of company actions

 

 

1) If a company’s Memorandum of Incorporation limits, restricts or qualifies the purposes, powers or activities of that company, as contemplated in section 19(1)(b)(ii)
a) no action of the company is void by reason only that—
i) the action was prohibited by that limitation, restriction or qualification; or
ii) as a consequence of that limitation, restriction or qualification, the directors had no authority to authorise the action by the company; and
b) in any legal proceeding, other than proceedings between—
i) the company and its shareholders, directors or prescribed officers; or
ii) the shareholders and directors or prescribed officers of the company,

no person may rely on such limitation, restriction or qualification to assert that an action contemplated in paragraph (a) is void.

 

2) If a company’s Memorandum of Incorporation limits, restricts or qualifies the purposes, powers or activities of that company, or limits the authority of the directors to perform an act on behalf of the company, the shareholders, by special resolution, may ratify any action by the company or the directors that is inconsistent with any such limit, restriction or qualification, subject to subsection (3).

 

3) An action contemplated in subsection (2) may not be ratified if it is in contravention of this Act.

 

4) One or more shareholders, directors or prescribed officers of a company, or a trade union representing employees of the company, may apply to the High Court for an appropriate order to restrain the company from doing anything inconsistent with this Act.

 

5) One or more shareholders, directors or prescribed officers of a company may apply to the High Court for an appropriate order to restrain the company or the directors from doing anything inconsistent with any limitation, restriction or qualification contemplated in subsection (2), but any such proceedings are without prejudice to any rights to damages of a third party who—
a) obtained those rights in good faith; and
b) did not have actual knowledge of the limit, restriction or qualification.

 

6) Each shareholder of a company has a claim for damages against any person who intentionally, fraudulently or due to gross negligence causes the company to do anything inconsistent with—
a) this Act; or
b) a limitation, restriction or qualification contemplated in this section, unless that action has been ratified by the shareholders in terms of subsection (2).

 

7) A person dealing with a company in good faith, other than a director, prescribed officer or shareholder of the company, is entitled to presume that the company, in making any decision in the exercise of its powers, has complied with all of the formal and procedural requirements in terms of this Act, its Memorandum of Incorporation and any rules of the company unless, in the circumstances, the person knew or reasonably ought to have known of any failure by the company to comply with any such requirement.

 

8) Subsection (7) must be construed concurrently with, and not in substitution for, any relevant common law principle relating to the presumed validity of the actions of a company in the exercise of its powers.

 

9) If, on application by an interested person or in any proceedings in which a company is involved, a court finds that the incorporation of the company, any use of the company, or any act by or on behalf of the company, constitutes an unconscionable abuse of the juristic personality of the company as a separate entity, the court may-
a) declare that the company is to be deemed not to be a juristic person in respect of any right, obligation or liability of the company or of a shareholder of the company or, in the case of a non-profit company, a member of the company, or of another person specified in the declaration; and
b) make any further order the court considers appropriate to give effect to a declaration contemplated in paragraph (a).