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What are the 9 key considerations when choosing a type of enterprise?

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

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

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

Which legislation governs each type of enterprise?

Company → Companies Act 71 of 2008 | Close Corporation → Close Corporations Act 69 of 1984 | Business Trust → Trust Property Control Act 57 of 1988 | Partnership/Sole Proprietorship → Little regulation; mainly common law

Which enterprise types have separate legal personality?

Companies and Close Corporations have full separate legal personality. Trusts are not strictly legal persons but some legislation treats them as such (e.g. Companies Act). Partnerships and sole proprietorships are NOT legal persons, though some legislation (e.g. Insolvency Act) treats them as such.

Who owns the assets in each type of enterprise?

Company → the company owns assets | Close Corporation → the CC owns assets | Business Trust → Trustees own assets in their capacity as trustees | Partnership → Partners own assets jointly in undivided shares

Who controls each type of enterprise?

Company → Directors | Close Corporation → Members | Business Trust → Trustees | Partnership → Partners

Which enterprise types have perpetual succession?

Companies, Close Corporations, and Business Trusts have perpetual succession. Partnerships do NOT — a change in partners results in dissolution of the partnership.

What is the maximum number of members in a Close Corporation?

Maximum of 10 members. Companies and partnerships have no limit on participants. Business trusts also have no limit on trustees or beneficiaries.

What is the personal liability position for each enterprise type?

Company → Shareholders and directors are NOT personally liable (except in specific circumstances) | CC → Members are NOT personally liable (except in specific circumstances) | Business Trust → Beneficiaries cannot be personally liable; Trustees ARE personally liable for losses caused by their misconduct or negligence | Partnership → Partners are jointly and severally liable | Sole Proprietor → Personally liable for all debts

What fiduciary duties exist in each enterprise type?

Company → Directors owe a fiduciary duty to the company; shareholders owe no duty | Close Corporation → Members owe a fiduciary duty to the CC | Business Trust → Trustees have statutory and common-law duties; must act with care, diligence, and skill | Partnership → Partners owe a fiduciary duty to each other

What are the tax rates for each enterprise type?

Company → 28% | Close Corporation → Up to 28% | Business Trust → 45% | Partnership/Sole Proprietorship → Personal tax rate (up to 45%)

How strictly regulated is each enterprise type?

Company → Most strictly regulated (auditors, financial statements, King IV, business names) | CC → Less strictly regulated (financial statements and business names; no audit required) | Business Trust → Less strictly regulated (must open trust banking account; no auditor or financial statements required) | Partnership/Sole Proprietorship → Minimal regulation

What are the roots of South African company law?

SA company law has its roots in English law. The primary legislation is the Companies Act 71 of 2008 (as amended by Amendment Act 3 of 2011 and the Companies Amendment Acts 2024).

What is the significance of section 5(2) of the Companies Act?

Section 5(2) allows for the influence of foreign legal systems when interpreting the Companies Act, reflecting its international origins.

What does section 5(4) and 5(5) deal with?

These sections deal with the interaction between the Companies Act and conflicting provisions in other legislation — where provisions cannot be reconciled, the Act provides a resolution mechanism.

What does section 5(6) of the Companies Act provide?

The Companies Act prevails over JSE listing requirements in the event of a conflict.

What are the 4 new regulatory entities created by the Companies Act 71 of 2008?

1. Companies and Intellectual Property Commission (CIPC) 2. Companies Tribunal 3. Takeover Regulation Panel 4. Financial Reporting Standards Council

What is "legal personality" and what rights can legal subjects hold?

Legal personality refers to the law's recognition of an entity as a subject capable of bearing rights. Rights of legal subjects include: Real rights, Personal rights, Intellectual property rights, and Personality rights.

What is the distinction between natural persons and juristic persons?

A natural person is a human being. A juristic/legal person is a non-human entity (e.g. a company) that the law treats as having legal personality. A juristic person's capacity can be restricted by its constituting documents or the legislation that created it.

How is "company" defined in section 1 of the Companies Act?

A company is a juristic person incorporated in terms of the Companies Act, a domesticated company, or a juristic person that was registered under the Companies Act 1973, the CC Act 1984 (if converted), was an "existing company" under the 1973 Act, or was deregistered under the 1973 Act and subsequently re-registered.

How is "juristic person" defined in section 1 of the Companies Act?

A juristic person includes (a) a foreign company and (b) a trust, irrespective of whether it was established within or outside the Republic.

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

From the date and time of incorporation, the company: (a) is a juristic person that exists continuously until removed from the companies register; (b) has all the legal powers and capacity of an individual, except where a juristic person is incapable of exercising such power or the Memorandum of Incorporation provides otherwise.

What are the 7 consequences of legal personality?

1. Distinct entity 2. Limited liability 3. Ownership of assets 4. Profits belong to the entity 5. Perpetual succession 6. Contracting capacity 7. Personality rights and fundamental rights under the Bill of Rights

What does the "distinct entity" consequence of legal personality mean? Name the key cases.

A company is a legal person separate and distinct from its members/shareholders. Key cases: Salomon v Salomon & Co Ltd 1897 AC 22 and Dadoo v Krugersdorp Municipal Council 1920 AD 530.

What is the "limited liability" consequence of legal personality?

The obligations of the entity are its own — members/shareholders are generally not personally liable. This is confirmed by s 19(2) of the Companies Act and s 2(3) of the CC Act. Exception: Personal liability companies (s 19(3)) and disregarding of legal personality.

What does the "assets" consequence of legal personality mean?

Assets are the exclusive property of the legal person. Shareholders/members have no direct right to those assets. Shareholders only have certain personal rights against the company. Profits belong to the company; shareholders receive dividends/distributions.

What does "perpetual succession" mean as a consequence of legal personality?

A change in shareholders or members does not affect the existence of the entity. Section 19(1)(a) states that the company exists continuously until its name is removed from the companies register. Case: Theart v Theart and Others (9381/2022) [2023] ZAWCHC 130 — even after the sole member of a CC passed away, the CC continued as a juristic person.

What does the "contracts" consequence of legal personality mean?

Only natural persons can act on behalf of the company. Shareholders and members have no automatic right to contract on behalf of the company.

What does section 8(4) of the Constitution provide regarding juristic persons and the Bill of Rights?

A juristic person is entitled to rights in the Bill of Rights to the extent required by the nature of the rights and the nature of that juristic person.

What fundamental rights can juristic persons enjoy under the Bill of Rights?

Freedom of expression, Property rights (FNB v C:SARS 2002 CC), Just administrative action, Privacy (Hyundai case 2001 CC), Defamation (Dhlomo v Natal Newspapers 1989). Religious rights remain contested (Burwell v Hobby Lobby — US; Beloftebos case — SA Equality Court).

What did the Hyundai case (2001) say about the right to privacy for juristic persons?

The court held that privacy is more intense the closer it moves to intimate personal human life. Juristic persons are not bearers of human dignity so their privacy rights can never be as intense as those of natural persons. However, juristic persons DO enjoy the right to privacy — excluding them could allow the state to freely search any company or non-profit at will, undermining democracy.

What are the 3 ways through which legal personality can be acquired?

1. Common law 2. General enabling legislation 3. Specific legislation

How is legal personality acquired through common law?

The association must conduct itself as a legal person. This is established from (1) its constitution (agreement between members) and (2) its conduct. Requirements: assets belong to the association, perpetual succession, and lawful purpose.

What does section 8(3) of the Companies Act provide regarding common law legal personality?

No association formed after 31 December 1939 for the purpose of carrying on business to acquire gain can be a legal person unless it is: (a) registered as a company under the Act, (b) formed pursuant to another law, or (c) meets another listed exception. If it meets the s 8(3) criteria but is not registered, it CANNOT be a legal person.

What were the two objects of MPTCMA in Mitchell's Plain Town Centre Merchants Association v McLeod, and what was the outcome?

The MPTCMA had two objects: (1) promoting the prosperity of the community and (2) attracting clients for its members. The court found that the second object (attracting clients = gain for members) was sufficient to trigger s 8(3), meaning the MPTCMA lacked legal personality as it was not registered as a company.

What does "carry on business" mean in the context of s 8(3)?

It means "almost anything which is an occupation, as distinguished from a pleasure — anything which is an occupation or duty which requires attention." Subordinate or insignificant activities are not taken into account; secondary objects ARE considered.

What does "gain" mean in the context of s 8(3)?

"Commercial or material benefit or advantage, not necessarily a pecuniary profit." Activities of a charitable, scientific, political, or sporting nature are NOT considered gain.

What are examples of general enabling legislation that confer legal personality?

Companies Act 71 of 2008 (s 19); Close Corporations Act 69 of 1984 (s 2); Co-operatives Act 14 of 2005 (s 29); Mutual Banks Act 124 of 1993 (s 19).

What are examples of specific legislation that confer legal personality?

Land and Agricultural Development Bank Act 15 of 2002 (s 2): "The bank is a legal person…"; South African Reserve Bank Act 90 of 1982 (s 2); Broadcasting Act 4 of 1999 (s 8A); University of Cape Town Act 14 of 1916.

What is the IRAC method and how is it applied in assessments?

I – Identify the Issue | R – Set out the Rules (with full section and case references) | A – Apply the rules to the facts | C – Conclusion. Time guideline: marks × 1.8 minutes.

What is the cheat sheet for determining if an entity has common law legal personality?

Step 1: Does it conduct itself as a legal person? Step 2: Does its constitution show: perpetual succession, entity owns assets, lawful purpose? Step 3: Does s 8(3) apply? (Was it formed after 31 Dec 1939, to carry on business, with the object of acquiring gain?) Step 4: If s 8(3) applies — is it registered as a company or created by legislation? If not → NO legal personality.

What is "disregarding / piercing the corporate veil"?

It is a process by which courts disregard the separate legal personality of a company when it has been used improperly. As stated in Ex Parte Gore 2013: "Juristic personality is a legal fiction and when circumstances make it appropriate — inevitably where the concept has been used improperly — courts will disregard it."

What is the nature of the remedy of piercing the corporate veil under common law?

It is an exceptional remedy exercised at the court's discretion. It is NOT necessary that the company was formed with the intention of perpetrating fraud — the conduct after formation is sufficient (Cape Pacific case).

What are the 2 main common law tests for piercing the corporate veil?

1. Fraud, dishonest or other improper conduct (abuse of juristic personality) — tests include: unconscionable injustice (Botha v Van Niekerk), policy considerations and balancing test (Cape Pacific v Lubner), and misuse resulting in unfair advantage (Hülse-Reutter v Gödde). 2. Alter ego / company as instrument (agent/puppet/mask) — no proper separation between shareholders' personal interests and company interests; fraud need not be proved.

What did Hülse-Reutter v Gödde establish about piercing the corporate veil?

The court held that separate legal personality must be recognised and upheld except in the most unusual circumstances. There is no general discretion to disregard it. However, where a company is misused or abused as a distinction between the entity and its controllers, resulting in an unfair advantage, a court may pierce the veil.

What are the consequences of piercing the corporate veil under common law?

The company remains a juristic person but some consequences are disregarded. The court may treat: (a) assets/liabilities of the company as those of shareholders (shareholders lose limited liability); OR (b) assets/liabilities of the company as those of another company in the group; OR (c) rights/obligations of shareholders as being those of the company.

What happened in Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995?

LCI (controlled by Lubner) sold shares in FI to Cape Pacific, but transferred the shares to GLI (also controlled by Lubner) instead. Cape Pacific sought piercing of the veil to claim specific performance. The court considered policy and the balancing of considerations in deciding whether to pierce.

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

If a court finds that the incorporation of a company, any use of the company, or any act by or on behalf of the company constitutes an unconscionable abuse of the juristic personality of the company as a separate entity, the court may: (a) declare the company is not to be treated as a juristic person in respect of specified rights, obligations, or liabilities; and (b) make any further order it considers appropriate.

What are the requirements for statutory piercing under section 20(9)?

(1) The incorporation, use of, or any act involving the company must (2) constitute an unconscionable abuse of the juristic personality of the company as a separate entity. Courts in SA are willing to pierce not only when there is no alternative remedy (Ex Parte Gore).

What is the difference between "unconscionable abuse" (Companies Act s 20(9)) and "gross abuse" (CC Act)?

Section 20(9) of the Companies Act uses "unconscionable abuse," while the CC Act uses "gross abuse." In Ex Parte Gore, the court stated that "unconscionable abuse" is broad enough to cover all forms of improper use — sham, device, stratagem — and any illegitimate use of juristic personality that adversely affects a third party in a way that should not be countenanced.

What were the key facts and outcome of Ex Parte Gore and Others NNO 2013?

The King Group of companies was operated as a single entity through a holding company. Funds from investors were transferred between companies at will with no regard for separate corporate identity and grossly inadequate record-keeping. The King brothers "treated all their companies as one." The court pierced the corporate veil under s 20(9) because the controllers' conduct constituted an unconscionable abuse of the separate juristic personalities of the subsidiary companies.

What did Lebamang Octavia Kolisang v Alegrand General Dealers and Auctioneers confirm?

It confirmed Ex Parte Gore's approach to s 20(9). A director misrepresented the year of a vehicle, inducing the applicant to purchase it. The court confirmed: (1) an act by a director "by or on behalf of the company" can constitute unconscionable abuse under s 20(9); (2) there is no need to exhaust other remedies before using s 20(9); and (3) fraud and improper use are sufficient reasons to pierce the corporate veil.

What other legislative provisions limit or disregard legal personality?

S 218(2): Any person who contravenes the Companies Act is liable to any other person for loss or damage suffered. S 22: Prohibits doing business recklessly, with gross negligence, with intent to defraud. Ss 77(2) and (3): Director liability. Other: CC Act provisions; s 34 National Environmental Management Act 107 of 1998; Prevention of Organised Crime Act 121 of 1998.

What is the key distinction between common law and statutory (s 20(9)) piercing of the corporate veil?

Common law piercing is an exceptional remedy requiring proof of fraud/improper conduct or alter ego. Section 20(9) provides a statutory basis that requires "unconscionable abuse" and allows the court to disregard legal personality without the need to exhaust other remedies first, as confirmed in Ex Parte Gore and Kolisang v Alegrand.