The binding effect of the constitutive documents of companies: The 1973 and 2008 Companies Acts of South Africa
Abstract
This contribution examines the provisions of the constitutive documents of
companies under two specific provisions, namely s 65(2) of the Companies Act
61 of 1973 and s 15(6) of the Companies Act 71 of 2008. The aim is to
determine who is bound by these provisions, the circumstances which give rise
to being bound by them, and the possible effect thereof on various parties.
The provisions of the constitutive documents under section 65(2) of the 1973
Companies Act are interpreted by courts and academic writers to amount to a
statutory contract between a company and its members and between members
inter se. The members are said to be bound by the provisions of these
documents only in their capacity as members. It is submitted, however, that the
rights and obligations are granted to members in their capacity as such if they
are membership rights which are granted by virtue on one’s membership.
So far the courts have failed to provide a logical explanation of the concept
“capacity of a member as such”. This failure and the “qua membership test”
resulted in limitations in the interpretation of section 65(2): for example, the
exclusion of persons who are regarded as outsiders. The directors, despite the
fact that numerous provisions of the applicable article provides for their rights,
have rights that are unenforceable via the articles, for being regarded as
outsiders. The company on the other hand can enforce the obligations against the directors on the basis of breach of their fiduciary duties. These limitations
called for a redraft of section 65(2).
This contribution raises the legal challenges raised by the above. It arrives inter
alia at the conclusion that the “qua membership test” may find application under
the 2008 Companies Act, since members/shareholders may be allowed to
exercise rights that are membership rights granted to them by virtue of their
membership, and directors may be allowed to exercise rights that are granted
to them in their official capacities as such.