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Summary introduction to corporate law in south africa
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introduction to corporate law
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LECTURE ONE - 18 JULY 2017THERE ARE TWO FORMS OF BUSINESSES
1. UNINCORPORATED ENTITIES
The business does not have a separate legal existence from the members. This
means that there is no perpetual succession and there is no limited liability. Simply
put, the business will not survive longer than its members and the debts of the
business are the debts of the members.
Sole Proprietor
Sole proprietor is the simplest form of a business enterprise
There are no legal formalities
Sole proprietors have unlimited liability
Their business ends at death – there is no perpetual succession.
Their amount of growth is limited. Their resources are dependent on the assets of
the sole proprietor. Eg. You can only afford 2 cars but you need 5
Partnership
Many proprietors
Shared liability
Increased resources
They don’t bare the loss as the sole proprietor, rather it is shared among
the partners.
Disadvantage: when one of the partners die, then the partnership ends.
This means that a new partnership must be formed.
2. INCORPORATED ENTITIES
Close Corporation
1-10 members
The founders of a cc are called members
It is fairly simple and cheap to incorporate a cc
Limited liability
Company
There are two types of companies ie. Profit and non-profit
,NON-PROFIT
The primary objective of a company is for the public benefit.
It does make a profit, but that profit goes back to further the objectives of
the business.
This does not mean that they do not earn anything, the company can pay
out remuneration to the director etc.
PROFIT
EXAMPLE: CURL-UP-N-DYE
a. LTD = LIMITED
Public company
Shares are offered to the general public
It is the biggest form of enterprise
Shares are freely transferable. Shares are an asset and thus form part of the
person’s estate.
The benefit of this type of company is increased capital.
b. SOC LTD = STATE OWNED COMPANY
National governmental business enterprise
It carries out activities and generates profits
It is owned by government
c. INC. = INCORPORATED
Generally found in law firms.
Personal liability company
d. (PTY) LTD
Smaller businesses
Private company – shares are not offered to the public.
FUNDAMENTAL QUESTIONS
1. How many people are involved?
2. What is the extent of their involvement?
3. What is the capital required to commence?
, 4. What are the sources of this capital?
5. What are the requirements of the client?
6. What are the strategic objectives of those involved?
7. Is there any specific legislation that mandates the choice of the entity?
LECTURE 2 – 20 JULY 2017
SOLE PROPRIETOR
1. A sole proprietor is a trading enterprise owned by a single, natural person.
2. Its main function is that the trading enterprise does not form a separate, legal entity
that is distinct from its owner.
While having a separate account is good business practice, it does not separate the
entity, and it still remains as one estate, thus there is no limited liability.
3. A sole proprietor has unlimited liability.
4. No perpetual succession exists – thus upon death, the business will be transferred to
the persons estate.
5. No formalities exist.
ADVANTAGES DISADVANTAGES
1. Easy to: start up, operate and 1. Unlimited liability
terminate.
2. No formalities – no costs 2. No perpetual succession
3. Limited access to capital
, PARTNERSHIPS
1. DEFINITION:
A partnership may be defined as a LEGAL RELATIONSHIP
That is created by way of a CONTRACT between TWO OR MORE PERSONS,
In terms of which each of the partners agree to make some CONTRIBUTION to the
partnership business
Which is carried on for the JOINT BENEFIT of the partners,
The object of which is TO MAKE A PROFIT.
Pezzutto v Dreyer
The appellant claimed that he had concluded a handshake agreement of partnership with
Dreyer and others. On his evidence he was held to have proven the essentialia of a
partnership agreement.
The court said that what is necessary to create a partnership agreement is that the
essentialia of a partnership should be present. It is not necessary for the parties to agree on
subsidiary aspects. These can be agreed upon later.
2. The purpose of a partnership is to make a profit. i.e. Commercial purpose
It will not be considered a partnership if there just exists a common purpose. For example, a
common purpose to raise funds to rebuild the library.
3. A partnership requires a contract to be signed. This creates a legal relationship
between the partners.
4. The contractual requirements must be met.
Isaacs v Isaacs 1949 (1) SA 952 (C)
The plaintiff was claiming from defendant, her husband, a half share in certain immovable
property. The cause of action is based upon an alleged tacit partnership brought into
existence at the time of the parties' marriage. They had commenced 'married' life with no
assets. Both had engaged in commercial activities, the defendant devoting his whole time
thereto whilst the plaintiff had combined these activities with personally running the
household. The plaintiff argued that there was a tacit partnership between the parties as she
contributed equally with the defendant in respect of labour and skill and that accordingly
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