Mercantile Law Notes
Topic 1
Business Models
Considerations Sole Partnership Closed Business Trust Company
Proprietorship Corporation
Number and 1 person 2 or more, Not more than No limit, 3 No limit
nature of agreement 10 founders.
people needed
involved
Distinct Legal No No Yes No, but Yes
Personality companies act
treats it as
separate
Liability Type Personal Partners jointly Limited Liability Limited Liability Limited Liability
Liability liable
Duty No Fiduciary Fiduciary Statutory and Statuary and
common law, Common law
Diligence, and duty to
care to trustees company, not
shareholders
Perpetual No No Yes Yes Yes
Succession
Ownership & Owner Joint with All members Controlled and Owned by
Control Partners, have the right owned by shareholders,
fiduciary duties to manage, trustees controlled by
have fiduciary directors
duties
Formalities None None Trust Deed Companies Act
Taxation Personal rate Personal Rate Up to 28% 45% 28%
Financing Hard, not a lot, Easier, still Financed by Financed by Financed by
capital from hard, more membership internal and Shareholders
owner people so more fees external capital and loans
capital
,More Detailed
• Sole Proprietorship Single entrepreneur, can control everything, full personal risk, no limited
liability. Big advantages are easiness and cheapness to start.
• Partnership Similar to Sole proprietorship, 2 or more people, must have a legal relationship in a
partnership agreement. Each person must make some contribution, carried on for joint benefit.
Fiduciary duty to co-partners, manage to the best of their abilities, accountability to others. Personally
liable.
• Closed Corporation Formed to bridge the gap between forming a company and lack of protection of
a partnership, every member has the right to manage. Limited Liability applies. Fiduciary duty to all co-
members.
• Business Tryst Trust where Trustees can take business risks. 3 founding parties, founder, trustee,
and beneficiary. Founder is the one who transfers the asset or business to trustees, can use a will or
whatever. Through a trust instrument, they provide the trustees with the power to manage the
asset/companies. Trustees are the owners of the asset/company, manage them for the benefit of the
beneficiaries of the business trust. Trustees have limited liability but also fiduciary duties.
• Companies
- Legal persons, limited liability
- Gap between ownership and management
- Different taxation
- Directors have Fiduciary duty
Different Types of Companies
• Closely held Enterprises Few people involved
-Private Company Limits the transfer of shares between shareholders and limit the offering of shares
to the public. Limit ownership to very few people Closely held. Less requirements than a public
company.
-Personal Liability Company Directors are liable for debts of company that they contract during their
tenure. Certain professional companies such as law firms etc are Personal Liability Companies
• Widely Held Companies
-Public Company Shareholders can trade shares at any time, many shareholders holding small
quantities, easy to raise capital through capital raises.
-State owned companies
-Non-Profit companies
(These companies have more strict requirements to protect the public)
,Background and development of South African Company Law
• Roots in English law from colonialists
• We have had 3 Companies acts 1926,1973,2008 (Current). Previous were repealed not amended
- Amended every year, only surviving part from 1973 is chapter 14, deregistration and liquidation
- Amendment act of 2011, correct errors of 2008
- Companies’ regulations act also examinable
- Current amendment bill of 2019 is in parliament definition of security, change in rules around
financial assistance between a company and subsidiary. Limitations on private companies being
regulated a lot for public interest score, laws around social ethics committee, laws ensure
differentiation of duties between chairman and executive directors.
- Closed Corporation act 1984 to increase business ventures and boom economy, partnership
qualities with members but different in outside dealings
• Interaction with Common Law
- Law that is not found in regulation but found in the sources of South African law and
incorporated by the court.
- Indigenous law, Roman-Dutch law
- Law that is developed over time by courts and added to our law sphere
- Therefore, all company law is not part of the companies act, it is also found in common law and
though past decisions by the court
- Reference common and case law to provide clarity to the companies’ act
• Purposes of 2008 act- Section 7 of company’s act
- Trying to find balance between regulation and easing a burden to promote entrepreneurship
- Still regulating companies to hold directors accountable to stakeholders
- 9 Chapters, 5 schedules
- Also has 2001 companies legislation of 2011
• Key Concepts of 2008 Company act
- Constitution updated in 1996, the new companies act just updates to new constitution from the
old act of 1973 which wasn’t up to date
- Try to stimulate economic growth through limited regulations Encourage entrepreneurship
- Easier, simpler and cheaper to form corporate structures, different choices
- Memorandum of Incorporation Main doc consistent with 2008 act
- Regulatory system, keep in line with simplicity principles. Higher public interest score receive
more regulations
- Solvency and Liquidity test, check if a company is solvent and liquid at time of transactions
- Business rescue Rescuing businesses in financial distress, try save jobs
, - Enlightened shareholder value approach Consider all other stakeholders and their interests
while still acting in the best interest of a company. Provides more rights to small stakeholders.
Contrasts classic shareholder orientated model, only consider interest of shareholders, also
contrasts pluralist approach, balance interest of shareholders and all other stakeholders as equil
- Decriminalization Legislation, act has moved from criminal remedies to administrative remedies,
no more jail but rather personal liability.
- Corporate governance agreed principles to manage the companies by, King IV Code, not
compulsory but applies to JSE listed companies. Courts consider the king code for law making,
Common law. Can declare someone “delinquent”
