Detailed mercantile 292 notes. Mostly from lecture notes, slides, tutorials and important aspects in the deport textbook. The notes are for Chapter 1, 2, 6, 14, 15, 16. This is all the work you need to study to pass A1.
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Mercantile law 292
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T1 L1-Introduction and legal personality
Factors considered before choosing the type of business
enterprise ↓
No. of persons
Distinct legal personality
limited vs personal liability
professional requirements: eg law firmlkj
perpetual succession: the continuation of a corporation's or other
organization's existence despite the change membership or exit
of the founders.
ownership control
formalities: requirements and costs involved
taxation
financing
List the different enterprises
Sole proprietorship
Single entrepreneur
Full personal risk
No formalities to initiat ?
income tax
partnership ↓
income tax
insolvency act
all partners have control and ownership
partners have a fiduciary duty by law
personal liability( jointly or severely)
No perpetual succession
Close cooperations ↓
To support SMMEs
Close coopeation act
All members have limited liability
fiduciary duties
max 10 members
28% company tax
No auditing required
Business trust ↓
Founder gives assets to trustees
trustees own the business for beneficiaries
Trustees not liable for liabilities
trust property used to pay creditors
fiduciary duty: liable for negligence
perpetual succession
45% company tax
Must be registered in terms of the Trust Property Control Act
types of Companies ↓
Closely held ↓ ?
Private companies ↓
limited ownership of shares
less stringent requirements
company tax 27%
personal liability company ↓
liable for debts
special requirements
widely held ↓
public companies ↓
Trade share freely
state owned companies → Subject to stringent rules
Non profit organisations → Back of card
T1 L2
What is legal personality → Legal subjects who can be the bearer of
rights. Can be a natural or juristic person.
4 Legal rights/ ↓
Real rights
personality rghts
intellectual property rights
Personal rights
Legal personality rights and consequences → distinct entity
Limited liability
Assets, profits
Perpetual succession
Legally binding contracts
Personality rights and constitutional rights in the Bill of Rights
What are the ways an entity can acquire legal personality →
1. Specific legislation: specific act provide legal personality should
the entity be formed under the Act
2. General enabling legislation: Does not give automatic legal
personality unless the entity complies with the requirements of the
Act. Companies Act 71 of 2008, s 19. Close Corporations Act 69 of
1984, s 2. Co-operatives Act 14 of 2005, s 29. Mutual Banks Act 124
of 1993, s 19. Land and Agricultural Development Bank Act 15 of
2002, s 2: “The bank is a legal person…”. South African Reserve
Bank Act 90 of 1982, s 2. Broadcasting Act 4 of 1999, s 8A.
University of Cape Town Act 14 of 1916
3. Legal personality through conduct: The common law allows
aquitision of legal personality through conduct (a) Does the entity
conduct itself like a legal person? (b) Does the entity’s constitution
have the following elements: perpetual succession, locus standi, and
owns its own assets and incurs liabilities ( A and L are set apart from
members). Lawful purpose. All these elements need tp appear in an
agreement between members.
Exam Tip
How was legal personality acquired( 1 mark)
If through the common law, must meet criteria. If through legislation,
specify legislation.
If not legal personality aqcuired, then the entity does not have a locus
standi.
When can legal personality be disregarded → yes. ito the common
law or The Companies Act
T1 L3
what are the consequences of legal personality → Separate
existence
perpetual succession-Change in shareholders/member does not
affect the existence of the entity
Entity has rights of a legal subject(Constitutional rights)
A duly appointed legal person acts on behalf of the company.
Shareholders or member do not hold automatic rights to act on behalf
of the company.
?
Piercing the corporate veil → This is an exceptional common law
remedy where legal personality is disregarded( last resort). And in
some instances, the legislation is used as well.
What are the common law tests to pierce the corporate veil ↓
Fraud, dishonest and improper conduct
company incorporated an an alter ego or an agent
There is no separation between personal shareholders' interest
and those of the company.
what are the consequeces of a lifted corporate veil through the
common law ↓
Shareholder/each company in a group do not enjoy limited
liability
The company is liable for the shareholders' liabilities
Piercing the corporate veil through legislation ↓
Gross negligence by directors. Sec22 and 77
any act of the company constitute unconscionable abuse s20(9)
(Discussed further later)
what are the consequeces of a lifted corporate veil through
legislation/ ↓
The court can declare the is not deemed to be a juristic person.
(when the acts of the entity is unconscionable abuse) s20(9)
T2 L1 Business Trusts
Definition of a Trust in terms of Goodricke & Son (Pty) Ltd v
Registrar of Deeds, Natal → 'In the wide sense a trust exists
when property is to be held or administered by one person on behalf
of another, or for some purpose other than his own benefit. ... For
the creation of a trust in the narrow or strict sense the two essential
elements are the segregation of the trust assets by the founder, and
the creation of an obligation to administer otherwise than purely for
oneself.'
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