Flashcards on Business Structures

Flashcards about state-owned companies, personal liability companies, sole proprietorships, and partnerships.

What are state-owned companies?

Companies owned by the state that undertake commercial activities on its behalf.

What is a personal liability company?

It should satisfy the criteria of a private company and a separate legal personality, but the directors are severally and jointly liable for the company's debts and liabilities.

What is a sole proprietorship?

A trading entity owned by a single natural person, without a separate legal entity distinct from its owner.

In a sole proprietorship, how are the business and the owner's affairs treated legally?

The affairs of the business and the personal affairs are contained in a single estate.

What is a key financial risk for the owner of a sole proprietorship?

There is no ‘limited liability’ for the owner of the business.

In a sole proprietorship, if the business incurs debts, what is the owner's responsibility?

The owner is automatically indebted to the creditor.

What may happen to the owner's estate if a sole proprietorship becomes insolvent?

The estate of the proprietor may also be sequestrated.

What event could change the status of a sole proprietorship, potentially impacting its structure?

The employees becoming part-owners.

What does a ‘substance versus form’ test mean in the context of a sole proprietorship?

A court will not be deceived by labels but will look at the facts to determine the true substance of the arrangement.

What is 'unlimited liability' in the context of a sole proprietorship?

The personal assets of the owner are at risk if the business cannot settle its debts.

What does 'no perpetual succession' mean for a sole proprietorship?

The business will terminate when the owner dies.

Why is there a lack of formality in sole proprietorships?

The affairs of the business and that of the owner are mixed into one.

What are the advantages of a sole proprietorship?

Easy to start, run, and terminate; no statutory formalities required.

How do overhead costs compare in sole proprietorships versus other business entities?

Lower overhead costs and management expenses

What kind of adjustments can a sole proprietor make?

A sole proprietor has a freedom to adjust a business as he deems fit.

What kind of liability risks do sole proprietors have?

Sole proprietors do not run a risk of incurring joint and several liability for debts incurred by other associates

What assets are at stake if a sole proprietorship fails?

Sole proprietor’s personal assets are at stake

What happens to the business when the sole proprietor dies?

Business will usually come to an end when the sole proprietor dies

Why is limited access to capital a disadvantage?

Limited access to capital – the resources of the enterprise are limited to what the single owner has

Why might a business remain small?

Cannot accommodate more than one person

What is the definition of a partnership?

A legal relationship created by a contract between two or more persons.

In what three senses is the term 'partnership' used?

Contract between the parties, relationship between the parties, partners acting collectively.

What are the requirements for the formation of a partnership?

All the requirements for the formation of a contract must be present, in addition to certain special requirements (essentialia).

Are there formalities required?

There are no formalities required for the establishment of a partnership, so no written agreement is required.

To what entity is a partnership similar?

It is similar to a sole proprietorship, but it has the advantage that there are more participants.

Is the partnership itself a separate legal entity?

The partnership itself is not a separate legal entity.

Who is held accountable for the activities of the partnership?

The partners will themselves be held accountable for the activities of the partnership.

A partnership is a contract. What does it create?

It creates rights and obligations between the partners, which are in addition to those that are created by an ordinary contract.

In Strydom v Protea Eiendomsagente 1979 (2) SA 206 (T), what did the court hold?

The court held that “the basic common law principle is that a partnership is not a legal entity or persona separate from its members.

Who is liable for the debts of the partnership?

The partners are jointly and severally liable for the debts of the partnership.

In Strydom v Protea Eiendomsagente 1979 (2) SA 206 (T), what did the court hold regarding entering a contract?

There must be at least two parties in a contract.

How can a partnership agreement be made?

The agreement may be express or implied.

What will the court examine when determining an implied partnership?

The court will examine the facts of the matter, including the conduct of the parties. Should the essentialia of a partnership are present, the court may hold that there is a partnership.

How many people can be in a legal relationship or agreement?

The legal relationship or agreement must have two or more persons but should not exceed twenty.

Parties must agree on which thing?

Parties must agree on anything that occupies the time and labour of a person for profit.

What forms can a contribution come in?

Money, labour, property, or skills

What essentials need to confirm with a partnership agreement or contract?

Each partner must bring something into the partnership e.g. labour, money, or skill; business should be carried on for joint benefit; object should be to make profit; contract should be a legitimate contract.

In Pezzuto v Dreyer, what did the court deem not to be essential?

Essentials of a partnership exclude that the contract should be a legitimate contract.

What forms can a contribution to a partnership include?

Money, assets, corporeal or incorporeal, such as a trademark, skills, labour or services

In Fink v Fink 1945 WLD 226, what argument did the court reject?

That the defendant merely assisted in the business and the business belonged to the plaintiff.

What is a feature of common law, and the law of contract in relation to partners in a business?

The business must be carried on by the partners in common; partners must not act independently; partners are principals of a partnership.

Is there a specific purpose needed to form a partnership?

A partnership must be formed for a lawful purpose.

Can partnerships be validly formed to benefit only one member?

No partnership may be validly formed merely to benefit only one of the members.

Is gross or net profit required in order for the members to share in a partnership?

Net profit

How are partnerships formed?

There are no formalities for the establishment of a partnership, so it comes into existence once the potential partners have an express or implied agreement between them which contain the essentialia of a partnership.

In V v De Wet 1953 (1) SA 612, what did the court hold?

Where all essential are present, without any evidence showing the contract between the parties is not an agreement of partnership, the court must conclude that it is a partnership.

In an anonymous partnership, what kind of features can be observed?

in the anonymous partnership one or more of the partners is not known to the general public and they may not participate actively in the business of the partnership

In Eaton & Louw v Arcade Properties (Pty) Ltd 1961 (4) SA 233 (T), what did the court hold regarding anonymous partnerships?

An anonymous partnership is created where parties agree to share the profits of a business which is to be carried on by one or more of the partners in his or their name while partners whose names are not disclosed remain anonymous partners

What makes up partner en commandite?

has all the characteristics of the anonymous partner, but in addition is only liable to his fellow partners for debts up to the amount of his agreed contribution.

What kind of partnership is a silent partnership?

an extraordinary partnership, which has unique characteristics