The Legislative Framework Determining Capacity and Representation of a Company in South African Law and its Implications for the Structuring of Special Purpose Companies

Authors Natania Locke

ISSN: 1996-2177
Affiliations: Professor of Mercantile Law, University of Johannesburg
Source: South African Law Journal, Volume 133 Issue 1, 2016, p. 160 – 188


This article considers the provisions regarding the capacity and representation of companies in terms of the Companies Act 71 of 2008, with specific application to special purpose companies. Such companies must comply with the requirements for ring-fenced companies. The capacity of the company must be limited to its special purpose. The amendment of the restricting clause must either be prohibited or must be subject to the additional approval of, for instance, the trustee for debenture-holders. It is recommended that the authority of directors to transact outside the limited purpose of the company must be excluded in a clause in the memorandum of incorporation. The amendment of this clause must be prohibited or restricted. Such a provision would be a ‘restrictive condition’, but even if it were not, prohibition of amendment of the clause would give access to the ring-fence provisions of the Act. Constructive notice may be afforded to such clauses in this manner, thereby excluding the applicability of s 20(7), the common-law Turquand rule, and estoppel. The ratification of actions outside the limited capacity of the company or restricted authority of the directors may be excluded in the memorandum of incorporation. Rather than being an attempt at avoidance, this is a greater restriction than would otherwise apply to a company.