MERCANTILE LAW 471
Company Law
TOPIC 1: INTRODUCTION TO BUSINESS ORGANISATIONS
What is a business organization?
- A business organization/entity is a legal structure that is used to conduct business.
- Definition is fairly broad and has to be qualified:
o Legal structure = Can be created by the law or by something recognized by
the law.
o Conduct business = This includes non-profits, does not have to be a business
based on profit.
- List of business organizations:
o Sole proprietorship
§ Single person conducting a business
o Partnerships
§ Different partners cooperate in conducting a business
o Business trusts
§ Type of trust (inter vivos) created for conducting a business
§ Trustees and beneficiaries will take part in running the business
o Close Corporation
§ Has members that are involved in its activities
§ Regulated by legislation
§ Usually, a small number of members
o Companies (Section 8 of the Companies Act)
§ Distinguish between profit and non-profit companies
• For profit:
o Private companies = Usually a small number of
members (family business/big company with smaller
branches)
o Public companies = Meant for larger participation
(Separation between those who have an interest in the
firm and fund it, and the managers who are the
directors (executive and non-executive)).
o Personal liability companies = Provides for the personal
liability of the directors and this is done because, in
certain professions, it is required that the professionals
who conduct them must remain liable for its debts.
o State owned companies (SABC and ESKOM) =
Established as a separate category because they have
specific needs that needs to be catered for.
• Not for profit:
o Non-profit companies (Churches, NGO’s etc.)
o Common law Non-Profit
, § Not companies but rather associations. Do not necessarily have to be
incorporated.
Function of the law when it comes to business organizations
- Ensure that these entities are properly created by law = juristic persons
o All companies and close corporations are created by law, others to a lesser
extent.
- Regulate the internal relationships of business organizations
o Internal relationships = Relationships between those who participate in the
business.
§ Sole proprietorships = If there are employees, then them (labour law).
§ Partnerships = Partners
§ Common law non-profits = Between those who manage the non-
profit and the members/people who fund the non-profit.
§ Close corporations = Members
§ Companies = Between the shareholders inter se (horizontal) and
between shareholders and managers/directors (vertical).
- Regulate the external relationships of business organizations
o External relationships = How the businesses interact with the outside world
§ When can they contract?
§ When are they liable in delict or criminal law?
• Depends whether the organization is a separate entity
§ Relationship with creditor employees and other stakeholders
- The internal-external distinction (BE CAREFUL)
o If you take employees, they often have a deep stake in it and have the most
to lose if it fails. Therefore, if you consider them as external it could have
detrimental consequences and labour law might not be sufficient protection.
Business organization legislation might be necessary to sufficiently protect
their interests.
Sources of the law
- Outside of companies and close corporations, business organizations such as a sole
proprietorship, partnership, business trust and common law non-profits are mostly
specifically regulated by the common law.
o Some minor exceptions:
§ Business trusts are also regulated by the Trust Property Control Act 57
of 1988
- Close corporations are mainly regulated by statute
o Close Corporations Act 69 of 1984
o Was a very good piece of legislation mainly conceived by Prof Stef Naude
o Now being phased out
- Sources of company law
o Main source is still the Companies Act 71 of 2008
o Also has a strong common law element
§ Has an important “inner common law” Ex Parte NBSA Centre 1987 (2)
SA 783 (T)
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