Company law Flashcards

1
Q

In which instances will a partnership terminate?

A
  1. Death/Insolvency (automatic)
  2. Giving Notice to terminate (2 months written notice - no reasons)
  3. Breach/ misconduct (summary termination of partnership: breach of material term; misconduct constituting breach of utmost good faith; conviction of theft, fraud or forgery; mental or physical incapacity to perform duties)
  4. Retirement (by giving 6 month written notice to the others; automatic retirement at end of financial year in which he turns 65; unable to perf duties due to injury or illness then the others must give 2 month notice to retire)
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2
Q

List the different types of companies

A
  1. Profit:
    a) public
    b) state owned enterprise
    c) personal liability
    d) private
  2. Non-profit
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3
Q

What is a Notice of Incorporation?

A

Notice that must be filed with the CIPC to inform it of the incorporation of the company for the purpose of having it registered

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4
Q

What is a Memorandum of Incorporation?

A

Doc that sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to a company (it has alterable, non-alterable and default provisions)

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5
Q

What is a partnership?

A

Legal relationship created via a contract between two or more persons, in terms of which each of the partners agree to make some contribution to the partnership business, which is carried on for the joint benefit of the parties and the object of which is to make profit

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6
Q

What are the essentials of a partnership?

A
  1. Each partner must contribute something into the partnership (money, labour or skill)
  2. Business carried on for the joint benefit of the partners
  3. Object: to make profit
  4. Contract between the parties should be legitimate
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7
Q

Provide other examples of the dissolution of a partnership:

A
  1. By mutual agreement
  2. End of an undertaking
  3. Effluxion of a period of time
  4. Insolvency of partnership/ any of its members
  5. Dissolution (automatic/ notice)
  6. Partners become alien enemies on/ after outbreak of war
  7. Order of court granted on application of one/more partners for good cause
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8
Q

What are the 3 types of trusts?

A
  1. Living (vested and discretionary)
  2. Testamentary
  3. Bewind (trading vehicles that provide trutees with limited liability and tax advantages)
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9
Q

What is a vested trust?

A

Benefits set out in the trust deed

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10
Q

What is a discretionary trust?

A

Trustees have discretion about how much each beneficiary can benefit

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11
Q

Explain the difference between income beneficiaries and capital beneficiaries?

A

Income benefs: receive distributions from income earned by the trust

Capital benefs: may/must receive a share in the capital of the trust

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12
Q

What are the advantages of a partnership?

A
  1. 2 heads better than 1
  2. Business easy to establish and costs low to start up
  3. More capital available
  4. Has greater borrowing capacity
  5. High-calibre employees can be made partners
  6. Can split the income (advantageous from a tax perspective)
  7. Partners’ business affairs are private
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13
Q

What are the disadvantages of a partnership?

A
  1. Liability of the partners for the debts of the business are unlimited
  2. Each partner is jointly and severally liable for their share of the partnership debts
  3. Might disagree with partners/ have frictions
  4. Each partner is a agent of the partnership and liable for actions by other partners
  5. If partners join/ leave, the partners will probably have to value all the partnership assets which can be expensive
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14
Q

What does section 34(1) of the Insolvency Act require?

A

The trader who intends transferring his business must circulate a notice of such intended transfer in the Gazette and 2 newspapers circulating in the district in which the business operates.

If he fails to do so, the transfer will be void against his creditors for 6 months after the transfer and will be void against the trustee of his estate if it’s sequestrated during that period

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15
Q

What would you put in a contribution clause in the partnership agreement?

A

The first and second partner shall each contribute X in cash to the capital of the partnership, payable within seven days of the signing of the agreement

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16
Q

Provide examples of clauses you would include in a partnership agreement

A
  1. Percentage of ownership
  2. Division of profit and loss
  3. Length of partnership
  4. Decision-making
  5. Resolving disputes
  6. Partner authority
  7. Withdrawal or death of partner
17
Q

What are trusts used for?

A
  1. To transfer wealth smoothly from one generation to another
  2. Flexible estate planning tool (limits assets held in personal capacity)
  3. Seperates ownership and use of assets
  4. Useful tool to manage and protect the interests of minors and beneficiaries that are incapable of dealing with their own financial matters
18
Q
A
19
Q

What is the purpose of business rescue?

A

To facilitate the rehab of a company that is financially distressed by:

  1. Having a business rescue practitioner temporarily supervise the company, manage its affairsm business and property
  2. Providing a temporary moratorium on the rights of claimants against the company;
  3. Developping and implementing (if approved) a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities to maximise the likelihood of the company continuing in existence on a solvent basis
20
Q

What are the two types of business rescue proceedings?

A
  1. Voluntary (board of directors resolves that the company commence business rescue proceedings and be placed under supervision)
  2. Affected person applies to Court for an order placing the company under supervision and starting business rescue proceedings
21
Q

How can someone object/ oppose a voluntary business rescue resolution?

A
  1. Apply to Court for an order setting aside the resolution on the following grounds:

a) There is no reasonable basis for believing that the company is financially distressed
b) there is no reasonable prospect for rescuing the company
c) the company did not satisfy req in sec 129

22
Q

Can a director who voted in favour of the resolution for the BRP apply to court to set it aside or set aside the appointment of the BRP?

A

NO! Unless he can show the court that he acted in good faith on the basis of the info that has since been found to be false or misleading

23
Q

On what grounds can someone apply to court to set aside the appointment of a BRP?

A
  1. Practitioner does not meet requirements in sec 138
  2. Not independent of the company or its management
  3. Lacks the skills
24
Q

Can legal proceedings against the company or iro property belonging to it, commence during business rescue proceedings?

A

No (general moratorium), unless:

  1. The BRP has consented to it in writing;
  2. Cour has granted leave to do so;
  3. To set-off any claim made by the company in legal proceedings;
  4. Criminal proceedings against the company or any of its directors;
  5. Proceedings re property or right over which the company exercises the powers of a trustee;
  6. Proceedings by a regulatory authority in the execution of its duties after giving written notice to the BRP
25
Q

Why is it preferable to conduct a business through a legal entity instead of a sole proprietor or partnership?

A
  1. Continuity
  2. Protection against personal liability
  3. Avoid sequestration
  4. Better organised regulatory structure
  5. Tax flexibility
26
Q

What are the duties of a director (sec 76(2))?

A
  1. Must not his position or info he obtained whilst acting in such capactiy:

(a) to gain an advantage
for himself or another
(b) to knowingly cause harm to the company

  1. Must communicate to the board asap any info that comes to his attention unless:

(a) he reasonably believes that info to be immaterial to the company OR generally available to the public OR known to the other directors;
(b) is bound not to disclose that info by a legal or ethical obligation of confidentiality

27
Q

What are the formalities and effect of a pre-incorporation contract?

A
  1. Written contract entered into by a person acting obo a company that doesn’t exist yet
  2. With the intention that once it comes into existence, it will be bound to the contract
  3. Once incorp, its board of directors may,within 3 months of incorp,
  4. Either partially, completely or conditionally ratify or reject the contract
  5. Once that 3 month period expires, the company will be deemed to have ratified the agreement
  6. But every person that enters into the contract will be jointly and severally liable for liabilities created if

a) the company is not incorp
b) once incorp, the company rejects any part of the contract

UNLESS the company enters into a contract on the same terms as, or in subsitution for the contract entered into prior to its incorp

  1. If the contract is rejected, the person who will incur liability can recover from the company any benefit that the company has received in terms of the contract