Summary Mercantile Law 471 (Company Law) - very comprehensive notes
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Course
Mercantile Law 471 (471)
Institution
Stellenbosch University (SUN)
These notes are over 700 pages, and took countless hours to write. They contain lecture notes, summaries of prescribed cases, diagrams, and theory. I studied from these notes and obtained a distinction for the module.
Introduction
What is a business organisation?
• Business organisation/entity:
o Legal structure that is used to conduct business
▪ Legal structure may have to be created by law or sometimes only
recognised by law.
▪ Conduct of business
o List of business organisations:
▪ Sole proprietorship
▪ Partnership
▪ Business trusts
▪ Close corporation
▪ Companies (s8)
▪ Common law non-profit
Companies
Profit Not for profit
Non-profit
company
Private Co. ; Public Co ;
Personal Liability ; State-owned
Function of the law
• Some business organisations (juristic persons) are created by the law
• Regulate the internal relationships of business organisations
o Agency problem in many business organisations: in many business
organisations, the business organisation is managed by somebody who is
not the person who ultimately benefits from the activities of that business.
, 2
▪ Often there is a conflict between the interests of the person
managing the business and the interests of those who are meant to
benefit from the business. → manifests when there is a difference
between beneficiaries v managers of a business.
o (those that participate in the business). What is internal v external depends
on the type of business organisation and the view that the law takes.
▪ Sole proprietorship: perhaps employees to some extent
• Only conducted by one person, so doesn’t require much
internal regulation (besides for employees).
▪ Partnership: partners
• In a partnership there will always be more than one partner;
some regulation of this relationship between partners is
necessary.
• Basic principle: sic ut fratres (partners should act like
brothers).
▪ Trusts:
• Trusts: trustees and beneficiaries → 3 internal relationship
dynamics to regulate: relationship between trustees;
between trustees and beneficiaries; between beneficiaries.
• Agency problem is relevant where trustees and beneficiaries
are not the same people and have different goals.
• Some trusts are not business organisations, but some are
(created to conduct businesses) but the law of trust is very
bad at distinguishing different types of trust.
• One of the biggest economic issues in the world: tax
evasion. Often business trusts are used as a tax evasion
mechanism, and the law is not carefully developed to
govern those types of situations.
▪ Common law non-profits
• E.g. a sports club → can create a business organisation in
the common law (these also need internal regulation to
ensure proper operation of those who conduct its activities).
, 3
• Beneficiaries of those organisations sometimes are inside
the business, e.g. members of a golf club but these kinds of
non-profit activities can also be conducted for beneficiaries
not within the organisation: e.g. shelter for homeless people
– they are not members of the business organisation, but
solely external beneficiaries.
▪ Close corporation: members
• Have members.
• Close; not closed: refers to the fact that people in the
organisation work closely together.
• CC’s are a type of business organisation created in SA for
small businesses. The idea is that the members of the
business are very similar to partners of a partnership. The
regulation of the relationship between them internally is
similar to that of a partnership.
• Close Corporations Act in the 1980’s → many created →
Companies Act of 2008 – cannot make new CC’s.
▪ Companies: relationship between shareholders inter se and between
shareholders and managers
• In all for-profit companies: there are those who manage the
company and at the head of that there is a board of directors
(considerable amount of regulation of relationship of
directors).
• Old Mutual v Moyo: Mr Moyo was the managing director
of Old Mutual – there was conflict on the board between Mr
Moyo and other members of the board – he was removed as
the director and he disputed it, it went to court (this
influenced the share price of Old Mutual). Court held he
was properly dismissed.
• For-profit companies always have shareholders who hold
the ultimate interest in the company.
• Can be conflicts between board v shareholders: agency
problem.
, 4
• 3 typical internal relationships:
o horizontally between directors;
o vertically between board and shareholders;
o relationship between shareholders: conflicts between
shareholders are very dangerous for smaller
companies.
• Regulate the external relationships of businesses
o How do businesses interact with the outside world?
▪ When and how can they contract?
• Makate v Vodacom is most important case on this question:
when does Vodacom (a massive organisation) conclude a
contract with an employee Mr Makate – Constitutional
Court created new law to allow them to conclude that there
was a contract with Mr Makate. According to trite law,
there was no contract with him.
• Especially in a complex bureaucratic organisation, when are
they said to have contracted with this organisation?
▪ When are they liable in delict or criminal law?
• Criminal law: business organisations that are juristic
persons can commit crimes, e.g. Weapon transaction fraud
cases – one person in court but many accused persons are
juristic persons. Important regarding environmental crimes.
In the UK: corporate manslaughter (interesting topic for
Legal Skills) – because of the activities of a company
somebody gets killed (natural or juristic person) – if the
reason for it is that the organisation negligently did not
create proper systems to prevent this, they may be held
liable for manslaughter.
▪ Relationship with creditors’ employees and other stakeholders
• Creditors, employees, and stakeholders are regarded as
external.
• the internal external distinction.
o Which parties are internal and which are external?
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