Entrepreneurial Law
Study Unit 1
1. List and briefly discuss three advantages of incorporating a business
1. Effective tax rates of individuals are different from the rates that apply to a company
or close corporation.
2. The Companies Act recognises different types of company and allows great flexibility
in company structure as expressed in a company’s Memorandum of Incorporation.
3. The Income Tax Act also recognises a variety of different companies for tax purposes
and grants favourable tax treatment to some and penalises others.
2. Legal Personality
A company in itself is a separate legal person, according to s 14 (4) of the Act, a registration
certificate is conclusive evidence that the requirements for incorporation has been met as of
the date and time specified on the certificate.
In the Airport Cold Storage case it was confirmed that one of the most fundamental
consequences of incorporation is that a company is a juristic entity separate from its
shareholders. Accordingly, the assets of the company are the exclusive property of the
company itself and not of its shareholders.
Although incorporation and limited liability are different concepts, incorporation also entails
limited liability of shareholders, with the result that the shareholders are generally not liable
for the debts of the company. However, certain companies can have legal personality, but
unlimited liability.
If a personal liability company were registered in terms of the Companies Act 2008, the MOI
of such a company would state that the directors are jointly and severally liable with the
company for the contractual debts and liabilities incurred during their period of office. Such
a company has legal personality despite the fact that the directors can be held personally
liable for the payment of the company’s debts.
, Section 19 (1) of the Act reinforces the common law position as outlined in that it provides:
‘from the date and time that the incorporation of a company is registered, the company is –
(a) juristic person’.
This statutory provision brings the law into line with the accepted judicial pronouncements
particularly that of Dadoo v Krugersdorp Municipal Council which states that ‘a registered
company is a legal persona distinct from the members who compose it. Nor is the position
affected by the circumstance that a controlling interest in the concern may be held by a
single member. This conception of the existence if the company as a separate entity distinct
from its founders is no merely artificial technical thing. It is a matter of substance, property
vested in the company is not, and cannot be, regarded as vested in all or any of its
members.’
Section 19 (1) has two concepts, the Act distinguishes between incorporation, which is
affected by the actions of the incorporators as provided for in section 13 (1) of the Act, and
registration, which is effected by the Companies and INTELLECTUAL Property Commission as
soon as practicable after the act of incorporation.
Given this distinction between incorporation and registration, there may be a gap in time
during which the company will notionally exist but not enjoy legal personality. In practice,
this will generally be a brief period,
Questions of liability may well arise during this period if a person purports to conduct
business in the name of the company. Significantly, the 2009 Act has not included a
provision similar to s172 of the 1973 Act, which made it an offence for a company with
share capital to commence business or exercise any power of borrowing until it was issued
with the certificate by the Registrar.
3. Lifting the Corporate Veil
In the case of Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd, it was said that if a
company has been legitimately established and is legitimately operated, but is misused in a
particular instance ‘to perpetrate a fraud, or for a dishonest or improper purpose, there is
no reason in principle or logic, why its separate personality cannot be disregarded in
relation to the transaction in question’.
Study Unit 1
1. List and briefly discuss three advantages of incorporating a business
1. Effective tax rates of individuals are different from the rates that apply to a company
or close corporation.
2. The Companies Act recognises different types of company and allows great flexibility
in company structure as expressed in a company’s Memorandum of Incorporation.
3. The Income Tax Act also recognises a variety of different companies for tax purposes
and grants favourable tax treatment to some and penalises others.
2. Legal Personality
A company in itself is a separate legal person, according to s 14 (4) of the Act, a registration
certificate is conclusive evidence that the requirements for incorporation has been met as of
the date and time specified on the certificate.
In the Airport Cold Storage case it was confirmed that one of the most fundamental
consequences of incorporation is that a company is a juristic entity separate from its
shareholders. Accordingly, the assets of the company are the exclusive property of the
company itself and not of its shareholders.
Although incorporation and limited liability are different concepts, incorporation also entails
limited liability of shareholders, with the result that the shareholders are generally not liable
for the debts of the company. However, certain companies can have legal personality, but
unlimited liability.
If a personal liability company were registered in terms of the Companies Act 2008, the MOI
of such a company would state that the directors are jointly and severally liable with the
company for the contractual debts and liabilities incurred during their period of office. Such
a company has legal personality despite the fact that the directors can be held personally
liable for the payment of the company’s debts.
, Section 19 (1) of the Act reinforces the common law position as outlined in that it provides:
‘from the date and time that the incorporation of a company is registered, the company is –
(a) juristic person’.
This statutory provision brings the law into line with the accepted judicial pronouncements
particularly that of Dadoo v Krugersdorp Municipal Council which states that ‘a registered
company is a legal persona distinct from the members who compose it. Nor is the position
affected by the circumstance that a controlling interest in the concern may be held by a
single member. This conception of the existence if the company as a separate entity distinct
from its founders is no merely artificial technical thing. It is a matter of substance, property
vested in the company is not, and cannot be, regarded as vested in all or any of its
members.’
Section 19 (1) has two concepts, the Act distinguishes between incorporation, which is
affected by the actions of the incorporators as provided for in section 13 (1) of the Act, and
registration, which is effected by the Companies and INTELLECTUAL Property Commission as
soon as practicable after the act of incorporation.
Given this distinction between incorporation and registration, there may be a gap in time
during which the company will notionally exist but not enjoy legal personality. In practice,
this will generally be a brief period,
Questions of liability may well arise during this period if a person purports to conduct
business in the name of the company. Significantly, the 2009 Act has not included a
provision similar to s172 of the 1973 Act, which made it an offence for a company with
share capital to commence business or exercise any power of borrowing until it was issued
with the certificate by the Registrar.
3. Lifting the Corporate Veil
In the case of Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd, it was said that if a
company has been legitimately established and is legitimately operated, but is misused in a
particular instance ‘to perpetrate a fraud, or for a dishonest or improper purpose, there is
no reason in principle or logic, why its separate personality cannot be disregarded in
relation to the transaction in question’.
