Company Law 471
Part 1
1. Introduction
We will look at different business entities and what function the law fulfils in their regulation
o Will look at different features of these entities
Overview of different entities:
o Sole proprietor
o Closely held undertakings
o Widely held undertakings
o State-owned companies (SOCs)
2. Sole proprietorship
Natural person conducting business in his/her own name
o Can start a business; acquire assets; incur debts
No clear distinction between business itself and the owner
o Therefore, there is little law that deals specifically with these types of business entities
o The same for all intents and purposes
Business can have a name different to name of natural person conducting it; regulated by Business
Names Act and the CPA s 79-81
o CPA says that you can conduct business in your own name
o If you want to use another name and you’re a natural person, you have to have that name
registered (process set out in s 80)
o Then you can protect that business name from others using it
o S 79(2) states what information a sole proprietorship must provide regarding its identity.
Such as:
Name used
Registered place of business
Name of the person to whom the name is registered.
o S 79(3) has various consequences for non-compliance:
Compliance notice is issued (but this is a weak remedy)
No impact on contracts of illegal name used, so long as the agreement is sill valid in
law. However, in some cases the use of a wrong name may cause an ‘error.’
o S 80-81 how a business name is to be registered
Slide for other piece of legislation
Sole proprietor can have employees, but cannot have others working on the same horizontal level
as the sole proprietor
o i.e. have another business person who conducts the business as ‘business owner’
Sole proprietor is liable for all the debts of the business: if business incurs liabilities, they are the
liabilities of the sole proprietor
Financing techniques that sole proprietor can use are limited – can put his own funds into the
business, can borrow money, but does not have shares in which people can invest to put money
into the business
Tax: sole proprietor pays personal tax
o No separation for tax purposes between the business and the sole proprietor
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,3. Closely held undertakings
They can be conducted by more than one person on the same horizontal level, unlike with a sole
proprietorship
Examples:
o Partnership
o Private company
o CC
o Trust
a. Partnership: (self-study recordings)
A partnership is still created in accordance with the common law; regulated by common law
Therefore, we will see reference to civil law sources, English cases etc
o There is very little in the statutes about partnerships
Established by contract – can therefore be created quite easily
A partnership can only be created by two or more persons – one person cannot create a
partnership
There are not many formalities for creating a partnership; simply have to conclude an agreement –
contract law rules apply to this agreement
How do we determine if an agreement is a partnership agreement?
o Look at the essentialia of the agreement
Requirements for a valid partnership agreement:
First requirement for a partnership: every partner must agree to make a contribution
o Every partner must contribute something of commercial or economic value to the
partnership
o Partnership is not created by the making of the contributions, but by the undertaking to
make a contribution
o Can be money, skill, experience or corporeal property
o E.g. partner agrees to transfer property to the partnership; partner gives use of an asset to
the partnership
o E.g. law firms that are partnerships: one partner will contribute right of use of property, or
place property in a company and give partnership right of use
o Will seldom find that immovable property is owned by a partnership – think why?
Second requirement: contractual partners must undertake to carry on business in common and for
the joint benefit of the partners
o “Business” is not easy to define: can be defined as anything that occupies the time and
attention of a person carried on for a profit
o “In common”: partners must agree that they will conduct this business together; not
sufficient to put assets together and each person uses the assets for their own separate
purpose
Does not mean that each person must be involved to the same extent
To the extent that they are involved, they must conduct business in common
The assets that are brought into the partnership will form part of the common fund
of the partnership
o “Joint benefit”: all partners must share in the profits of the partnership
Societas leonina: a partnership where one partner shares only in the profits and
another shares only in the losses
Not a valid partnership
All partners must at least share in the profits
Must all partners share in the losses?
Answer: probably not
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, Experts who have written on this topic have said no
So long as all of them share in the profits
Some authorities state that losses must be shared – this refers to gross losses (gross
losses should be shared): a partner is not entitled to share in any of the revenue of
the partnership unless all the costs incurred in generating that revenue have been
taken into account
E.g. make a product for R50 and sell it for R100; also have other expenses of
R60
o Partnership has made a loss of R10
o Cannot agree that one of partners would get R40 simply because
product was sold for more than it was bought
o Cannot divide up any of the benefits of a partnership without taking
into account the cost of generating that benefit
Third requirement:
o Partners must agree to conduct the partnership for profit
o Does not mean that the partnership has to generate a profit; simply means that the purpose
must be to make a profit
Profit does not have to be a pecuniary profit, as long as the object is some economic
benefit
Fourth requirement: intention must be to create a partnership
o People often conduct business through joint ventures
Often the first three requirements for a valid partnership are met in a JV
But the JV contract will often contain a clause that says “the intention is not to
create a partnership” – this will prevent the JV from being a partnership
Fifth requirement: partnership must be lawful
o Must have a lawful purpose
o Separate requirement imposed by the law on all contracts
Basic features of partnerships:
Initially limited to 20 partners by the Companies Act of 1973
o There were some exceptions
o No more limitation in the 2008 Companies Act – can now have as many partners as you
want
Partnership can register its name in terms of the CPA s 79(1)(a)(ii)
o Not properly/correctly regulated in the CPA
o In this section, the CPA deals with two categories of persons
Act distinguishes natural persons who can use their name and ID, and persons
registered in terms of public regulation if that person is a juristic person e.g. a
company
“full name”; “ID document”; “public regulation” – none of these are applicable to
partnerships
o One can argue that partnerships should be read into these provisions, because the Act
specifically says that a juristic person for purposes of the Act includes a partnership
But a partnership is not a juristic person in reality; therefore, the rules that apply to
juristic persons cannot be applied to partnerships because of their very nature
There is no ‘public regulation’/legislation regulating partnerships, therefore ‘juristic
person’ in this section cannot include partnerships
Partnership does not have juristic personality
o Partnerships are not recognised as separate legal persons
o Juristic persons can be partners, but the partnership can never be a juristic person
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, o SA law in this respect is in accordance with English law, but differs from continental systems
o A distinction is often drawn in partnership law between the entity and aggregate theory
Entity theory: partnership is regarded as a separate entity (Netherlands, Germany)
Aggregate theory: partnership is regarded as an aggregate of all the partners
SA and England
Partnership itself cannot own property and cannot be liable for its own debts;
cannot hold rights
All the property of the partnership is owned by the partners together; the
rights are held by the partners together; the liabilities are imposed on the
partners together
o Exceptions to this rule:
Insolvency law
Insolvency Act 24 of 1936
A partnership is sequestrated, not liquidated
Liquidation in the context of partnerships merely refers to the process by
which assets are sold and creditors are paid; not referring to liquidation in
the legal sense
Ability of partners to sue and be sued
Commissioner for SARS v Hawker Air Services 2006 2 All SA 565 (SCA)
Registration of business names s 79 CPA
Does not work very effectively for partnerships
Definition of juristic person includes a partnership for purposes of the CPA; does not mean that
partnerships are juristic persons in the true sense, just means that in this particular Act, when you
read ‘juristic person’, you must read in ‘partnerships’
Does the CPA sufficiently deal with partnerships, where the partners don’t want to use their own
names/where they want to create a business name?
S 79 speaks a lot about a person, but it only uses the term ‘juristic person’ once, in s 79(1)(a)(ii)
Does not seem as though s 79(1)(a)(ii) covers partnerships, because it only deals with juristic
persons who have names acquired in terms of public regulation, and there are no rules/no
legislation (no ‘public regulation’) dealing with the names of partnerships
Nor does a partnership fit in to any of the other provisions, because it is not a ‘person’
Partnerships don’t fit into this provision, even in the prohibition (“A person must not carry on
business, advertise, promote, offer to supply or supply any goods or services, or enter into a
transaction or agreement with a consumer under any name except…[then provides for the name of
a natural or juristic person])
Counter argument could be to say that the Act includes a partnership as a juristic person, therefore
where a ‘person’ is referred to, that should include partnerships as well
o Not a very strong argument
Many problems with the CPA; makes simple things difficult
We can be expected to build an argument around this in an answer: there is a difficulty here;
partnership included in ‘juristic person’ but s 79 only refers to juristic persons once; therefore, the
provision mostly does not apply to partnerships; perhaps we can include partnerships in the
definition of ‘person’
Exceptions where partnerships are treated as separate entities
Insolvency Act 24 of 1936
o S 2: partnerships and individuals are sequestrated; in this sense, partnerships are treated
like natural persons
o Juristic persons are different – they are liquidated
o S 13: if the partnership is sequestrated, all partners must be sequestrated
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