LU1 THEME 1 NOTES
LO1: Differentiate between the various business enterprise structures available in South
Africa.
Definition of a business enterprise structure: it is a category of organisation that is
legally recognised and characterised by the legal definition of that particular category.
2.1. companies and other business: why incorporate a business?
- factors that need to be considered b4 deciding which business entity will be most
appropriate for a particular business : no of person who will be involved in the business, the
, extent of their involvement, the capital required to commence business, the sources of that
capital, the requirements of customers and clients, and the strategic objectives of those
involved.
Types of enterprise structures
company Business trust
Close corporation
partnership Or a
Sole trader
combination
Example of a combination choice= a company that carries on business using assets in its
trading activities that the company itself does not own but are held in a trust that leases the
assets to the company. Shareholders of that company can be the same ppl who are the
beneficiaries of the trust.
Companies in context
- Sole proprietorship is the simplest way to carry a business in your own name. it is easy to set up &
manage. Fewer formalities other than obtaining necessary trading licenses. The entrepreneur can be sued
in their own name and their assets are exposed to risk to creditors.
- Partnerships: simple structure. It is NOT A SEPARATE LEGAL PERSON. The assets of either partner may
be subject to a claim by a creditor as all partners are jointly and severally liable for business partnership
debts. Meaning one partner could become personally liable for all the debts of the entire partnership. a
partnership does not have the benefits of perpetual succession. The partnership automatically dissolves on
the death or insolvency of a partner or on the retirement or admission of a partner.
- Trusts are also used to carry out business activities. Trusts are more regulated. Chp 18.
- Close corporations have perpetual succession which means, for example, a member can die or cease
to be a member and this will not affect the CC or any contracts (lease agreement) or licenses that have
been entered into by the corporation. Members can change but the rights & obligations of the corporation
remain those of the corporation itself. Advantage of perpetual succession= CC is seen as more preferable
as a sole proprietor or in a partnership.
- CC has its own legal existence. Contracts entered into in the name of a CC remain valid despite changes
in a corporation’s membership. Clients and suppliers deal w the CC and not thr members. Chp16.
, [insert pg32-34 here].
LO2: Briefly differentiate between the various types of companies that are allowed in terms
of the Companies Act, 2008.
TYPES OF COMPANY
Profit company Non-profit company
External company
Public State- Personal Private
company liability External
owned company company
(Ltd) enterprise company (Pty) Ltd
(SOC Ltd) (Inc)
In terms of the Companies Act 2008 these are the types of companies.
2.5.1. Public company
- is any profit company that is not a stated-owned enterprise, a private company or a personal liability company.
- in this type of company= shares may be offered to the public & are freely transferable.
- can be listed (on a stock exchange) or unlisted.
Recognition of public company status is sourced in the MOI of a company, which is the sole governing document if
a company.
- Its provisions will determine whether a company enjoys public company status.
2.5.2. State-owned company
- SOC = is a profit company that is either listed as a public entity in schedule 2 or 3 of the Public Finance
Management Act or is ownedby a municipality.
- SOC is therefore a national government business enterprise. It is a juristic person under the ownership and control
of the national executive that has been assigned financial and operational authority to carry on a business activity.
- the principal business of a govt business enterprise or SOC is that it provides goods or services in accordance w
ordinary business principles and is fully or substantially financed from sources other than the National Revenue
Fund or by way of tax, levy or any other statutory money.
- examples of SOCs = SAA, Eskom, Telkom, SABC.
- In Sonnenberg McLoughlin Inc v Spiro= a personal liability company wanted to hold a previous director
2.5.3. Personal liability company
personally
- is a private (profit)liable for his
company share
used for company
mainly liabilities
by professional contracted such
associations during
ashis period ofentrepreneurs
attorneys, office. (this company
and
stockbrokers
was awho wish toliability
personal exploitunder
someCompanies
of the advantages
Act 1973). of corporate personality
The company suchdue
paid debts as perpetual succession.
to its creditors, these
- this type of company MOI will state that it is a personal liability company, which usually means that the directors
debts had incurred during the respondent’s term of office as director. Since company paid all its debts- it
are jointly and severally liable together w the company for all contractual debts and liabilities incurred during their
office. had a claim against the previous director in his capacity as co-debtor for his proportionate share. But the
company’s memorandum stated that “all past and present directors of the company shall be liable jointly
and severally with the company for the debts and liabilities of the company during their period of office.
Held, the purpose of a personal liability company – to allow a private company to include its memorandum
LO1: Differentiate between the various business enterprise structures available in South
Africa.
Definition of a business enterprise structure: it is a category of organisation that is
legally recognised and characterised by the legal definition of that particular category.
2.1. companies and other business: why incorporate a business?
- factors that need to be considered b4 deciding which business entity will be most
appropriate for a particular business : no of person who will be involved in the business, the
, extent of their involvement, the capital required to commence business, the sources of that
capital, the requirements of customers and clients, and the strategic objectives of those
involved.
Types of enterprise structures
company Business trust
Close corporation
partnership Or a
Sole trader
combination
Example of a combination choice= a company that carries on business using assets in its
trading activities that the company itself does not own but are held in a trust that leases the
assets to the company. Shareholders of that company can be the same ppl who are the
beneficiaries of the trust.
Companies in context
- Sole proprietorship is the simplest way to carry a business in your own name. it is easy to set up &
manage. Fewer formalities other than obtaining necessary trading licenses. The entrepreneur can be sued
in their own name and their assets are exposed to risk to creditors.
- Partnerships: simple structure. It is NOT A SEPARATE LEGAL PERSON. The assets of either partner may
be subject to a claim by a creditor as all partners are jointly and severally liable for business partnership
debts. Meaning one partner could become personally liable for all the debts of the entire partnership. a
partnership does not have the benefits of perpetual succession. The partnership automatically dissolves on
the death or insolvency of a partner or on the retirement or admission of a partner.
- Trusts are also used to carry out business activities. Trusts are more regulated. Chp 18.
- Close corporations have perpetual succession which means, for example, a member can die or cease
to be a member and this will not affect the CC or any contracts (lease agreement) or licenses that have
been entered into by the corporation. Members can change but the rights & obligations of the corporation
remain those of the corporation itself. Advantage of perpetual succession= CC is seen as more preferable
as a sole proprietor or in a partnership.
- CC has its own legal existence. Contracts entered into in the name of a CC remain valid despite changes
in a corporation’s membership. Clients and suppliers deal w the CC and not thr members. Chp16.
, [insert pg32-34 here].
LO2: Briefly differentiate between the various types of companies that are allowed in terms
of the Companies Act, 2008.
TYPES OF COMPANY
Profit company Non-profit company
External company
Public State- Personal Private
company liability External
owned company company
(Ltd) enterprise company (Pty) Ltd
(SOC Ltd) (Inc)
In terms of the Companies Act 2008 these are the types of companies.
2.5.1. Public company
- is any profit company that is not a stated-owned enterprise, a private company or a personal liability company.
- in this type of company= shares may be offered to the public & are freely transferable.
- can be listed (on a stock exchange) or unlisted.
Recognition of public company status is sourced in the MOI of a company, which is the sole governing document if
a company.
- Its provisions will determine whether a company enjoys public company status.
2.5.2. State-owned company
- SOC = is a profit company that is either listed as a public entity in schedule 2 or 3 of the Public Finance
Management Act or is ownedby a municipality.
- SOC is therefore a national government business enterprise. It is a juristic person under the ownership and control
of the national executive that has been assigned financial and operational authority to carry on a business activity.
- the principal business of a govt business enterprise or SOC is that it provides goods or services in accordance w
ordinary business principles and is fully or substantially financed from sources other than the National Revenue
Fund or by way of tax, levy or any other statutory money.
- examples of SOCs = SAA, Eskom, Telkom, SABC.
- In Sonnenberg McLoughlin Inc v Spiro= a personal liability company wanted to hold a previous director
2.5.3. Personal liability company
personally
- is a private (profit)liable for his
company share
used for company
mainly liabilities
by professional contracted such
associations during
ashis period ofentrepreneurs
attorneys, office. (this company
and
stockbrokers
was awho wish toliability
personal exploitunder
someCompanies
of the advantages
Act 1973). of corporate personality
The company suchdue
paid debts as perpetual succession.
to its creditors, these
- this type of company MOI will state that it is a personal liability company, which usually means that the directors
debts had incurred during the respondent’s term of office as director. Since company paid all its debts- it
are jointly and severally liable together w the company for all contractual debts and liabilities incurred during their
office. had a claim against the previous director in his capacity as co-debtor for his proportionate share. But the
company’s memorandum stated that “all past and present directors of the company shall be liable jointly
and severally with the company for the debts and liabilities of the company during their period of office.
Held, the purpose of a personal liability company – to allow a private company to include its memorandum
