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Summary EI Man 214 Chapter 7
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Chapter 7 of prescribed textbook
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EI man 214 ch 7: legal obligations & legislation affecting entrepreneursBusiness registration & entity regulatory laws
o 4 forms:
o Sole proprietorship
o Partnership
o Close corporation
o Company
Sole proprietorship as a business entity
o One owner, conducts business in own personal capacity Disadvantages:
o Don’t have to register as a legal entity Owner is personally liable for all
o Owner taxed on individual share of income generated debts & liabilities of business
o Does not have protection of limited liability
Can lose personal assets in
o Risk of business extend to all owner’s assets
process
o Advantage: fairly easy to start
o Few legal/statutory requirements – stat reqs limited Not separate from owner’s
o Don’t need to prepare financial statements for auditing personal estate
o May also have to:
Business will perish with owner
o Register for tax
o Obtain trading licenses (depending on product/service)
o Register for trademarks, copyright, patents & designs
o No need to register personal name
Partnership as a business entity
o 2 or more people conduct a business 3 different types:
o < 20 partners
Ordinary: conventional type
o No major formalities necessary to establish
o 3 requirements agreement must meet: Extraordinary: 1+ partners, not liable for
o Sharing a common purpose of financial gain debts, cannot represent partnerships, 2
o Must be handled to mutual advantage of all its partners forms of extraordinary (silent partner –
o Contribute financially to partnership not liable for 4rd party losses & partner
o Recommended: written by attorney en commandite – liable for only a fixed
o Agreement should contain: loss, in exchange for fixed share of
o Names of partners profits
o Name & nature of business
Universal: partners contribute all current
o Contributions & remuneration of partners
& future property to partnership, all
o Partners individually liable for debts, taxed on individual share
profits limited to profits accumulated by
o If one owner leaves, new agreement will be concluded
conducting business
o Advantages: experience, finances, expertise joined together
o Allows acquisition of new skills, new money, management assistance for growing bsuiness
, Close corporation as a business entity
o According to Close Corporation Act 69 of 1984, a CC has to have: Dividends only paid if à
o Least one member company is solvent & liquid
o Not exceeding 10 members à assets > liabilities à
o Members must be natural persons debts can be paid à
o An amended in 2006: business trust to become a member of a CC dividend tax free
o Legal entity
o Registered with Registrar of CC Advantages of CC:
o Members enjoy limited liability minimal formation requirements
o Business & personal assets protected few admin requirements
o Personal guarantees
o Members adhere to stipulations in CCA easier accounting practices
o All member’s names are printed at bottom of letterheads audits are unnecessary
o Agreement between members of a CC
limited liability for all members
o Regulating internal relationships between members
o Does not have separate board of directors benefit of perpetual succession
o Members share management of business
obtaining trade license
o Taxed as a legal separate entity
o Accounting officer required to approve the annual financial minimal punishable offences
statements financial assistance
o A qualified member of CC may be appointed as accounting
officer if all members agree in writing sold as an entity
Company
o Under companies Act 71 of 2008:
o Smaller business no longer automatically subjected to strict financial reporting & auditing requirements
o Allows companies with characteristics very similar to those of CC can be formed
o No longer possible to register any new CC, nor many companies be converted into CC
o Existing CC are treated as follows: exist indefinitely, treated as private companies & CC Act will be
brought into line with legislation on private companies
o Old vs new Companies Act:
o Possible to structure business that benefits of different legal forms can be used
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