Corporate Procedures

Introduction
WEEK 1
Ice breaker

What is the law?

What does it give you?
 Important Concepts
1. What is a business?
“anything which occupies the time, attention and labour of man for the purposes of profit”

2. Natural and Juristic persons

• This concept was introduced in Commercial Law. In our law only legal subjects can hold rights
and obligations.
• Natural persons (referred to as “individuals” in the Companies Act) are human beings and have
inherent legal subjectivity.
• Juristic/ Legal persons are entities that are created in 3 ways:
• Established by a specific Act of Parliament;
• Created by way of general legislation – general (enabling) Act of Parliament used to create different legal
persons eg include the Companies Act (2008) and the Close Corporation Act (1984);
• Come into existence through conduct – an association of persons acting together eg .
• Legal persons exist as separate legal subjects apart from the participants in the entity.
3. A separate legal personality
• This is a concept was also introduced in Commercial Law, but perhaps
not in so much detail. It is a concept that is central to understanding
how business entities like close corporations (CC’s) and Companies
work.
• The law provides for the creation of legal entities that are granted the
status of legal subjects, in other words they are granted separate legal
personality.
• These entities owe their existence to the legislation that provided for
their creation. We call such legislation enabling legislation since it
enable people to create these entities. The enabling legislation that
will be dealt with in this module are the Close Corporations Act and
the Companies Act.
• Since the entities are created as legal subjects, they can have rights
and obligations just like natural persons. The crux is that the cc or
company is a legal subject separate from the investors and/or
managers in that entity. This means that the investors and/or
managers do not hold those rights or liabilities in their names. The
rights and liabilities are those of the entity.
• This concept, whilst it sounds simple, is the single most important to
internalise. It must be clear that when members meet to make
decisions on behalf of the cc, or when directors meet to make
decisions on behalf of the company, it is not the members or directors
that make those decisions, but the cc or the company itself.
• As a result, the cc or the company, not the members or the directors,
bear the consequences of those decisions.
4. Perpetual Succession

• Perpetual succession is a necessary implication of legal personhood.

All people/natural persons die at which stage they lose their legal
subjectivity. Corpses are not legal subjects, but legal objects.

• Legal persons do not die. It is conceivable that companies may exist

forever, in perpetuity. If that is the case, it must replace its managers
from time to time. One manager will take over from another. The
latter manager would have succeeded the former. In this way, we
have perpetual succession as a direct result of the legal person having
separate legal personality.
5. Shareholders
• Shareholders are essentially the investors in a company. They buy shares in
a company, in return for which they acquire certain rights. Chief among
these rights are ownership, voting rights and the right to share in the
distributable profits of a company.
• Ownership entails having full rights to dispose of the share. That share may
be disposed of in any legal manner. It may be sold, donated or even
bequeathed in a will.
• Generally, shareholders get the right to vote at meeting of shareholders held
by the company from time to time. It must be clearly stated that
shareholders are not involved in the day-to-day running of the company,
that is left to the directors. Typically, the only time that a shareholders will
be able to exercise the right to vote will be at the Annual General meeting
(AGM). At all other times the directors will make decisions for the company.
 Business Enterprises
1. Sole proprietorship
2. Partnership
3. Close corporation
4. Company
5. Business trust

You must be able to give a brief

explanation on each business
enterprise.
 1. Sole Proprietorship
• Very convenient – requires no formalities
• Entrepreneur simply commences business under own name / trading
name
• Sole proprietorship – not a separate legal entity
• Rights & duties arising out of business attach directly to proprietor
• Assets of business are owned by proprietor & all debts of business
belong to him personally
• Proprietor pays tax at individual rate
• Disadvantage – if business can’t pay its debts, proprietor risks
personal ruin
 2. Partnership
• “… a contract between persons, in which persons concerned agree to
contribute money, labour or skill in a common stock, & to carry on
business with object of making profit for their joint benefit”
• Is not a separate entity:
Simply a number of people conducting business together in their personal
capacities
Partners are personally liable for debts of partnership, but only to extent that
debts cannot be met out of partnership assets
Partner is jointly & severally liable for partnership debts
 3. Close Corporation
• Separate legal entity distinct from its members:
Juristic persons – own legal personality
Law recognises the corporation itself & not its members
Corporation itself has capacity to bear rights & duties distinct from its
members
Members of CC or are not personally liable for debts of business – “limited
liability”
Enjoy perpetual succession
• 1 to 10 members who are usually involved in the management of the
business
 4. Company
• Shareholders contribute capital for business
• Shareholders not usually participate in management of business
• Business managed by directors of company, each usually having
different functions.
• Companies also have legal personality separate from its shareholders.
This also protects shareholders from the debts of the company.
• Shareholders are essentially investors in the company. They then
elect or appoint directors who act as the managers of the company.
 5. Business Trust
• A trust is a legal relationship that has been created in a trust deed. A trust has
the following 4 key characteristics:
1) A trust is formed/created by a person who is referred to as the
founder/donor/settlor of the trust.
2) Founder places assets under the control of another person (trustee)
3) The trust is either formed whilst the founder is alive(inter vivos) or on the
founder’s death (a testamentary trust – will trust)
4) A trust is formed for the benefit 3rd persons (beneficiaries). A trust will fail if it
does not have at least one beneficiary.
• “Founder transfers assets to trustees who administer assets for benefit of the
beneficiaries named by trust”
• Often used to protect assets, avoid income tax & estate duty
• Trustees & beneficiaries generally not liable for debts of trust
Business Trust
• A business trust can also be referred to as a trading trust. It is a trust
that trades or does business.
• The trust deed of a business trust normally has:
-clauses that permit trustees to meet the business objectives of the
parties to the trust
-clauses conferring powers to trustee
-clauses permitting trustee to lend and borrow on behalf of the
business
 Registration & Formalities
• To start the business:

Company - Register as corporate entity with CIPC in Pretoria

Close corporation - Register as corporate entity with CIPC in Pretoria
Business trust - Register with Master of High Court in Grahamstown
Partnership - Not registered – created by agreement between
partners
Sole proprietorship - No formalities when operating as sole trader
The end