MERCANTILE LAW 292
,1
Contents
Introduction to entrepreneurial law ....................................................................................... 2
Remedies and enforcement ................................................................................................. 6
Legal personality .................................................................................................................. 8
Disregarding legal personality ............................................................................................ 10
Business Trusts ................................................................................................................. 17
Partnerships....................................................................................................................... 28
Types of companies ........................................................................................................... 44
Incorporation of a company ................................................................................................ 51
Pre-incorporation contracts ................................................................................................ 56
Company Management ...................................................................................................... 60
Company Financing ........................................................................................................... 80
Company groups .............................................................................................................. 109
Liquidation, dissolution, deregulation & business rescue .................................................. 118
Close Corporations .......................................................................................................... 124
,2
Introduction to entrepreneurial law
BUSINESS MODELS:
[A] Sole Proprietor:
Natural persons
No Juristic Personality
Little legislation governing
Little financing options
[B] Closely Held Undertakings:
[1] Partnerships
o Agreement between 2 or more
▪ Make contributions
▪ With intention to make profit
o No Juristic Personality
[2] Private Company
o Company Act “a profit company that – (a) is not a public, personal liability, or state-owned
company and (b) satisfied criteria in sec 8(2)(b)”
o S8(2)(b):
▪ Prohibit offering any securities to public
▪ Restrict transferability of securities
o 1973 Act Restricted to 50 members; 2008 Act: no restrictions on no. of members
o More Flexible, and easy to register
o Has Juristic Personality
o “(Pty) Ltd.”
[3] Close Corporations
o Can’t create new CC’s
o No shares → “Members’ interest” [a %, not a number held]
o Close Corporation Act
o Has Juristic Personality
[4] Business Trust
o 3 Parties: Founder, Trustee and beneficiary
o Similar to normal trust
o DOES NOT have Juristic Personality BUT the Companies Act treats it as if it does…
[C] Public Companies
Widely-held undertaking
o “Ltd.”
COMPANIES ACT 71 OF 2008:
Background
Companies Act 46 of 1926
Companies Act 61 of 1973
Close Corporations Act 69 of 1984
Companies Act 71 of 2008
Amendment Bill, 2010
Draft Regulations, 2010 & forms
,3
Common Law
Non-statutory (Roman-Dutch)
o Specifically for Company Law: also heavily influenced by English law…
Interaction with New Act:
o Common law is all law that is not found in legislation and not a codification of company
law.
o Common law is partly of English and partly of Roman-Dutch origin.
Reasons for the new act:
1. Constitution = the need to bring company legislation in line with the 1996 Constitution. There is
also clearly a desire to make the formation of a company a right of all persons, and not a
privilege.
2. Economic development = the need to stimulate economic growth and to avoid excessive
regulation. i.e. to do away with unnecessary hurdles that impede growth and entrepreneurship
(2008 Act, s7)
3. Simplification = the 1973 Act was unnecessarily complicated.
4. Criminal Sanctions = there were problems with the enforcement of the 1973 Act and misplaced
reliance on criminal sanctions.
5. Business Rescue = in the 1973 Act, provisions on judicial management as a mechanism for
business rescue made things impracticable.
6. Capital Maintenance = principles of liquidity and solvency replaced capital maintenance which is
more appropriate
7. Corporate Governance = a higher standard for corporate governance, corporate social
responsibility and ethics is for the benefit of not only investors, but for all stakeholders.
The purposes of the 2008 Companies Act (s7):
Promoting compliance with the Bill of Rights in the Constitution (a)
Makes provision for simplification and flexibility and encourages high standards of corporate
governance (b)
Transparency (b)
Corporate efficiency (g) and (j)
Predictable regulation in the interests of effective enforcement (l)
Promotion of economic objectives and the importance of companies for the local and global
economies (b), (c), (d), (e) and (f)
Promotion of the effectiveness of non-profit companies (h)
Provision for business rescue (k)
• The Act must be interpreted and applied in a manner that gives effect to the purposes in
section 7 (purposive interpretation). (s5(1))
, 4
Five Pillars of the New Act:
1. Simplicity
2. Flexibility
3. Efficiency
4. Transparency
5. Predictable regulations
Section 7 of Act → NB for later.
Interpretation:
S5(1): Act must be read purposively, with section 7 in mind
S5(2): May consider foreign company law
S5(4) and (5): Conflict between CA and other Acts,
o others Acts, if mentioned, prevail
o The Companies Act prevails in all other cases, except:
S5(6): Conflict between Companies Act and listing requirements of Exchange (only JSE at the moment)
o CA prevails
Anti-avoidance provisions:
Allows court to declare [S6]:
o (1) Any agreement [etc…] in MOI to be void, provided that,
▪ (2) primarily/substantially intended to defeat/reduce effect of,
• (3) unalterable provision in Act
• S15(2)(a)(iii) – allowed to create more strict standards for unalterable provisions, but not less.
EXEMPTIONS:
o May apply to Companies Tribunal for exemption if:
▪ (3)(a) serves a reasonable purpose
o (3)(b) reasonable and justifiable considering purpose of Act, purpose of the provision in
question and extent that it would infringe Act
o See also S2(3) and S119(6)
INSTITUTIONS OF CA:
1. Companies and Intellectual Property Commission
• Independent and impartial organ with Juristic Personality
o Jurisdiction throughout SA
• Duties of Commission [S187]:
o Receiving and investigating complaints
o Issuing/Enforcing Compliance notices
o Making recommendations to Financial Reporting Standards Council
2. Companies Tribunal
• Independent and impartial organ with Juristic Personality
o Jurisdiction throughout SA
o Has 2 major functions [s195]
o Assist in Alternate Dispute Resolution (ADR)
o Adjudicate any applications made before tribunal ito Act
• Decisions are binding on commission, unless review/appeal
,1
Contents
Introduction to entrepreneurial law ....................................................................................... 2
Remedies and enforcement ................................................................................................. 6
Legal personality .................................................................................................................. 8
Disregarding legal personality ............................................................................................ 10
Business Trusts ................................................................................................................. 17
Partnerships....................................................................................................................... 28
Types of companies ........................................................................................................... 44
Incorporation of a company ................................................................................................ 51
Pre-incorporation contracts ................................................................................................ 56
Company Management ...................................................................................................... 60
Company Financing ........................................................................................................... 80
Company groups .............................................................................................................. 109
Liquidation, dissolution, deregulation & business rescue .................................................. 118
Close Corporations .......................................................................................................... 124
,2
Introduction to entrepreneurial law
BUSINESS MODELS:
[A] Sole Proprietor:
Natural persons
No Juristic Personality
Little legislation governing
Little financing options
[B] Closely Held Undertakings:
[1] Partnerships
o Agreement between 2 or more
▪ Make contributions
▪ With intention to make profit
o No Juristic Personality
[2] Private Company
o Company Act “a profit company that – (a) is not a public, personal liability, or state-owned
company and (b) satisfied criteria in sec 8(2)(b)”
o S8(2)(b):
▪ Prohibit offering any securities to public
▪ Restrict transferability of securities
o 1973 Act Restricted to 50 members; 2008 Act: no restrictions on no. of members
o More Flexible, and easy to register
o Has Juristic Personality
o “(Pty) Ltd.”
[3] Close Corporations
o Can’t create new CC’s
o No shares → “Members’ interest” [a %, not a number held]
o Close Corporation Act
o Has Juristic Personality
[4] Business Trust
o 3 Parties: Founder, Trustee and beneficiary
o Similar to normal trust
o DOES NOT have Juristic Personality BUT the Companies Act treats it as if it does…
[C] Public Companies
Widely-held undertaking
o “Ltd.”
COMPANIES ACT 71 OF 2008:
Background
Companies Act 46 of 1926
Companies Act 61 of 1973
Close Corporations Act 69 of 1984
Companies Act 71 of 2008
Amendment Bill, 2010
Draft Regulations, 2010 & forms
,3
Common Law
Non-statutory (Roman-Dutch)
o Specifically for Company Law: also heavily influenced by English law…
Interaction with New Act:
o Common law is all law that is not found in legislation and not a codification of company
law.
o Common law is partly of English and partly of Roman-Dutch origin.
Reasons for the new act:
1. Constitution = the need to bring company legislation in line with the 1996 Constitution. There is
also clearly a desire to make the formation of a company a right of all persons, and not a
privilege.
2. Economic development = the need to stimulate economic growth and to avoid excessive
regulation. i.e. to do away with unnecessary hurdles that impede growth and entrepreneurship
(2008 Act, s7)
3. Simplification = the 1973 Act was unnecessarily complicated.
4. Criminal Sanctions = there were problems with the enforcement of the 1973 Act and misplaced
reliance on criminal sanctions.
5. Business Rescue = in the 1973 Act, provisions on judicial management as a mechanism for
business rescue made things impracticable.
6. Capital Maintenance = principles of liquidity and solvency replaced capital maintenance which is
more appropriate
7. Corporate Governance = a higher standard for corporate governance, corporate social
responsibility and ethics is for the benefit of not only investors, but for all stakeholders.
The purposes of the 2008 Companies Act (s7):
Promoting compliance with the Bill of Rights in the Constitution (a)
Makes provision for simplification and flexibility and encourages high standards of corporate
governance (b)
Transparency (b)
Corporate efficiency (g) and (j)
Predictable regulation in the interests of effective enforcement (l)
Promotion of economic objectives and the importance of companies for the local and global
economies (b), (c), (d), (e) and (f)
Promotion of the effectiveness of non-profit companies (h)
Provision for business rescue (k)
• The Act must be interpreted and applied in a manner that gives effect to the purposes in
section 7 (purposive interpretation). (s5(1))
, 4
Five Pillars of the New Act:
1. Simplicity
2. Flexibility
3. Efficiency
4. Transparency
5. Predictable regulations
Section 7 of Act → NB for later.
Interpretation:
S5(1): Act must be read purposively, with section 7 in mind
S5(2): May consider foreign company law
S5(4) and (5): Conflict between CA and other Acts,
o others Acts, if mentioned, prevail
o The Companies Act prevails in all other cases, except:
S5(6): Conflict between Companies Act and listing requirements of Exchange (only JSE at the moment)
o CA prevails
Anti-avoidance provisions:
Allows court to declare [S6]:
o (1) Any agreement [etc…] in MOI to be void, provided that,
▪ (2) primarily/substantially intended to defeat/reduce effect of,
• (3) unalterable provision in Act
• S15(2)(a)(iii) – allowed to create more strict standards for unalterable provisions, but not less.
EXEMPTIONS:
o May apply to Companies Tribunal for exemption if:
▪ (3)(a) serves a reasonable purpose
o (3)(b) reasonable and justifiable considering purpose of Act, purpose of the provision in
question and extent that it would infringe Act
o See also S2(3) and S119(6)
INSTITUTIONS OF CA:
1. Companies and Intellectual Property Commission
• Independent and impartial organ with Juristic Personality
o Jurisdiction throughout SA
• Duties of Commission [S187]:
o Receiving and investigating complaints
o Issuing/Enforcing Compliance notices
o Making recommendations to Financial Reporting Standards Council
2. Companies Tribunal
• Independent and impartial organ with Juristic Personality
o Jurisdiction throughout SA
o Has 2 major functions [s195]
o Assist in Alternate Dispute Resolution (ADR)
o Adjudicate any applications made before tribunal ito Act
• Decisions are binding on commission, unless review/appeal
