This is a comprehensive summary of all the work covered in the module Mercantile Law 471. It includes the work covered in class as well as the relevant case discussions. The notes contain everything that is required for the tests and exams. The notes are also set out in such a manner that it is eas...
TOPIC 1: INTRODUCTION TO THE LAW OF BUSINESS UNDERTAKING
Business entity: A legal structure that is used to conduct business
o The legal structure may be created by law or sometimes only be recognised by law.
- E.g. Company, close corporation
- Partnerships are also recognised
o Business entity or business structure or business undertaking.
- Not always separate legal entities but rather organisational structures.
o Conduct of business
- Conduct for financial or economic gain.
- Also include certain entities that can be used to conduct non-profit activities
from churches, sports clubs and management bodies of housing
communities.
LIST OF BUSINESS ENTITIES
Sole proprietorship
o A single person conducting a business.
o E.g. Person selling vegetables on the side of the road
Partnership
o Consists of partners operating to create this business through agreement
o No legal limits with regards to size, but usually used for smaller to medium-sized
enterprises.
Close corporation
o Being phased out
o A business that has been specifically established to attempt to promote small
businesses
Companies (S 8)
o Various types but distinguish between profit and non-profit companies.
o Profit companies
- Used to gain profit
- Four types:
- Private company
Conduct business on a closer scale.
- Public company
Separation between those that own the company
(shareholders) and those that manage the company
(executives and directors).
- Personal liability
Companies where the directors of the company are liable to
others contracting with the company.
This type of business is used for certain professions, e.g. law
firms.
- State owned
Profit in theory, but not in practice.
o Not for profit
- Has a different public benefit purposes
- One type: non-profit company (previously known as S 21 companies).
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, Common law non-profit
o Either make use of the Companies Act or the common law for non-profit companies.
o E.g. Sports clubs
FUNCTION OF THE LAW
Some entities are created by law: juristic persons
o All companies or close corporations
- They are separate juristic persons, i.e. they are recognised by law as if they
are persons that exist in the legal sphere.
- The law establishes the business entity, in other types of companies the
members establish it.
o The law regulates the internal relationships of businesses
- Those that participate in the business.
- What is internal and external depends on the type of business entity and on
the view that the law takes.
Sole proprietorship: Perhaps employees to some extent
Not much internal relationship that exists.
Argument that the relationship between the sole proprietor
and his employees are internal but, in some respects, it is
also external.
Partnership: Partners
They established the entity through an agreement.
Most important internal relationship is the one that exists
between the partners.
The law regards this relationship as very close and is so
regulated in a way similar to family law.
Partners must act like brothers.
Common law non-profit
Internal relationship between the members of the non-
profit and those who run the non-profit organisation.
E.g. Those involved in sports clubs (members and managers)
or church associations
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, Close corporations: Members
As with a partnership, the relationship between these
members are close.
Companies: Relationship between shareholders inter se and
between shareholders and managers (directors).
The most fundamental relationship exists between the
shareholders (those with ownership interests in the
company) and managers (directors and other executive
managers).
The law must regulate these relationships between the
shareholders and managers both vertically and horizontally.
With non-profit companies there are two possibilities:
It either has members or it does not.
However, they also have to have managers and the
internal relationship needs to be regulated.
o The law regulates the external relationships of businesses.
- How do businesses interact with the outside world?
When can they contract?
When are they liable in delict and criminal law?
Relationship with creditors and other stakeholders
Stakeholders: Persons affected by the activities of the
business.
Sometimes it is difficult to determine whether a stakeholder
is internal or external to the business.
Creditors (people who lend the business money) are
normally regarded as external.
Other stakeholders, such as employees and customers are
more complicated.
Customers are probably external.
Employees are on the border between internal and
external.
Stakeholders in the business – strong view that the
environment must be regarded as one of the
stakeholders in the business.
SOURCES OF THE LAW
Common Law
Outside of companies and close corporation mostly specifically regulated by common law:
o Sole proprietorship, partnership, business trust, common law non-profits
o Some minor exceptions
- Trust Property Control Act 57 of 1988
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, Statute
Companies and close corporations are mainly regulated by statute
o Close Corporations Act 69 of 1984
- Enacted to promote small businesses
o Companies Act 71 of 2008; main predecessor Companies Act 63 of 1973
o Must remember that there is also an extensive common law
- Ex parte NBSA Centre Ltd 1987 (2) SA 783 (T)
The judge had to apply a complex provision in the Companies Act
that dealt with take overs.
He made this very important point about the relationship between
the statute and the common law:
“I believe that one’s general approach to company law may
exercise subtle influence on one’s perception on many of its
concepts and the meaning of its well-worn terminology.
Company law is much more than the current statute that
applies in any particular point in time.
Like any statute that regulates human interaction, it has its
own form of logic that needs to be identified and mastered.
It has also developed a number of areas that is like its own
inner common law, which is not found in any specifically
identifiable provisions”
The legislation itself creates a sort of common law that surrounds
company law.
However, there is also a common law of companies that applies
when there is no statutory rule on the matter.
- S 158(a)
o Summary
- There is legislation that deals comprehensively with company law.
- The act has its own inner logic which creates a statutory common law.
- When the act does not apply there is a common law of companies that
would be applied.
This common law is mostly based on English law.
Origin of Companies Act 71 of 2008
Predecessors were Companies Act 61 of 1973 and 46 of 1926.
Process to draft a new Companies Act started in 2002 by the Department of Trade and
Industry.
Eventually a team was put together:
o Project manager Tshepo Mongalo started in September 2003.
o Assisted by Chief Policy Advisor Judge DM Davis and Chief Drafter Phil Knight.
Department of Trade and Industry published: “Company law in the 21 st century: Guidelines
for Corporate Law Reform May 2004”
o Importance of this document compare the Van Wyk De Vries Commission.
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