Corporations Law Flashcards

The Companies Act, 2008

• Replaced the 1973 Act to align with constitutional and global business changes.
• Deals with business rescue and modern corporate law.
• Section 7 outlines the purpose of the Act as fostering business activity and entrepreneurship.
• Aims for a balance between regulation and growth, considering stakeholder interests.
• Democratizes company formation and streamlines procedures.
• Introduces business rescue provisions and emphasizes liquidity and solvency.
• Consists of 225 sections and 9 chapters.

Chapters of the Act

1. Chapter 1: Interpretation, purpose, and application; defines key terms and provides interpretation guidelines.
2. Chapter 2: Formation, constitution (MOI), corporate finance, governance, and winding up of solvent companies.
3. Chapter 3: (Not Important) Enhanced accountability and transparency, including auditor appointments and audit committees.
4. Chapter 4: Public offerings of company securities.
5. Chapter 5: Fundamental transactions like takeovers, mergers, and acquisitions.
6. Chapter 6: Business rescue and compromises for financially distressed companies.
7. Chapter 7: Remedies for minority shareholders and alternative dispute resolution procedures.
8. Chapter 8: Regulatory agencies such as CIPC and Takeover Regulation Panel.
9. Chapter 9: Offences, false statements, and civil actions.

Sole Proprietorship

• Owned by one person and governed by common law.
• Business and owner are not separate legal entities; affairs are in a single estate.
• Owner owns assets and receives profits but is responsible for debts without limited liability.
• Terminates upon the owner's death, lacking perpetual succession.
• Affairs of business and owner are mixed; taxed as one by SARS.

Advantages:

• Easy to start, run, and terminate with no statutory formalities.
• Lower overhead and management expenses.
• Freedom to adjust business.
• No risk of joint and several liability.

Disadvantages:

• No limited liability, personal assets at risk.
• No perpetual succession.
• Limited access to capital and inability to accommodate multiple owners.
• Owner may lack diverse business skills.

Partnerships

• Legal relationship from a contract between two or more persons (not exceeding 20).
• Each partner contributes to the business, carried on for joint benefit to make a profit (Pezzutto v Dreyer).
• All contract requirements must be met.
• No formalities, and agreement may be express or implied.
• Partnership is not a separate legal entity; partners are accountable for its activities.

Characteristics:

• Legal Relationship: Creates rights & obligations.
• Contract/Agreement: Express or implied agreement between parties.
• Number of Persons: Two or more, not exceeding twenty.
• Contribution: Money, property, labor, or skill from each partner (Fink v Fink).

Essentials:

• Contribution: Each partner brings something.
• Joint Benefit: Shared benefit for all (S v Perth Dry Cleaners).
• Profit Motive: Object to make a profit.
• Lawfulness

Formation of Partnership

• No formalities, agreement (express or implied) containing essentialia of partnership.
• Intention of parties to associate as partners.

Extraordinary Partnerships:

• Anonymous Partnership: Partners not known to the public/creditors.
• Partnership en commandite: Liability limited to agreed contribution.

Consequences of Partnership

Internal Relationships:

• Duty to account.
• Division of Profits and Losses as agreed

External Relationships:

• Joint and Several Liability: one partner may be sued for the entire debt.
• Agency: Partners bind the partnership as agents.

Dissolution of a partnership

• Lapse of Time
• Completion of Partnership Business
• Agreement
• Change of membership
• Death
• Court Order

Close Corporations

• A simpler, deregulated, and flexible entity with limited liability.
• No new close corporations can be formed after the 2008 Companies Act.
• Legal Personality: Sections 2(1) and 28 establish that a corporation may consist of between 1 – 10 natural persons
• Registrar of Close Corporations, these functions will now be performed by the Companies and Intellectual Properties Commission (CIPC)

Formation:

• Natural Persons: Members must be natural persons (s 29).
• Founding Statement: CK1 form is the charter.
• Registration: Lodging and Gazette notice.
• Name: Must reserve and be approved, not undesirable.

Contribution by members:

• Member must contribute an asset to the corporation in exchange for a member's interest (regulated by s 24)

Member's interest and regulations

• Certificates of Member's: certificate granted to members of corporation whose names appear in the register of members
  • Disposal of Member's interest and maintenance of interests
  • All actions must take place with solvency and liquidity in mind.

internal relations

• association agreement regulate internal relations between members of the close corporation.
• members owe a fiduciary duty to the corporation.
  • any member of a corporation may call a meeting of members for any purpose disclosed in the notice.

External Relations

• Pre-incorporation contracts must meet certain requirements in order to be valid.
• Powers of members to bind a corporation through the member is an agent or agency.

Termination of a Close Corporation

• Deregistration: Registrar can deregister if the corporation is not carrying on business. (s 26)
• Winding Up: may be voluntary or by court order.

The Company, definition and Consequences

*Section 1 of the Companies Act defines what a company is and how the act is intended to be interpreted.
*principle of a separate legal personality s 19(1)(a).

Legal Consequences

• Limited Liability
• Perpetual Succsession
• Property and Assets of the Company
  *Delicts comitted by the company
  *Company may contract with it's shareholders. (Lee v Lee's Air Farming).