shrt questions a2s1

What are the 5 types of business enterprises in South Africa?

1. Sole proprietorship 2. Partnership 3. Close Corporation 4. Business Trust 5. Company

What legislation governs each business form?

Company → Companies Act 71 of 2008 | CC → Close Corporations Act 69 of 1984 | Business Trust → Trust Property Control Act 57 of 1988 | Partnership/Sole prop → Common law (minimal regulation)

Which business forms have separate legal personality?

Companies and Close Corporations have full separate legal personality by default. Trusts and partnerships do NOT (with limited exceptions).

What are the 9 considerations when choosing a business form?

1. Number and type of persons engaged 2. Distinct legal personality 3. Limited vs personal liability 4. Professional requirements 5. Perpetual succession 6. Ownership and control 7. Formalities 8. Taxation 9. Financing

What is the tax rate applicable to companies vs trusts?

Companies: 28% | Trusts: 45% | Partnerships: personal income tax rate (up to 45%)

What does 'separate legal personality' mean?

The entity is legally distinct from its members/owners. It can own property, enter contracts, sue and be sued in its own name, and has perpetual succession.

What are the 7 consequences of separate legal personality?

1. Distinct entity (Salomon) 2. Limited liability (s19(2)) 3. Company owns its own assets 4. Profits belong to company (shareholders get dividends) 5. Perpetual succession (s19(1)(a)) 6. Contracts concluded by representatives only 7. Personality rights & Bill of Rights

Which case established the distinct entity principle?

Salomon v Salomon & Co Ltd [1897] AC 22 - A company is a separate legal person from its members, even if one person effectively controls it.

What does section 19(1) of the Companies Act provide?

From the date and time that incorporation is registered (per registration certificate), the company: (a) is a juristic person existing continuously until removed from register; (b) has all legal powers of an individual (except where incapable or MOI limits it).

What is perpetual succession?

A company or CC continues to exist despite changes in its membership. S19(1)(a) - exists continuously until name removed from companies register.

What are the 3 ways a juristic person can acquire legal personality?

1. Common law (conduct as a legal person) 2. General enabling legislation (e.g. s19 Companies Act; s2 CC Act) 3. Specific legislation (e.g. Land and Agricultural Development Bank Act)

What are the 3 requirements for acquiring legal personality through the common law?

The entity must conduct itself as a legal person evidenced by its constitution/conduct showing: (1) assets belong to the association, (2) perpetual succession, (3) lawful purpose.

What does section 8(3) of the Companies Act provide?

An association formed after 31 December 1939 to carry on business with the object of acquiring gain CANNOT be a legal person unless: (a) registered as a company, (b) formed under another law, or (c) meets another listed exception.

What was decided in Mitchell's Plain Town Centre Merchants Association v McLeod?

The court applied s8(3) to determine whether MPTCMA's purpose constituted 'carrying on business to acquire gain.' 'Carry on business' = almost anything that is an occupation/duty requiring attention. 'Gain' = commercial or material benefit, not necessarily monetary profit.

What is 'piercing the corporate veil'?

An exceptional court remedy where the court disregards a company's separate legal personality to hold members/directors personally liable for company obligations.

What are the 2 common law grounds for piercing the veil?

1. Fraud, dishonesty or improper conduct (abuse of juristic personality) 2. Alter ego / company as instrument (agent/puppet) to promote private interests.

What did Hülse-Reutter v Gödde establish?

For piercing the veil there must be 'some misuse or abuse of the distinction between the corporate entity and those who control it which results in an unfair advantage being afforded to the latter.'

What does section 20(9) of the Companies Act provide (statutory piercing)?

A court MAY pierce the veil if the incorporation, use, or any act by/on behalf of the company constitutes an 'unconscionable abuse' of the juristic personality as a separate entity.

What did Ex Parte Gore establish about s20(9)?

'Unconscionable abuse' is broad enough to cover all forms of illegitimate use of juristic personality. A remedy can be provided whenever illegitimate use adversely affects a third party.

What did Cape Pacific Ltd v Lubner Controlling Investments establish?

Confirmed the 'policy considerations and balancing of considerations' test for piercing the veil at common law.

What is the primary legislation governing trusts in South Africa?

Trust Property Control Act 57 of 1988 (TPCA) - governs administration, management and control of trusts.

What is the legal nature of a trust?

A trust is NOT a legal person, except where statute provides otherwise. It is an accumulation of assets and liabilities (the trust estate) which vests in the trustees.

What did Land and Agricultural Development Bank v Parker establish?

A trust is not a legal person. It is an accumulation of assets and liabilities… the accumulation of rights and obligations comprising the trust estate does not have legal personality.

When is a trust treated as a juristic person?

Where statute provides so. Key example: s1 of the Companies Act defines 'juristic person' to include 'a trust'.

What is a business trust?

A business trust goes beyond preservation/management of assets — its purpose is conducting a business with a profit motive for the benefit of beneficiaries.

What is the definition of a trust in terms of s1 of the TPCA?

An arrangement through which the ownership of property of one person is made over or bequeathed to a trustee to be administered for the benefit of beneficiaries.

What are the 5 requirements for the valid creation of a trust?

1. Founder must have intention to create a trust 2. Trust property must be identified 3. Beneficiaries must be determined 4. Trust must have a lawful purpose 5. Trust must be properly constituted.

What intention must a founder have to create a trust?

The founder must have the intention to create a trust.

What must be expressed to create a legally binding obligation for a trust?

Intention must be expressed.

What must be defined with sufficient certainty in a trust?

Trust property must be defined.

What must be certain in a trust?

The object of the trust must be certain.

What must the object of the trust be?

The object must be lawful.

What are the 3 ways a trust can be created?

1. Contractually (inter vivos) 2. Testamentary (mortis causa) 3. Court order.

Who are the 3 parties to a trust?

1. Founder/donor/creator/settlor 2. Trustee 3. Beneficiary.

Can a founder also be a trustee or beneficiary?

Yes, a founder can be a trustee and a beneficiary, but a sole trustee cannot also be the sole beneficiary.

What is the definition of 'trustee' in s1 of the TPCA?

Any person who acts as trustee by virtue of an authorisation under section 6.

What does section 6(1) of the TPCA require before a trustee may act?

A trustee must be authorised to act in writing by the Master of the High Court.

Who is disqualified from being a trustee per s6(1A)?

1. Unrehabilitated insolvent 2. Person declared delinquent 3. Person prohibited by court from being a director 4. Person subject to certain UN sanctions.

What does section 12 of the TPCA provide about trust property?

Trust property does not form part of the personal estate of the trustee unless the trustee is also a beneficiary.

What are the common law duties of a trustee?

1. Give effect to trust instrument 2. Fiduciary duties 3. Care, diligence and skill 4. Take control of trust assets 5. Preserve assets 6. Render proper accounts.

What are the key statutory duties of a trustee?

1. Lodge trust instrument with Master 2. Inform Master of address changes 3. Act only when authorised 4. Act with care, diligence and skill 5. Deposit money in separate trust account 6. Identify trust assets.

What does section 9(1) of the TPCA require of trustees?

Act with care, diligence and skill expected of a person managing the affairs of another.

What does section 11A(1) require of trustees regarding beneficial ownership?

Trustees must establish and record beneficial ownership and keep information up to date.

How are third parties protected when a trustee exceeds authority?

1. Turquand rule 2. Estoppel.

What is the trust instrument?

The trust deed is the trust's constitutive charter.

How can a trustee resign?

By notice in writing to the Master and the ascertained beneficiaries.

How can a trustee be removed?

By court order or by the Master on various grounds.

What is the definition of a partnership?

A legal relationship arising from a contract between two or more persons to carry on a business for profit.

What is the legal nature of a partnership in South Africa?

Not a legal person; follows the aggregate theory.

What are the 3 essential elements of a partnership?

1. Contribution by each partner 2. Joint benefit 3. Aim to make and share profit.

Can a partnership be formed for philanthropic purposes?

No, a partnership must aim for material benefit.

Who can be a partner?

Two or more persons, including natural or juristic persons.

What are the naturalia of a partnership agreement?

1. Profit sharing 2. Loss sharing 3. Powers of representation 4. Compensation for contributions.

What are the 4 types of partnerships?

1. Ordinary 2. Extraordinary 3. Universal 4. Particular.

What fiduciary duties do partners owe each other?

1. Act in good faith 2. Comply with partnership agreement 3. Promote partnership interests.

What is the actio pro socio?

The primary remedy available to partners between themselves.

What is the actio communi dividundo?

A legal action for the division of common property among partners.

What are the 3 forms of authorised representation in a partnership's external relations?

1. Specific authority 2. Mutual mandate 3. Estoppel (ostensible authority) + Ratification.

What is the liability of partners to third parties during the partnership?

Creditors must sue all partners jointly; partners are jointly liable.

What is the liability of partners to third parties after dissolution?

Partners become jointly and severally liable; extraordinary partners have no direct liability.

Does a partnership have perpetual succession?

No, a change in membership results in dissolution of the partnership.

What are the grounds for dissolution of a partnership?

1. Agreement 2. Effluxion of time 3. Completion of the specific business 4. Change in members 5. Sequestration of a partner 6. Court order.

What happens when a partner is sequestrated?

Sequestration of a partner results in dissolution of the partnership.

What are the consequences of dissolution of a partnership?

1. Fiduciary duties continue 2. Mutual mandate terminates 3. Partners become jointly and severally liable 4. Assets distributed per actio communi dividundo 5. Final winding up if insolvent.

What is vicarious liability in a partnership context?

Partners are vicariously liable for delicts committed by co-partners in the course of partnership business.

What legislation governs Close Corporations?

Close Corporations Act 69 of 1984.

Can new Close Corporations still be formed?

No, since 1 May 2011, no new CCs can be formed.

What are the 5 key differences between a CC and a company?

1. Simpler legislation 2. No distinction between board and members 3. Members' interests replace share capital 4. Solvency and liquidity replace capital maintenance 5. Different capacity and representation rules.

Who may be a member of a CC?

Only natural persons; juristic persons cannot be members.

What is the maximum and minimum number of CC members?

Maximum: 10 members; Minimum: 1 member.

How is a member's interest described in a CC?

As a single interest expressed as a percentage.

How is a member's interest ordinarily transferred?

1. In terms of the association agreement 2. With permission of all members.

How can a member acquire membership in a CC?

By making a contribution or taking transfer of an existing member's interest.

What are the circumstances in which a member is personally liable for CC debts?

1. CC name does not contain 'CC' 2. Omits to make their contribution 3. Acquired interest contrary to s29 4. Payment contrary to s39 5. Participates in management without legal capacity.

What does section 64 of the CC Act provide?

Liability of members for reckless trading, gross negligence, or fraudulent trading.

What does section 65 of the CC Act deal with?

Misuse of the separate legal personality of the CC.

What are the internal relationship rules of a CC?

Variable rules govern internal relations, with some mandatory provisions.

What is an association agreement and is it compulsory?

Not compulsory, but highly desirable; it governs internal relations.

What replaces the auditor in a CC?

An accounting officer.

What are the duties of the accounting officer?

To determine if year-end financial statements are in accordance with the accounting records.

What replaces capital maintenance in a CC?

Solvency and liquidity requirements.

Is a CC a separate legal person?

Yes, a CC has separate legal personality from its members.

Can a CC be a holding company?

Yes, but it cannot be a subsidiary.

What court has jurisdiction over CC matters?

Both the High Court and the Magistrate's Court have jurisdiction.