Class notes
Corporations law semester 1 notes
- Institution
- University Of Cape Town (UCT)
Corps semester 1 lecture notes , inclusive of relevant cases and textbook reading notes
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Corporation law – first semesterTerm 1 - Richard Bradstreet
1. Overview of the semester topics:
Thu 16 Feb - Conceptual overview, etc (covered online)
2. Thu 23 Feb - Partnerships & legal concepts foundational to business
entities
3. Thu 2 Mar - The trust structure & juristic personality
4. Thu 9 Mar - Juristic persons formed in terms of the Companies Act 2008
5. Thu 16 Mar - The “company contract” & comparison with close
corporations
6. Thu 23 Mar - Guest lecture by Adv Mo Ebrahim – practical application
Week 2: Partnerships
Partnerships & legal concepts foundational to business entities.
Notes from the prescribed reading on vula (cassim et al):
1.1 Introduction:
- One of the first steps to be taken by persons who set out in business is to decide on the legal
entity/type of business structure to their business, as this will govern the rest of the
formalities that entail how they will raise capital, what is needed for growth and expansion ,
legal continuity of the business and their tax liability.
- Factors to considered when choosing the type of business structure:
Who bears the risk?
How is the capital raised?
What is the management structure?
Who exercises control over the business activities of the structure?
Does it have perpetual succession?
Can it accommodate growth and expansion?
The taxation liability of the particular type of business structure; and
The legal and administrative formalities and the costs associated with these.
Notes from the business structure textbook
,17.1 Definition of Partnerships
A partnership is a legal relationship created by the way of a contract between two or
persons, in which each of the partners agree to make some contributions toward the
partnership, which is carried on for the joint benefit of the parties the object of which
is to make a profit.
Partnerships can be formed by:
i. two or more natural persons
ii. natural and a juristic person (companies or close corporation)
the partnerships are not sperate legal entities, such that the partners and the business
are one, thus the partners that find themselves in a partnership will themselves be held
accountable for the activities of the partnership.
Partners have unlimited lability meaning that if the partnership run into debt the
partners can be held liable to pay for the debt from their personal assets.
17.2 Partnerships and the companies act 2008
- partnerships are limited liability companies, meaning the directors and past directors are
jointly and severally liable, together with the company, for any debts and liabilities of the
company that are or were contracted during respective periods of office. A personal liability
company is aka an “incorporated partnership”.
17.3. Types of partnerships
There are two significant ways of categorizing a partnership:
1. A universal partnership may be distinguished from a particular partnership
2. An ordinary partnership may be distinguished from an extraordinary partnership.
Universal and particular partnerships
Universal partnership involves partners contributing all their property or all their profits to
the partnership, usually for an open-ended period and for wide ranging purposes, with a
commensurate sharing of the profits of their enterprises.
Particular partnership will usually be a more temporary and focused arrangement, in terms
of which partners contribute their resources for a particular defined purpose only and share
only in the profits from that particular project together
Authority for this is in Bester van Niekerk
Universal partnerships
, There are two types of universal partnerships:
1. Universorum bonorum
o Usually takes place within the context of marriage, mostly within the context of a
marriage in a community of property.
2.Universal partnership that occurs within the context of commercial undertakings
o Parties agree that all they may acquire from whatever form of commercial activity
shall be treated as part of the property of the partnership.
The court in Isaacs v Isaacs held that a partnership Universorum bonorum is one “by
which the contracting parties agree to put in common all their property, both present and
future. It covers all their acquisitions whether from commercial undertakings or
otherwise.”. A partnership Universorum bonorum can also take place outside a marriage.
Case on universal partnerships:
case: Schrepfer v Ponelat:
Factual issue:
o in this case, the court was called on to determine whether a universal partnership
existed between the parties.
Legal issue:
o Can tacit/implied consent be used to conclude that a universal partnership was entered
into?
Legal reasoning:
o The court accepted that a universal partnership aka a domestic partnership can come
into existence when spouses and cohabitees where they agree to pool their resources
together.
o The court accepted that a universal or domestic partnership is similar to a marriage in
COP even though the parties may not even be married at all.
o Therefore, it can be assumed base on the circumstances of the marriage that a
partnership was entered into.
o In these cases, the partnership is raised that on the termination of the marriage, there
is a termination of the partnership, and therefore there must be a consequent sharing
of all of the partnership assets among the partners.
Example 2
, Case: Adcock v Adcock
Issue:
o The plaintiff in divorce proceedings did not base her claim on the accrual system, but
alleged the existence of a universal partnership between herself, her husband and a
certain trust.
o The plaintiff argued that the universal partnership came into being orally, tacitly, or
impliedly between herself, her husband and the trust, and thus held upon the
dissolution of the marriage the partnership should be terminated and its net assets
value distributed between the partners according to the partnership ratio,
Reasoning:
o Sa courts have found for a long time that universal partnerships can exists between
partners married to each other out of cop.
o The court here held that the south African law distinguish between the two kind of
universal partnerships.
o Whether or not a tacit agreement has been reached (agreement not in writing), the
intention of the parties must be ascertained from their word and conduct, the mode in
which they have dealt with each other, and the mode in which they have, with the
knowledge pf each other, dealt with other people.
o The court affirmed the principle reading universal partnerships as follows:
a. A universal partnership of all property does not require an express agreement. It
can also come into existence by the means of a tacit agreement, that is by an
agreement derived from the conduct of the parties.
b. The requirements for a universal partnership of all property, including universal
partnerships between cohabitees, are the same as those formulated or partnerships
in general.
c. Where the conduct of the parties is capable of more than one inference, the test for
when a tacit universal partnership can be held to exist is whether it is more
probable than not that a tacit agreement has been reached.
o The court in this case held that “for obvious considerations, the application of the
principles of a trust, who was not a party to the marriage, is iniquitous, if not against
public policy”.
o The court held that owing to the fact that some of the trustees were outsiders with
regard to the marriage relationship, we have to enquire whether the trust become a
third partner in this partnership by finding out if the other trustees has the intention to
bind the trust in anyway.
o The court looked at the conduct of the husband father who was also a trustee and held
that owing to his intention of the trust being for the assets to be distributed to his sons
and their biological offspring’s and not any former daughter in law, the trust is
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