Notes contain all class discussions as well as case and legislation which are important .Notes are clear and in its simplest form which makes for easy reading and understanding.
Part 1
1. Introduction
• We will look at different business entities and what function the law fulfils in
their regulation
o Will look at different features of these entities
• Overview of different entities:
o Sole proprietor
o Closely held undertakings
o Widely held undertakings
o State-owned companies (SOCs)
2. Sole proprietorship
• Natural person conducting business in his/her own name
o Can start a business; acquire assets; incur debts
• No clear distinction between business itself and the owner
o Therefore, there is little law that deals specifically with these types of
business entities
o Business can have a name different to name of natural person
conducting it; regulated by CPA s 79-81
▪ CPA says that you can conduct business in your own name
▪ If you want to use another name and you’re a natural person,
you have to have that name registered (process set out in s 80)
▪ Then you can protect that business name from others using it
• Sole proprietor can have employees, but cannot have others working on the
same horizontal level as the sole proprietor
• Sole proprietor is liable for all the debts of the business: if business incurs
liabilities, they are the liabilities of the sole proprietor
• Financing techniques that sole proprietor can use are limited – can put his
own funds into the business, can borrow money, but does not have shares in
which people can invest to put money into the business
• Tax: sole proprietor pays personal tax
o No separation for tax purposes between the business and the sole
proprietor
3. Closely held undertakings
• They can be conducted by more than one person on the same horizontal
level, unlike with a sole proprietorship
• Examples:
o Partnership
o Private company
o CC
o Trust
a. Partnership:
• Definition: a legal relationship; created by contract
• A partnership is still created in accordance with the common law; regulated
by common law
• Therefore, we will see reference to civil law sources, English cases etc
o There is very little in the statutes about partnerships
• Established by contract – can therefore be created quite easily
1
, • A partnership can only be created by two or more persons – one person
cannot create a partnership
• There are not many formalities for creating a partnership; simply have to
conclude an agreement – contract law rules apply to this agreement
• How do we determine if an agreement is a partnership agreement?
o Look at the essentialia of the agreement
Requirements for a valid partnership agreement:
• Essential aspects on which the parties must agree (essentialia)
• Partnership is created by contract
• Loots v Nieuwenhuizen sets out the basic requirements of a partnership
1. First requirement for a partnership: every partner must agree to make a
contribution
o Every partner must contribute something of commercial or economic
value to the partnership
o Can take the form of contribution of skills of experience; money;
property; etc.
o You can contribute property or the use of property
o Partnership is not created by the making of the contributions, but by
the undertaking to make a contribution
▪ This requirement merely requires that the parties must agree to
make a contribution – does not only come into being once
actually done
o Can be money, skill, experience or corporeal property
o E.g. partner agrees to transfer property to the partnership; partner
gives use of an asset to the partnership
o E.g. law firms that are partnerships: one partner will contribute right of
use of property, or place property in a company and give partnership
right of use
o Will seldom find that immovable property is owned by a partnership –
think why?
2. Second requirement: contractual partners must undertake to carry on
business in common and for the joint benefit of the partners
a. “Business” is not easy to define: can be defined as anything that
occupies the time and attention of a person carried on for a profit
i. There must be an agreement that they will conduct business
ii. The most common definition = It is anything that occupies the
time, attention and labour of a person
b. “In common”: partners must agree that they will conduct this business
together; not sufficient to put assets together and each person uses
the assets for their own separate purpose (by creating a common fund
– this constitutes the partnership assets)
i. Does not mean that each person must be involved to the same
extent
ii. To the extent that they are involved, they must conduct business
in common
iii. The assets that are brought into the partnership will form part of
the common fund of the partnership
2
, c. “Joint benefit”: all partners must share in the profits of the partnership
(all partners will have to benefit from this partnership)
i. Societas leonina: a partnership where one partner shares only in
the profits and another shares only in the losses
1. Not a valid partnership
ii. All partners must at least share in the profits
iii. Must all partners share in the losses?
1. Answer: probably not
2. Experts who have written on this topic have said no
3. So long as all of them share in the profits
iv. Some authorities state that losses must be shared – this refers to
gross losses (gross losses should be shared): a partner is not
entitled to share in any of the revenue of the partnership unless
all the costs incurred in generating that revenue have been
taken into account
1. E.g. make a product for R50 and sell it for R100; also have
other expenses of R60
a. Partnership has made a loss of R10
b. Cannot agree that one of partners would get R40
simply because product was sold for more than it
was bought
c. Cannot divide up any of the benefits of a
partnership without taking into account the cost of
generating that benefit
3. Third requirement:
a. Partners must agree to conduct the partnership for profit (agreement
must be concluded with the object of making a profit)
b. Does not mean that the partnership has to generate a profit; simply
means that the purpose must be to make a profit (object must be to
make a profit – do not actually have to make a profit)
i. Profit does not have to be a pecuniary profit, as long as the
object is some economic benefit
4. Fourth requirement: intention must be to create a partnership
a. People often conduct business through joint ventures
i. Often the first three requirements for a valid partnership are met
in a JV
ii. But the JV contract will often contain a clause that says “the
intention is not to create a partnership” – this will prevent the JV
from being a partnership
5. Fifth requirement: partnership must be lawful
a. Must have a lawful purpose
b. Separate requirement imposed by the law on all contracts
Basic features of partnerships:
1. Initially limited to 20 partners by the Companies Act of 1973
a. There were some exceptions
b. No more limitation in the 2008 Companies Act – can now have as
many partners as you want
3
, 2. Partnership can register its name in terms of the CPA s 79(1)(a)(ii)
a. Not properly/correctly regulated in the CPA
b. In this section, the CPA deals with two categories of persons
i. Act distinguishes natural persons who can use their name and
ID, and persons registered in terms of public regulation if that
person is a juristic person e.g. a company
ii. “full name”; “ID document”; “public regulation” – none of these
are applicable to partnerships
c. One can argue that partnerships should be read into these provisions,
because the Act specifically says that a juristic person for purposes of
the Act includes a partnership
i. But a partnership is not a juristic person in reality; therefore, the
rules that apply to juristic persons cannot be applied to
partnerships because of their very nature
ii. There is no ‘public regulation’/legislation regulating partnerships,
therefore ‘juristic person’ in this section cannot include
partnerships
3. Partnership does not have juristic personality
a. Partnerships are not recognised as separate legal persons (does not
exist in law as a separate entity)
b. Juristic persons can be partners, but the partnership can never be a
juristic person
i. Lack of juristic personalities
ii. CPA s79
c. SA law in this respect is in accordance with English law, but differs from
continental systems (we follow the English approach)
d. A distinction is often drawn in partnership law between the entity and
aggregate theory
i. Entity theory: partnership is regarded as a separate entity
(Netherlands, Germany)
ii. Aggregate theory: partnership is regarded as an aggregate of
all the partners
1. SA and England
2. Partnership itself cannot own property and cannot be
liable for its own debts; cannot hold rights
3. All the property of the partnership is owned by the
partners together; the rights are held by the partners
together; the liabilities are imposed on the partners
together
e. Exceptions to this rule: (where partnership is treated as an entity)
i. Insolvency law (a partnership is not wound up/liquidated like a
company – it is sequestrated like an individual)
1. Insolvency Act 24 of 1936 (section 2 – debtor includes a
person or partnership or the estate of a person or
partnership. A partnership is a debtor for insolvency act
purposes and must be sequestrated, not liquidated)
2. Section 13(1) states that if a partnership is sequestrated –
all the partners of the partnership must be sequestrated
with the partnership (all partners to partnership
sequestrated).
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