Sole Prorietorship and Partnership Flashcards
Define a Sole proprietor
A sole Proprietor is an individual who opens a business on his own , Often Trading under a different Name - One owner
Advantages of a Sole proprietor
- NO specific requirement for registration
- All profits belong to the owner
- Profits will be taxed at the rates of tax applicable to individuals (Taxed in the hands of the owner)
- The law does not require accounting records- no audit is required
- Overheads and management cost are low (Business can operate from home)
Disadvantages of a Sole proprietor
- Full Personal Risk
- Owners estate is also liable for business commitments
- In cases of insolvency the personal assets of the owner may be attached
- Does not have endless existence, when the owner dies the business becomes insolvent
- The owner owns all the Assets and is responsible for all Liabilities
Define a Partnership
A legal relationship which arises Contractually between two or more people - but not more than 20 persons - it must comply with the General Requirements of a Valid contract
Business Names ACT 27 of 1960
The Act authorises the Registrar of Companies to prohibit the use of a specific name if it is in his opinion calculated to deceive or to mislead the public or to cause annoyance or offence to any person or class of persons or is suggestive of blasphemy or indecency.
The Business Names Act further stipulates that a partnership shall not issue or send a trade catalogue, trade circular, business letter, order for goods or statement of account to any person in South Africa unless the following particulars appear therein or thereon:
- The name, title or description under which the business is carried on.
- The place of business.
- The present and former names of every partner who is not a silent
partner or a partner en commandite. - The present first names or the initials thereof and the surname andformer names of every natural person, except silent partners and partners en commandite, who is carrying on the business, together with his nationality if he is not a South African citizen.
Failure to comply with the provisions of the Act is an offence.
What are the 3 key elements of a Partnership
Contribution -
Each partner must make a contribution to the partnership or give a binding undertaking to make a contribution. i.e money/ movable or immovable property - services - skill/labour
Profit as a Object -The object of the partnership must be to make a net profit in which each of the partners may expect to have a share.
Business to be carried on for joint benefit - common interest of the parties, in the sense that the intention should be that each partner will receive a profit from it.
Name the Types of Partnerships
Ordinary Partnership - Each member is jointly and severally liable for all debts and obligations
Extraordinary Partnership - Either en commandite or anonymous partnerships.
The main difference between en commandite and anonymous partnerships is that the anonymous partner is unconditionally liable to his partners for his pro rata share of all partnership debts, whereas the liability of the commanditarian partner is limited to the amount of an agreed capital contribution.
There are two types of extraordinary partnerships:
Define a Silent Partnership
A silent partnership is not liable to outsiders for and debts of the partnership, he my only be held liable if he makes know that he is a partner
A silent partner may only be paid out after all the creditors have been paid
A silent partner may not participate in the affairs of the business
En Commandite Partnership is
The partner is purely a Financial Participant with restricted liability
He receives a fixed amount of profits
He may not participate in the affairs of the business and will only be paid out after all the creditors
On the insolvency of the partnership, the partner en commandite is only entitled to be paid out after all creditors of the partnership have been paid in full.
State the circumstances for dissolution of Partnership
a) Agreement - Agree to terminate the partnership
b) Expiry of period - A Duration is stated and at the end of the tenor the partnership dissolves
c) Completion of a Partnership Business - If a specific project is completed
d) Insolvency - when a partner is sequestrated , or the partnerships estate is sequestrated
e) Change in membership - when a new partner enters of a partner retires or dies
f) Personal Circumstances - lengthy ilness, mental ilness
g) Frustration of purpose - when a partnership is unable to achieve its purpose
h) By notice of dissolution -
Usually a partnership agreement contains a clause providing for the method of giving notice and the time period
i) Lawful cause - if a partner requests that it be dissolved by court of law due to misconduct, breach of material terms
Consequences of Dissolution
Notice to be given in the Government Gazette
The partners become jointly and severally liable for the partnerships obligations
While the partnership is being liquidated (after dissolution), the partners still owe fiduciary duties to one another. The partnership agreement and the mutual mandate of partners are then terminated.
The rights and duties of the partnership towards third parties remain valid and binding. However, the partners generally become jointly and severally liable for the partnership’s obligations.
Summary - Partnership
A partnership is ‘a legal relationship arising from an agreement between two or more persons, not exceeding twenty, who have capacity to contract, each to contribute to some lawful enterprise with the object of making profits and to divide such profits’. In the absence of agreement, losses are shared in the same proportion as profits.
Relationship between the partnership and third parties
The liability of partners to third parties is joint and several. A third party wishing to hold a partnership liable must prove that:
• the partnership was in existence or held out to be so.
• the contracting partner had authority to bind the partnership.
• the contracting partner contracted in the name of and on behalf of the
partnership.
Summary - Termination of partnership
A partnership may be terminated in any one of the following ways: • Agreement • Expiry of period • Completion of partnership business • Insolvency • Change in membership • Mental disorder • Frustration of the purpose for which the partnership was created • By notice of dissolution • For lawful cause.
Summary -
Consequences of termination
On termination, the partnership’s assets are realised and creditors are paid out. Anything left over is paid to the partners.
