CHAPTER 1
BACKGROUND
Commencement of a ‘business enterprise’ starts with the type of business enterprise
Important decision determined by factors-
Formalities, ownership, control, capital risk, personal liability and perpetual
succession
All businesses are subject to ‘registration’ with the Department of Labour, the SA Revenue
Service for income tax and value added tax etc. and with the local authority and other
regulators depending on the type of business
This registration is not a requirement for establishing the business, but as a result of
the business
Income tax consequences differ iro the different entities- can also be a factor in
determining the type of enterprise
It is possible to migrate from one business to another
SOLE PROPRIETORSHIP
Business that is owned and operated by a natural person
Owner carries the full risks for the business failure- assets and liabilities are of the
owner
Business has no separate existence from the owner- business can be accounted for
separately but is not a separate entity
If the business is not successful- assets of the business and the personal property of
the owner will be at risk
Owner and the business are not separate- if the owner dies the business also dies
Owner of the business has total control over the business and how it operates
Capital of the business can only be from the capital of the owner or through loans
and/or credit from third parties
Profits are the property of the owner
No formalities are required to establish a sole partnership
PARTNERSHIP
Relationship existing between 2 or more (no limit) persons to jointly conduct a business
Contract- express/implied- and parties contribute to a partnership fund
Partners have fiduciary duties in respect of their co-partners
Advantage- Capital acquisition is easier- more persons to contribute capital
Disadvantage- Its consequences and effect are similar as in sole proprietorship
,Partners can each manage and control the partnership (unless excluded in the contract) and
share in the net profits- also as a general rule share in all losses and possible personal
liability if the partnership is not successful
The partnership assets will be used first to pay the creditors- if those assets are not
sufficient, the personal assets of the partners will be used
If one partner leaves- partnership as contractual arrangement ceases
No formal registration requirements for a partnership contract
TRUST
A trust must be registered in terms of the Trust Property Control Act 57 of 1988
Business trust is established to carry on business for the benefit of the trust
beneficiaries.
Business trust is formed when a founder executes a trust deed.
The trust consists of the trustees who operate the trust in terms of the trust deed for
the benefit of the beneficiaries.
The trust is not a separate legal entity
Trustees are the owners of the trust property in their official capacity and the
management of the trust lies with the trustees in terms of the trust deed.
Trustees have fiduciary duties in respect of the exercise of their powers.
There is no limit to the number of trustees or beneficiaries.
The trustees are not liable for the liabilities of the trust and only the trust property
will be used to pay creditors if the trust is not successful.
Trust can be financed through internal capital and external capital in the form of
loans and credit.
Changes in the trustees and/or the beneficiaries do not, depending on the trust
deed, affect the existence of the trust.
CLOSE CORPORATION
An entity registered under the Close Corporations Act 69 of 1984.
Since the coming into effect of Companies Act 71 of 2008, no new CC cannot be registered,
and a company cannot be converted into a CC.
Existing CC can still exist and there is no date when those CC must cease to exist
Possible to acquire an existing Close Corporation and continue trading.
Entity separate from its members and a change in membership does not affect the existence
of the CC.
Members are not liable for the debts of the CC.
Maximum number of members- 10 natural persons.
Every member has the right, subject to the optional association agreement, to
manage the CC- much like a partnership.
, The members have fiduciary duties in respect of the corporation as a separate entity,
and also to their co-members
COMPANY
There are various types of companies- one exception, usually have shareholders and is
incorporated for profit.
Own capital is acquired from shareholders and external capital from credit and loans.
Types of companies with shareholders, have a division between ownership and
control.
The shareholders own the company in the sense that they are the eventual
beneficiaries of the success of the company and bear the eventual risk- limited to the
subscription price of the shares, they do not directly control the company- done by
the board of directors.
Shareholders elect at least 50% of the directors
Shareholders cannot take over the management even when not satisfied with the
management of the company by the directors- only remedy is to dismiss the
directors and appoint other directors.
The directors have fiduciary duties in respect of the company as separate legal entity
and not to the shareholders
o Shareholders do not have fiduciary duties to co-shareholders or to the
company.
Is a separate entity and has its own assets and liabilities.
PURPOSE OF THE COMPANIES ACT
a) To promote compliance with the Bill of Rights as provided for in the Constitution, in the
application of company law;
b) To promote the development of the South African economy by:
a. encouraging entrepreneurship and enterprise efficiency;
b. creating flexibility and simplicity in the formation and maintenance of
companies;
c. encouraging transparency and high standards of corporate governance- given the
significant role of enterprises within the social and economic life of the nation;
d. promote innovation and investment in the South African markets;
e. re-affirm the concept of the company as a means of achieving economic and
social benefits;
f. continue to provide for the creation and use of companies in a manner that
enhances the economic welfare of SA as a partner within the global economy;
g. promote the development of companies within all sectors of the economy, and
encourage active participation in economic organization, management and
productivity;
h. create optimum conditions for the aggregation of capital for productive purposes
and for the investment of that capital in enterprises and the spreading of
economic risk
, i. provide for the formation, operation and accountability of NPCs in a
manner designed to promote, support and enhance the capacity of such
companies to perform their functions;
j. balance the rights and obligations of shareholders and directors within
companies;
k. encourage the efficient and responsible management of companies;
l. provide for the efficient rescue and recovery of financially-distressed
companies, in a manner that balances the rights and interests of all relevant
stakeholders; and
m. provide a predictable and effective environment for the efficient regulation of
companies.
APPLICATION AND INTERPRETATION
Three possibilities if there are conflicts between the Companies Act and other legislation-
1. If there is an inconsistency between any provision of the Act and any other national
legislation- the provisions of both Acts apply concurrently to the extent that it is
possible to apply and comply with one of the inconsistent provisions without
contravening the second provision.
2. If there is an inconsistency between the Act and any of the following
legislation- latter will apply (except as provided for in sections 30(8) and 49(4) of the
Act)
3. In all other instances, the Companies Act will apply.
CHAPTER 2- LEGAL PERSONALITY AND REGISTRATION OF
COMPANIES
BACKGROUND
Commencement of a ‘business enterprise’ starts with the type of business enterprise
Important decision determined by factors-
Formalities, ownership, control, capital risk, personal liability and perpetual
succession
All businesses are subject to ‘registration’ with the Department of Labour, the SA Revenue
Service for income tax and value added tax etc. and with the local authority and other
regulators depending on the type of business
This registration is not a requirement for establishing the business, but as a result of
the business
Income tax consequences differ iro the different entities- can also be a factor in
determining the type of enterprise
It is possible to migrate from one business to another
SOLE PROPRIETORSHIP
Business that is owned and operated by a natural person
Owner carries the full risks for the business failure- assets and liabilities are of the
owner
Business has no separate existence from the owner- business can be accounted for
separately but is not a separate entity
If the business is not successful- assets of the business and the personal property of
the owner will be at risk
Owner and the business are not separate- if the owner dies the business also dies
Owner of the business has total control over the business and how it operates
Capital of the business can only be from the capital of the owner or through loans
and/or credit from third parties
Profits are the property of the owner
No formalities are required to establish a sole partnership
PARTNERSHIP
Relationship existing between 2 or more (no limit) persons to jointly conduct a business
Contract- express/implied- and parties contribute to a partnership fund
Partners have fiduciary duties in respect of their co-partners
Advantage- Capital acquisition is easier- more persons to contribute capital
Disadvantage- Its consequences and effect are similar as in sole proprietorship
,Partners can each manage and control the partnership (unless excluded in the contract) and
share in the net profits- also as a general rule share in all losses and possible personal
liability if the partnership is not successful
The partnership assets will be used first to pay the creditors- if those assets are not
sufficient, the personal assets of the partners will be used
If one partner leaves- partnership as contractual arrangement ceases
No formal registration requirements for a partnership contract
TRUST
A trust must be registered in terms of the Trust Property Control Act 57 of 1988
Business trust is established to carry on business for the benefit of the trust
beneficiaries.
Business trust is formed when a founder executes a trust deed.
The trust consists of the trustees who operate the trust in terms of the trust deed for
the benefit of the beneficiaries.
The trust is not a separate legal entity
Trustees are the owners of the trust property in their official capacity and the
management of the trust lies with the trustees in terms of the trust deed.
Trustees have fiduciary duties in respect of the exercise of their powers.
There is no limit to the number of trustees or beneficiaries.
The trustees are not liable for the liabilities of the trust and only the trust property
will be used to pay creditors if the trust is not successful.
Trust can be financed through internal capital and external capital in the form of
loans and credit.
Changes in the trustees and/or the beneficiaries do not, depending on the trust
deed, affect the existence of the trust.
CLOSE CORPORATION
An entity registered under the Close Corporations Act 69 of 1984.
Since the coming into effect of Companies Act 71 of 2008, no new CC cannot be registered,
and a company cannot be converted into a CC.
Existing CC can still exist and there is no date when those CC must cease to exist
Possible to acquire an existing Close Corporation and continue trading.
Entity separate from its members and a change in membership does not affect the existence
of the CC.
Members are not liable for the debts of the CC.
Maximum number of members- 10 natural persons.
Every member has the right, subject to the optional association agreement, to
manage the CC- much like a partnership.
, The members have fiduciary duties in respect of the corporation as a separate entity,
and also to their co-members
COMPANY
There are various types of companies- one exception, usually have shareholders and is
incorporated for profit.
Own capital is acquired from shareholders and external capital from credit and loans.
Types of companies with shareholders, have a division between ownership and
control.
The shareholders own the company in the sense that they are the eventual
beneficiaries of the success of the company and bear the eventual risk- limited to the
subscription price of the shares, they do not directly control the company- done by
the board of directors.
Shareholders elect at least 50% of the directors
Shareholders cannot take over the management even when not satisfied with the
management of the company by the directors- only remedy is to dismiss the
directors and appoint other directors.
The directors have fiduciary duties in respect of the company as separate legal entity
and not to the shareholders
o Shareholders do not have fiduciary duties to co-shareholders or to the
company.
Is a separate entity and has its own assets and liabilities.
PURPOSE OF THE COMPANIES ACT
a) To promote compliance with the Bill of Rights as provided for in the Constitution, in the
application of company law;
b) To promote the development of the South African economy by:
a. encouraging entrepreneurship and enterprise efficiency;
b. creating flexibility and simplicity in the formation and maintenance of
companies;
c. encouraging transparency and high standards of corporate governance- given the
significant role of enterprises within the social and economic life of the nation;
d. promote innovation and investment in the South African markets;
e. re-affirm the concept of the company as a means of achieving economic and
social benefits;
f. continue to provide for the creation and use of companies in a manner that
enhances the economic welfare of SA as a partner within the global economy;
g. promote the development of companies within all sectors of the economy, and
encourage active participation in economic organization, management and
productivity;
h. create optimum conditions for the aggregation of capital for productive purposes
and for the investment of that capital in enterprises and the spreading of
economic risk
, i. provide for the formation, operation and accountability of NPCs in a
manner designed to promote, support and enhance the capacity of such
companies to perform their functions;
j. balance the rights and obligations of shareholders and directors within
companies;
k. encourage the efficient and responsible management of companies;
l. provide for the efficient rescue and recovery of financially-distressed
companies, in a manner that balances the rights and interests of all relevant
stakeholders; and
m. provide a predictable and effective environment for the efficient regulation of
companies.
APPLICATION AND INTERPRETATION
Three possibilities if there are conflicts between the Companies Act and other legislation-
1. If there is an inconsistency between any provision of the Act and any other national
legislation- the provisions of both Acts apply concurrently to the extent that it is
possible to apply and comply with one of the inconsistent provisions without
contravening the second provision.
2. If there is an inconsistency between the Act and any of the following
legislation- latter will apply (except as provided for in sections 30(8) and 49(4) of the
Act)
3. In all other instances, the Companies Act will apply.
CHAPTER 2- LEGAL PERSONALITY AND REGISTRATION OF
COMPANIES
