Topic 2: Juristic Personality Flashcards
What types of businesses allow for perpetual succession?
- company
- CC
- trust
For each type of business, list the document which contains the rights of the parties:
Company:
MOI
CC:
An association agreement
Partnership:
Partnership Agreement
Trust:
trust deed
Define the personal liabilities of each business type:
Company:
Shareholders are not personally liable for the debts of the business unless they specifically sign surety on behalf of the company.
CC:
Members have a fiduciary duty to the CC and they are personally liable for the debts of the CC under a variety of circumstances in terms of the CCA.
Partnerships:
Partners are jointly and severally liable for partnership debts and losses.
Trust:
Beneficiaries cannot be personally liable in respect of the trust matters and debts.
Trustees can be personally liable for losses caused by their misconduct or negligence.
Duties towards the business (types of entities):
Company:
A shareholder does not owe any duties to a company. The directors must comply with their statutory and common law duties and are under a fiduciary duty to act in good faith in respect of company matters.
CC:
Members owe a fiduciary duty to the CC.
Partnership:
Partners cannot make a secret profit at the expense of the other partner. They owe one another a fiduciary duty.
Trust:
A beneficiary does not owe any fiduciary duties to other beneficiaries or to the trust. The trustees however must comply with their statutory and common law duties and must act with diligence, care and skill.
A company has a legal personality distinct from its stakeholder, there are various practical implications to this which include:
- directors act on behalf of a company but shareholders do not.
- incorporations entail limited liability for shareholders.
- the assets of the company are the exclusive property of that company, assets do not belong to the shareholders.
- where wrong is alleged to have been committed against the company, it is the company who must seek redress, not the shareholders.
Which case law has to do with defining a legal person?
Airport Cold Storage Pty Ltd v Ebrahim
the court held that one of the most fundamental consequences of incorporation is that a company is a juristic person separate from its shareholders. Thus the assets of the company are exclusive to the company and as such do not belong to the shareholders. Although a company has so physical existence, it can acquire assets on its own.
Airport Cold Storage Pty Ltd v Ebrahim
the court held that one of the most fundamental consequences of incorporation is that a company is a juristic person separate from its shareholders. Thus the assets of the company are exclusive to the company and as such do not belong to the shareholders. Although a company has so physical existence, it can acquire assets on its own.
the court held that the directors and members of a company ordinarily enjoy extensive protection against personal liability but in certain circumstances, the court has the right to ‘pierce’ or ‘lift’ or ‘pull aside’ the corporate veil and to hold the directors and others personally liable for the debts of the company.
Dadoo Ltd v Krugersdorp Municipal Council:
The court found that the property vests in the company and cannot be regarded as vesting in any or all of the shareholders of the company.
S19 (1) 0f the companies act.
Salomon v A Salomon & Co Ltd:
The court found that once a company is legally incorporated, it must be treated like any other independent person with its rights and liabilities appropriated to it.
Section 19(1) of the Companies Act of:
A registered company is a legal persona distinct from the members who compose it. Nor is the position affected by the circumstances that a controlling interest in the concern may be held by a single member.
Branch and division of company:
Branch or division: it does not have its own separate legal existence but is part of the company.
Lifting the corporate veil:
S 20(9)
Courts have made it clear that the law looks at the substance of things rather than at mere legal form. Courts will now allow a legal entity to be used to ‘justify wrong, protect fraud or defend crime.’
Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd:
It is said that a company has legitimately been established, but is misused in a particular instance ‘to penetrate fraud, or for a dishonest or improper purpose, there is no reason in principle or logic why its separate personality cannot be disregarded in relation to the transaction in question.’
corporate veil:
an artificial veil that is created upon the incorporation and registration of a company which separates the personality, assets, and liabilities of a company from those of the shareholders and directors.
The corporate veil, therefore, protects them from being personally liable for the company’s debts and other obligations.
‘lifting the corporate veil’
this is the same as piercing the corporate veil.
it occurs when a court disregards the separate legal personality of a company and treats the liabilities and/or activities of a company as those of the directors and/or shareholders.
