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UNIT 13
CORPORATE FINANCE
(1)
Explain how a company finances its activities:
Companies finance their activities through a combination of equity and debt. Equity
financing involves selling shares (ownership stakes) in the company, while debt
financing involves borrowing money, often by issuing bonds or taking loans from
banks.
(2)
Demonstrate your knowledge and understanding of shares:
Shares represent ownership in a company. They grant shareholders certain rights,
such as voting rights and the right to a share of the company's profits.
(3)
Define a share and describe its nature:
A share is a unit of ownership in a company. It represents a portion of the company's
equity and often comes with various rights, including the right to vote at shareholder
meetings and the right to receive dividends.
(4)
Explain how shares are transferred:
Shares are transferred through a process of stock trading. Buyers purchase shares
from sellers on stock exchanges or through direct transactions. The transfer typically
involves changing ownership records with the company and updating the share
registry.
(5)
Explain the rights associated with shares:
Shareholders have various rights, including voting at shareholder meetings, receiving
dividends, and the right to information about the company's activities. The extent of
these rights can vary depending on the type of shares held.
(6)
Explain, and compare, the different classes of shares:
Companies may issue different classes of shares, each with its unique characteristics
and rights. Common classes include ordinary shares, preferred shares, and restricted
shares. These classes offer varying levels of control and financial benefits.
(7)
Explain, and compare, the issuing and authorization of shares, and the
requirements for each:
Issuing shares involves making them available for purchase, and authorization relates
to the total number of shares a company is allowed to issue. The process includes
complying with regulatory requirements and obtaining shareholder approval when
necessary.
(8)
Explain the subscription of shares:
Subscription of shares involves an offer to purchase shares at a certain price.
Shareholders can subscribe to new shares during a company's initial public offering
(IPO) or during additional share issuances.
(9)
Explain, and compare, consideration for shares and ownership of shares, and
the requirements for each:
Consideration for shares involves the value exchanged for the shares. It could be in
the form of cash, assets, or services. Ownership of shares results from the transfer of
legal ownership when consideration is given.
(10)
Explain pre-emptive rights in the context of shares:
Pre-emptive rights grant existing shareholders the opportunity to purchase additional
shares before they are offered to external parties. This allows current shareholders to
maintain their ownership percentage.
(11)
Explain the requirements pertaining to shares in the context of a private
company:
Private companies often have specific regulations governing the issuance, transfer,
and ownership of shares. These requirements vary by jurisdiction and the company's
own Memorandum of Incorporation (MOI).
(12)
Describe, and distinguish between a nominee shareholder and a person who
holds a beneficial interest in a share:
A nominee shareholder is a legal holder of shares on behalf of someone else (the
beneficial owner). The nominee holds the shares but does not have the ultimate rights
or benefits of ownership.
(13)
Explain the disclosure requirements for the holding of beneficial interest in
shares:
Shareholding disclosure requirements vary by jurisdiction and are often in place to
maintain transparency. They may require beneficial owners to disclose their holdings
to regulatory authorities.
(14)
Explain the respective duties of a shareholder and a company in respect of
disclosure of shareholding:
Shareholders and companies both have responsibilities related to shareholding
disclosure. Shareholders should adhere to disclosure requirements, and companies
should maintain accurate share registries and report share ownership as required.
(15)
Describe the role of the Board of Directors in relation to shares:
The Board of Directors is responsible for overseeing the management and issuance of
shares. They make decisions related to share issuance, dividends, and other share-
related matters in the best interest of the company and its shareholders.
(16)
Demonstrate your knowledge and understanding of debentures:
Debentures are long-term debt instruments issued by companies or governments.
They represent a promise to repay the principal amount with interest to the debenture
holder.
(17)
Define a security and describe its nature:
A security is a financial instrument that represents an ownership interest or debt,
including shares, debentures, bonds, and other tradeable financial assets.
(18)
Define a debenture and describe its nature:
A debenture is a type of bond or debt security issued by a company or government. It
is an acknowledgment of debt that includes a promise to repay the principal amount
with interest.
(19)
Explain the different applications of the Companies Act 71 of 2008 in the
context of debentures (as per Part D of Chapter 2 of the Act):
Part D of Chapter 2 of the Companies Act 71 of 2008 contains provisions related to the
registration, issue, and management of debentures by companies. These provisions
are essential for ensuring transparency and protection of debenture holders.
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(20)
Explain the rights and obligations associated with debentures:
Debenture holders have the right to receive interest payments and the principal
amount upon maturity. They also have the obligation to comply with the terms and
conditions outlined in the debenture agreement.
(21)
Distinguish between certificated and uncertificated securities:
Certificated securities involve physical certificates representing ownership, while
uncertificated securities are held electronically without a paper document.
(22)
Distinguish between listed and unlisted securities:
Listed securities are traded on stock exchanges and have a market price, while
unlisted securities are not publicly traded.
(23)
Explain how securities are transferred:
The transfer of securities involves changing ownership rights, typically facilitated
through brokerage accounts or electronic systems. The process varies for certificated
and uncertificated securities.
(24)
Explain, and distinguish between, the legal position and requirements for the
offering of securities on a primary and secondary market:
The primary market involves the initial issuance of securities by a company, while the
secondary market involves trading previously issued securities. The legal
requirements and obligations differ between the two markets.
(25)
Explain the disclosure requirements for the initial public offerings of listed and
unlisted securities:
Companies must disclose information about their financial health, operations, and
prospects when offering securities to the public. The specific requirements can vary
depending on whether the securities are listed or unlisted.
(26)
Explain, and distinguish between, non-public and public offerings:
Non-public offerings are made to a limited number of individuals or institutions, while
public offerings are open to a broader range of investors. Different regulatory
requirements apply to each type of offering.
(27)
Explain the recourses available to security holders to protect and enforce their
rights:
Security holders have various recourses to protect their rights, including legal action,
voting at shareholder meetings, and engagement with regulatory authorities.
UNIT 14
CORPORATE GOVERNANCE - SHAREHOLDERS
(1)
Define "shareholders" & distinguish between the general definition in section
1 and the definition applicable to Part F of Chapter 2 for purposes of
governance:
Shareholders are individuals or entities that own shares in a company,
representing ownership interests.
In Section 1 of the CA, a shareholder is generally defined as a person who holds
shares in a company.
For the purposes of governance in Part F of Chapter 2, shareholders are individuals
or entities with voting rights, meaning they have the ability to influence decisions
related to the company's governance.
(2)
Explain the interrelation between the directors and the shareholders of a company:
Directors are responsible for managing the day-to-day affairs of a company and making
operational decisions. Shareholders, on the other hand, own the company and have
rights to influence major decisions, such as appointing directors, approving financial
statements, and making significant policy changes. The interrelation is that directors
are accountable to shareholders and must act in the company's best interest.
(3)
Name, explain, and differentiate between an annual general meeting and a meeting of
shareholders:
An annual general meeting (AGM) is a mandatory yearly meeting required for most
companies. It's a specific type of meeting held to discuss various matters, including the
approval of financial statements, the appointment of directors, and the declaration of
dividends.
A meeting of shareholders refers to any other gathering of shareholders outside the
AGM. These meetings can be called for specific purposes or issues and are not limited
to an annual basis. The key difference is that AGMs are held annually, while meetings of
shareholders are called as needed.
(4)
Describe and explain the legal requirements for an annual general meeting in respect of:
the type of company: Most companies, regardless of their type (public, private,
non-profit), are required to hold an AGM.
the requirements to convene the meeting and those authorized to do so: The
AGM is convened by the company's board of directors, and shareholders may also
request the convening of an AGM under certain circumstances.
the requirements in respect of notice of the meeting; in particular the form,
content and notice periods: Notices for AGMs must be sent to shareholders in
writing, specifying the time, date, and place of the meeting. The notice period
may vary, but it must adhere to the statutory or company's Articles of Association
requirements.
the timing and frequency of the meeting: AGMs must be held within a specific
timeframe (e.g., six months after the company's financial year-end). They are
held annually.
the matters to be transacted at the meeting: Matters include approval of financial
statements, appointment of directors, and the declaration of dividends.
the required quorum for a meeting, and distinguish between a votes quorum and
a person quorum: The quorum for an AGM refers to the minimum number of
shareholders (person quorum) and shares (votes quorum) required for the
meeting to proceed. These may vary by company type and are often defined in
the company's Articles of Association.
the resolutions taken at meetings, and 1.7.1. distinguish between a special
resolution and an ordinary resolution: Resolutions are decisions made at AGMs. A
special resolution typically requires a higher majority of votes and is used for
significant changes to the company, such as amending its Memorandum of
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Incorporation. An ordinary resolution deals with routine matters and requires a
simple majority.
(5)
Explain the rules to set a higher or lower requirement for a specific resolution:
The company's Articles of Association may specify a different requirement for certain
resolutions. Otherwise, the statutory requirement applies.
UNIT 15
CORPORATE GOVERNANCE - DIRECTORS
1.
Define "directors," "board of directors," and "prescribed officers":
Directors:
Directors are individuals elected or appointed to oversee the
management and decision-making of a company. They play a crucial role in shaping
the company's policies, strategies, and overall direction.
Board of Directors:
The board of directors refers to the collective group of
individuals who are responsible for the governance and management of the
company. They provide strategic guidance, oversee executive decisions, and ensure
the company's best interests.
Prescribed Officers:
Prescribed officers are individuals appointed by the board with
specific responsibilities, often related to compliance and administration. They are
typically senior executives or managers within the company.
2.
Explain the role of the "board of directors" in respect of a company:
The
board of directors is responsible for making significant decisions related to the
company's management, governance, and strategic direction. Their role includes
setting policies, approving major corporate actions, safeguarding the interests of
shareholders, and ensuring the company complies with legal and regulatory
requirements.
3.
Discuss the role of the memorandum of incorporation in relation to the
directors:
The memorandum of incorporation (MOI) sets out the framework for the
appointment and removal of directors, their powers, and their responsibilities. It may
also specify any qualifications or disqualifications for directors. The MOI is a critical
document that guides the governance of a company.
4.
Explain the composition of the board of directors and differentiate between
the requirements based on the type of company:
Composition of the Board:
The board of directors can vary in size and
composition. It may include executive directors (involved in day-to-day management)
and non-executive directors (independent, providing oversight).
Requirements Based on Company Type:
The composition of the board may differ
based on the type of company. Public companies, for example, often have more
stringent requirements, such as the inclusion of non-executive directors and
independent directors to ensure transparency and good governance.
5.
Describe the election, qualifications, appointment, and removal of
directors:
Election:
Directors are typically elected by shareholders at general meetings.
Qualifications:
Qualifications for directors may be outlined in the MOI, and they
must meet these criteria.
Appointment:
Directors may be appointed by the board to fill vacancies, subject to
shareholder approval.
Removal:
Directors can be removed by shareholders or the board, following the
procedures set out in the MOI.
6.
Discuss, and differentiate between, the ineligibility and disqualification of
directors and prescribed officers, and the consequences of each:
Ineligibility:
Ineligibility refers to factors that prevent individuals from serving as
directors based on criteria such as age, mental capacity, or legal status.
Disqualification:
Disqualification occurs when a director or prescribed officer
breaches legal requirements and is disqualified from serving in such a capacity. The
consequences include potential liability and prohibition from serving as a director.
7.
In respect of a delinquent director:
7.1.
A director may be declared delinquent based on grounds such as fraud, gross
negligence, or other misconduct.
7.2.
Certain parties, like the company, creditors, or a shareholder, have the standing
to apply for a delinquency order.
7.3.
Consequences include a prohibition on serving as a director for a specific period.
8.
In respect of a director on probation:
8.1.
A director may be placed on probation due to actions that don't warrant
delinquency but raise concerns.
8.2.
Similar parties as in delinquency cases can apply for a probation order.
8.3.
The consequences include the director being subject to specific conditions or
restrictions.
9.
List the circumstances under which a person ceases to be a director and
explain the consequences thereof in respect of vacancies:
A person ceases to be a director under various circumstances:
Resignation: A director may resign by providing written notice to the company.
Removal: Shareholders or the board may remove a director according to the
procedures outlined in the MOI.
Expiry of Term: If the director's term has a specified duration, they cease to be a
director upon term completion.
Bankruptcy: If a director becomes insolvent, they may cease to act as a director.
Mental Incapacity: If a director is declared mentally incapacitated, they can't continue
serving as a director.
Death: The directorship ends upon the director's death.
Consequences of Cessation: When a person ceases to be a director, a vacancy is
created. The board or shareholders may need to appoint a new director to fill the
vacancy, as outlined in the company's MOI or applicable legal provisions.
10.
In respect of the management of the company:
10.1.
Persons Authorized to Call Meetings: The MOI or the Act may specify who can
call meetings of the board of directors. Typically, this responsibility rests with the
chairman or a designated officer.
10.2.
Quorum and Types of Resolutions: The MOI sets the quorum required for
meetings, which is the minimum number of directors needed to conduct business.
Different resolutions, such as ordinary or special resolutions, may be passed at
meetings based on the nature of the decisions.
11.
Explain, analyze, and identify the rights and duties of directors, including:
11.1.
Common Law and Statutory Duties: Directors have both common law (fiduciary
duties) and statutory duties (set out in the Companies Act) that they must fulfill.
11.2.
Standards of Directors' Conduct: Directors are held to high standards of
conduct, requiring them to act in the best interests of the company, with care, skill,
and diligence.
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11.3.
Tests to Assess Compliance: Courts apply various tests, such as the objective
standard of the reasonable director or the subjective standard based on the director's
own expertise, to assess compliance with duties and standards of conduct.
11.4.
Liability for Breach of Duty: Directors may be liable for losses incurred by the
company due to their breach of duty.
11.5.
Specific Recourse for Breach: Shareholders, the company itself, or regulatory
authorities may take legal action against directors who breach their duties.
11.6.
Business-Judgment Rule: This rule protects directors from personal liability if
their decisions are made in good faith and without conflicts of interest.
11.7.
Exclusion of Duties: The MOI can exclude certain common law duties, but
statutory duties still apply.
12.
Discuss prohibited conduct in respect of reckless trading (section 22) and
the consequences thereof:
Section 22 of the Companies Act addresses reckless trading, where a director is
involved in carrying on the business of the company in a reckless or fraudulent
manner.
Consequences may include personal liability for company debts, potential fines, and
disqualification as a director.
13.
Explain the relevance of section 218 for directors' duties:
Section 218 of the Companies Act allows claims against directors who breach their
duties and cause harm to the company. It can provide recourse for the company or
shareholders in cases of director misconduct.
14.
Explain, and compare, circumstances under which a company may and may
not indemnify a director:
Companies can indemnify directors for legal costs incurred in the course of their
duties, but certain conditions must be met, such as acting in good faith and in the
company's best interests. Indemnification may not be available for wrongful acts or
misconduct.
15.
Discuss the appointment, composition, and delegation of powers to Board
committees:
The board may appoint committees with specific responsibilities, and delegate
powers to them. Committees can include audit, remuneration, and nomination
committees, among others.
16.
Explain and analyze the appointment and role of Committees that are not
board committees:
These committees, often called "ad hoc" committees, are established for specific
purposes and can include project teams, special committees, or other temporary
groups.