A comprehensive summary of CML2001F (Company Law) drawing from resources such as textbooks, lectures and lecture notes. These notes are fully sufficient for you to do well in the course.
Week 1 – Introduction and general concepts (exclude)
Juristic person: a collection of many individuals united into one body, having
perpetual succession under an artificial form, and vested, by policy of the law, with
the capacity of acting, in several respects, as an individual, particularly of taking and
granting property, of contracting obligations, and of suing and being sued, and of
exercising a variety of political rights, more or less extensive, according to the design
of its institution, or the powers conferred upon it
Ways to become a juristic person
1. Common law: considered a juristic person despite not being recognized as one in
terms of statute (act like a juristic person e.g. clubs and societies)
2. Statute: discussed below
3. Once you turn a profit you are recognized as a juristic person
Juristic persons created by statute
Two options:
1. Specific legislation creates the juristic person
2. Registration in terms of a so called generally enabling statute
The company as a juristic person
Section 19:
o From the date and time that the incorporation of a company is registered the
company –
is a juristic person, which exists continuously until its name is
removed from the companies register in accordance with this Act;
has all of the legal powers and capacity of an individual, except to the
extent that:
– a juristic person is incapable of exercising any such power, or
having any such capacity; or
– the company’s Memorandum of Incorporation provides
otherwise
Features of juristic personality
Limited liability
Assets are exclusive property of the company
Company must seek redress where wrong committed against it
Company can contract with members
Company can acquire rights and duties separate from its members
Owners/shareholders have no automatic right to manage
Profits belong to the company
Cases that illustrate these features
Salomon v Salomon & Co Ltd: creditors of a company could not sue the shareholders
to pay outstanding debts
, Dadoo Ltd v Krugersdorp Municipal Council:
o Indians weren’t able to hold any property due to legislation so Dadoo
incorporated and bought the property in the company’s name
o Court held that the company was entitled to hold the property as legislation
did not make reference to companies
Who/what is an agent
Agency is a contract in terms of which one person (the agent) is authorized and
usually required by another (the principal) to contract or to negotiate a contract on
the latter’s behalf with a third person
Two contracts: agent – principal and principal – 3rd party
Contract of mandate: between agent and principal
Authority
If agent acted with authority, then parties to the contract will be the principal and
the 3rd party
Agent incurs no rights or obligations
If the agent acted without authority, he cannot bind the principal and he himself
might be liable
In the context of agency authority is of the essence
Ways to acquire authority:
o Express
o Implied
o Ratification
o Ostensible (give impression that they have authority)
o Authorization by operation of law
Exceeding the mandate: acting without authority
o Agent could be liable based on warranty of authority
o If principal liable based on estoppel the agent may in turn be liable to the
principal
o Estoppel: prevents you from asserting something contrary to what has been
implied by a previous action
Agency in context:
o Partners are agents of one another
o Directors are agents of the company
o Members are agents of the CC
o Trustee acts as agent on behalf of trust
Who/what is a fiduciary
Person who holds a legal or ethical relationship of trust with one or more other
parties. Typically, a fiduciary prudently takes care of money or other assets for
another person
A fiduciary is held to a standard of conduct and trust above that of a stranger or of a
casual business person
, He must avoid "self-dealing" or "conflicts of interests" in which the potential benefit
to the fiduciary is in conflict with what is best for the person who trusts him
Characteristics:
o Scope for the exercise of some power
o That power/discretion can be used unilaterally so as to affect the beneficiary’s
legal or practical interests
o A peculiar vulnerability to the exercise of that discretion or power
Duties:
o To act in good faith:
Open and honest in his dealings
Avoid conflicts of interest
Hand over any profit made in carrying out mandate
Disclose relevant information
o To account:
Keep the beneficiary informed of progress
Keep own property separate
Maintain proper records of dealings and transactions
Account for any transactions concluded during the mandate
Sole Proprietor
Type of business entity that is owned and run by one natural person and in which
there is no legal distinction between the owner and the business
There is only one estate, the sole proprietor owns all assets in his personal capacity
If the sole proprietor dies the business ends as well
The Unincorporated Partnership
The legal relationship arising from an agreement between at least two persons in
terms of which each contributes towards a business carried on in common with the
object of obtaining mutual material benefit
The Trust
A trust is a legal relationship that has been created by/in a trust deed and it has the
following key characteristics:
o The relationship created by persons known as founder/donor
o The founder places assets under the control of another person/s known as
the trustee/s
o This is either done during the founder’s lifetime or after his death
o The purpose of the exercise is to benefit third persons known as the
beneficiaries
Not recognized as a separate legal entity but mimics the features of one
The Partnership
Legal nature:
o Aggregate theory: do not treat partnerships as a separate legal entity
o Entity theory: treat partnerships as a separate legal entity
SA law does not consider a partnership a separate entity
Partners are jointly liable
Exceptions to aggregate theory:
o Insolvency:
When any one of the estates become insolvent, all the other estates
are simultaneously sequestrated, but separately
Personal creditors of the insolvent are paid first, then the partnership
creditors are paid off
o Litigation:
A partnership can be sued or sue in its own name – partners are
jointly and separately liable
Only once the partnership fund is fully diminished can the balance of
the claim be enforced against individual partners (that partner will
then have to claim from the other partners)
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