Week 0: Legal personality

 Legal Personality: In essence, a company is deemed to have capacity to acquire

its own rights and obligations separate from its members.

 S 8 (3) of Companies Act, 2008 says that no persons formed for the purpose
of the acquisition of gain will be recognised as a legal person unless it is
registered as a company under this Act or formed in terms of another Act.

 A company is a separate legal person. This makes it different from a

partnership.

 Legal Person: an entity that can acquire rights and duties separate from its
members (shareholders).

 The shareholders are the owners of shares in the company and the
directors manage the company on behalf of the shareholders. Shares in a
company entitle holders certain interests in the company.

 A company is a juristic person separate from its shareholders, which means

that the assets of the company are the exclusive property of the company
itself and not of its shareholders.

 It can acquire assets and is liable to pay its own debt. Where a wrong is
alleged to have been committed against the company the company must seek
redress, not the shareholders.

 Limited Liability: shareholders are generally not liable for debts of the
company.

 A company has perpetual existence, meaning the company’s existence can

only be terminated by a legal process, namely deregistration and
 dissolution. This makes a company different from a partnership (do you
remember why?).
 Even though companies have separate legal personality and limited liability, this
cannot be abused by the shareholders or directors of the company.

 The courts won’t allow a legal entity to be used to ‘justify wrong, protect
fraud or defend crime. This is called ‘piercing the corporate veil’. The power
of court to lift/pierce corporate veil to impose personal liability on
shareholders/directors was originally developed in terms of common law.

 The Companies Act, 2008 also includes a new statutory power for this
purpose. An ‘interested party’ can approach a court for relief in terms of
Section 20 (9) of the Companies Act, 2008, where there was an act by or on
behalf of the company that constituted an ‘unconscionable abuse of the
juristic personality of the company as a separate entity’.

 In such a case the court can declare that the company is deemed not to be a
juristic person in respect of any right, obligation or liability of the company or of a
shareholder of the company or, in the case of a non-profit company, a member of
the company, or of another person specified in the declaration. What this means
is that the court will disregard the separate legal personality of the company and
the directors and shareholder may be held liable for the debts of the company.

 Branches and divisions of a company are part of the company and do not have
their own separate legal existence.
 3.1 Registration of a
company

The registration of a company requires the filing of the Notice of Incorporation, filing
of a copy of the Memorandum of Incorporation and payment of the prescribed
fee.

Notice of Incorporation:
The notice to be filed in terms of s 13 (1), by which the incorporators of a company
inform the Commission of the incorporation of that company for the purpose of having it
registered.

Memorandum of Incorporation (“MOI”):

This is the founding document of the company. It is defined in Section 1 of the

Companies Act, 2008 as the document, as amended from time to time, that sets out
the rights, powers and duties of all stakeholders, as well as the nature of the
company.

Each provision of the MOI must be consistent with the provisions of the
Companies Act, 2008. Any provision that is inconsistent with the MOI is regarded
as void to the extent that it contravenes, or is inconsistent with the Companies Act,
2008. The MOI determines the nature of the company - that is whether it is, for
example, a private or public company. It also determines rights, powers and
duties of stakeholders.

The Companies Act, 2008 contained unalterable provisions – these are provisions
that the MOI cannot abolish; alterable provisions – the MOI can change default
provisions.

The Companies Act, 2008 will automatically apply if the MOI does not deal with that
specific matter.

In terms of Section 15(3) of the Companies Act, 2008, the Board of Directors is
allowed to make rules if the MOI is silent on certain matters relating to
governance of the company. The rules must be consistent with the Companies
Act, 2008, as well as the MOI and will be void to the extent that they are
inconsistent.
 Ring-Fenced Companies
These are companies that have any restrictive conditions applicable to the
company.

For example, the company cannot sell its immovable property, or contain any
additional procedural requirement that impedes the amendment of any provision
of the MOI.

The company’s name must be followed with the expression ‘RF’ so that
outsiders are aware that they are dealing with a company that contains special
provisions in the MOI.

A company is able to amend its MOI. This can be done in terms of an order of
court, or the BOD in respect of certain aspects pertaining to the classification of
shares, or a special resolution by the shareholders.

This could be to change the name of the company, delete, alter or replace any of
the provisions of the MOI, insert new provisions into the MOI or make any
combination of alterations.

Amendments merely to correct spelling errors, punctuation, reference, grammar

or similar defects on the face of the MOI can be done by the Board of Directors
by publishing a notice of alteration.

Shareholders Agreement:
Shareholders of a company may enter into any agreement with one another
concerning any matter relating to the company. The shareholders agreement
must be consistent with both the Companies Act, 2008 and the company’s MOI. If
it is inconsistent, it will be void to the extent of such inconsistency.

Steps to Incorporate a Company :

If it is a profit company only one person is required to incorporate the company, if
it is a non-profit company, at least three persons are required.

These persons are called the incorporators.

The incorporators complete a Notice of Incorporation and file it together with the
Memorandum of Incorporation with the CIPC and pay the prescribed fee.

The CIPC will assign a registration number to the company and issue a
registration certificate to the company.

The registration certificate is conclusive evidence that all the requirements for
the incorporation of the company have been complied with and that the company
is incorporated from the date stated in the certificate.

The date of incorporation on the certificate is the date on which the company
comes into existence as a separate legal entity.

Registration of Company Names:

The name of a company may not generally offend persons of a particular race,
ethnicity, gender or religion.

When choosing a name, care must be taken to avoid ‘passing off’, that is where
one business adopts a distinguishing feature of a competitor.

The name of a company may not be the same as (or confusingly similar) to the
name of another company.

If the name of a company (in notice of incorporation) is a name that the company is
prohibited from using or is reserved, the CIPC must use the company’s registration
number as the interim name of company.

A profit company can have just the registration number as name of company,
which must then have the words ‘South Africa’ afterwards.

A non-profit company cannot just have the registration number as the name of the
company.

In terms of Consumer Protection Act, 2008 members of the public are required to
register their business or trading name or sole proprietorship or partnership
names with the CIPC.

In terms of Section 32 of the Companies Act, 2008, a company must provide its full
registered name or registration number to any person on demand and may not
misstate its name or registration number in a manner likely to mislead or deceive
any person.

Reservation of Company Name:

A person may reserve one or more names for use at a later time.

Reserved names may be used for newly incorporated companies or as an

amendment to the name of an existing company.

The CIPC is compelled to reserve each name that the applicant applies for, unless
the name applied for is the registered name of another company, close corporation
or cooperative, external company or has already been reserved by someone else.

The reservation lasts for a period of six months from the date of application for
reservation.

Example:

Names must end as follows:

Personal Liability Company: Smith Inc. or Smith Incorporated
Private Company: ABC News Proprietary Limited or ABC News (Pty) Ltd
Public Company: Network National Limited / Network National Ltd
State-owned enterprise: Denel SOC Ltd
Non-profit company: The Kindness Project NPO
Ring-fenced: ABC News (Pty) Limited RF

Types of companies

The Companies Act, 2008 provides for two types of Companies: profit companies and
non-profit companies.

Non-Profit Companies: These are companies that are not incorporated for gain
and has one of these as its objectives: a public benefit objective, or an objective
relating to one or more cultural or social activities or communal group interests.

Profit Companies: incorporated for the purposes of financial gain for its
shareholders. There are four types of for-profit companies: a public company, a
state-owned enterprise, a personal liability company, a private company.

Public Company: You can tell when you are dealing with a public company because
it will have the word “Limited” behind its name, e.g. ABSA Bank Limited. These
companies are allowed to offer their shares to the public and their shares are freely
transferable. The shares of a public company can also be listed on the
Johannesburg Stock Exchange.
State-Owned Company: is a profit company that is either listed as a public entity
in Schedule 2 or 3 of the Public Finance Management Act or is owned by a
municipality. A SOC is a national government business enterprise. It is a juristic
person that is under the ownership and control of the national executive.
Examples of state-owned companies are Eskom Hld SOC Limited and Denel SOC
Limited. You can tell you are dealing with a state-owned company because it has the
“SOC” in the name.

Personal Liability Company: is a private company that provides the following in

its Memorandum of Incorporation: the directors are jointly and severally liable
together with the company for all contractual debts and liabilities incurred during
their terms of office. This type of company is used mainly by professional
associations such as attorneys, entrepreneurs, and stockbrokers. You can tell you
are dealing with a personal liability company because it will have Inc./Incorporated at
the end of the name of the company.

Private Company: A profit company that prohibits the offering of any securities
to the public and restricts the transferability of its shares. You can tell you are
dealing with this type of company because it will have (Pty) Limited at the end of its
name.

External Company: a foreign company carrying on business or non-profit

activities within SA.

Domesticated Company: in terms of Section 13 of the Companies Act, 2008,

Company may apply to transfer its registration to the Republic from the foreign
jurisdiction in which it is registered. A domesticated company is a foreign company
whose registration has been transferred to the Republic.

Example:

SOC Company: The Public Investment Corporation Limited (PIC) SOC is the largest
single investor of shares on the JSE and invests funds on behalf of public sector
entities.

Public Company: Absa Bank Limited is an example of a public company. All banks
have to be public companies. Absa Bank Limited is permitted to offer its shares to
the public.

Personal Liability Company: Werksmans Inc, a law firm.

Pre-incorporation Contracts
 General Rule no one can act on behalf of a juristic person until the juristic person is
incorporated. The application of the general rule can however pose a few problems:

A possible problem that can arise from the application of the general rule is that:

Of the signing of contracts on behalf of the juristic person. The law, however,
does make an exception to the general rule in the form of Section 21 of the
Companies Act, 2008.

Section 21 of the Companies Act, 2008 allows for pre-incorporation contracts to be

entered into on behalf of the juristic person even before the juristic person is
incorporated. Section 21 of the Companies Act, 2008 can only apply when certain
requirements are met - Do you know these important requirements?

A pre-incorporation contract is a contract entered into by a person who is acting

on behalf of the juristic person that does not exist at the given time (not
incorporated). The person entering the pre-incorporation contract on behalf of the
juristic person has the intention, once the juristic person comes into existence
(incorporated), that the juristic person will be bound by the pre-incorporation
contract.

The person who is acting on behalf of the juristic person that does not exist at
the given time (not incorporated) will be held severally and jointly liable with the
juristic person if it does not come into existence or it does come into existence,
but the juristic person rejects the pre-incorporation contract. The person will not
be liable if the juristic person comes into existence and enters a contract on the
same terms or makes a substitution for the contract entered prior to the juristic
person coming into existence.

The board of directors of the juristic person has 3 months from the date of the
juristic person coming into existence to reject or accept, as a whole or partially,
the pre-incorporation contract. If not, action is taken within the 3 months, then it
will be deemed that the board of directors ratified (accepted) the pre-
incorporation contract.

The pre-incorporation contract must be in writing.

Case of CShell 271 (Pty) Ltd v Oudshoorn Municipality (481/2021) [2013] ZASCA 62.

Capacity and Representation

A company’s capacity is determined by the sphere of actions that it may legally
perform. Representation occurs when somebody acts on behalf of or in the name of a
company.

In terms of section 19 (1) (b) of the Companies Act, 2008, from registration, the
company has all the legal powers and capacity of an individual, except to the extent
that a juristic person cannot exercise any such power or have such capacity e.g. a
company cannot get married or make a will or vote in the country’s general elections or
to the extent that MOI provides otherwise.

The MOI of a company may limit or restrict the activities or business in which the
company may engage but it does not have to do so.

Capacity of a company : the sphere of actions a company may legally perform.

Ultra vires conduct : the conclusion of the transaction is beyond its legal
capacity. When an act on behalf of the company falls outside its main and ancillary
objects, the company does not exist in law and consequently such an act is not
binding on the company, it is then described as ultra vires.

Ultra vires doctrine : refers to acts that fall outside the scope of the
company’s powers as determined in the MOI.

In terms of our common law, a contract is ultra vires in the company when the
conclusion of the transaction is beyond its legal capacity .

In other words, if a company’s principal business is, for instance, catering, it would be
outside the company’s capacity to buy an expensive yacht on behalf of the company.

The ultra vires doctrine is based on the understanding that a company exists in law only
for the purpose for which it was incorporated.

According to the ultra vires doctrine, when an act on behalf of the company falls
outside its main and ancillary objects, the company does not exist in law and,
consequently, such an act is not binding on the company. Such an act is described
as an ultra vires act.

In the catering example mentioned above, it would be within the scope of the principal
business (intra vires) for the company to purchase a refrigerator that it needs for
catering.

Whether a particular contract falls within the capacity and powers of the company is a
question of fact. If the main purpose of the company was to carry on the business of a
hotel, it is clear that acts necessary to achieve this purpose, for example, the
purchasing of furniture and the hiring of staff, are intra vires.

In terms of Section 20 (1) of the Companies Act, 2008, no action of the company is void
if the only reason therefor is that the action was prohibited by a limitation, restriction or
qualification in the MOI or that a consequence of this form of limitation was that the
directors who purported to act on behalf of the company had no authority to authorize
the company’s action.

Section 20 (2) provides for the shareholder, by way of special resolution, to ratify any
action taken by the company that was inconsistent with or in breach of a specified
limitation, restriction or qualification contained in the MOI.
Even though an ultra vires transaction will be binding on the company, the
shareholders are provided with recourse to claim back their losses from the person who
acted beyond the scope of the company’s capacity. Section 20(6) of the Companies Act
provides that each shareholder has a claim for damages against any person who
fraudulently, or due to gross negligence, causes the company to do anything
inconsistent with the Companies Act or a limitation, restriction, or qualification on the
powers of the company as stated in its Memorandum of Incorporation, unless ratified by
special resolution in terms of section 20(2). This is in addition to the remedy provided in
section 165.

If the company or directors have not as yet performed the planned action (e.g.
concluded the contract) that is inconsistent with a limitation or qualification of the
company’s powers contained in the Memorandum of Incorporation, one or more
shareholders, directors or prescribed officers of the company may obtain a court order
restraining (i.e. preventing) the company or directors from doing so in terms of section
20(4) and (5). A third party who did not have actual knowledge of this limitation or
qualification and acted in good faith will, in such a case, have a claim for any damages
suffered as a result.

Representation relates to a person acting under the company’s authority. If a

company gives an agent authority to act on its behalf, the agent possesses
actual authority and will bind the company in acts which fall within the scope of
the mandate given to him or her.

Company may also be bound to contract on basis of estoppel where a person

purporting to conclude contract on its behalf lacked the actual authority, express or
implied, but the other party to contract had been misled by the company into believing
that he or she did not have authority. This is called ostensible or apparent authority. In
other words, a company may be liable to a bona fide third party if it is represented by
someone who does not have actual autho

rity, and where the company allows such a person to represent the company as if that
person did have authority.

Constructive Notice and the Turquand

Rule
Doctrine of Constructive Notice: Third parties dealing with a company are
deemed to be fully acquainted with the contents of the public documents of the
company.

The consequences of this doctrine could be detrimental to someone dealing with the
company, because the contract could be a null and void contract if the company
acted ultra vires. As such, the English courts developed the Turquand rule to mitigate
the harsh effects of the doctrine.
Section 19 (4) of the Companies Act, 2008 partially abolished the doctrine of
constructive notice, third parties contracting with the company are no longer deemed to
have notice of public documents of company merely because they have been filed with
the CIPC or are accessible for inspection at office of company.

However, it is still applicable in terms of Section 19 (5). Section 19 (5) provides two
exceptions. A person is deemed to have knowledge of any provision of company’s MOI
in terms of S 15 (2) (b) (relating to special conditions applicable to company and
additional requirements regarding their amendment). This means that a third party
dealing with a ring-fenced company is deemed to have knowledge of the applicable
restriction/s.
The second exception is Personal Liability companies. A person is regarded as having
received notice and knowledge of the effect of S 19 (3) i.e. that directors and past
directors are jointly and severally liable with the company for debts of company
contracted during their periods of office.

Turquand rule: According to common law Turquand rule, an outsider contracting

with a company in good faith is entitled to assume that all internal requirements and
procedures have been complied with. The company will be bound by contract, even if
internal requirements and procedures have not been complied with.

If no act had taken place that was obviously contrary to the provisions of the documents
of the company that were lodged with the registrar, the third party could assume that
there was compliance with all the internal requirements of the company.

The Turquand rule was accepted into South African law and had the effect that a third
party would not be affected by the doctrine of constructive notice, unless this party
knew that an internal requirement or rule had not been followed or should reasonably
have been suspected this to be the case, and yet did not make enquiries. If an outsider
was aware of fact that requirements and procedures had not been complied with, or if
the circumstances under which contract was concluded were suspicious the Turquand
rule would not apply.

Section 20 (7) of Companies Act, 2008 now codifies the Turquand rule in a modified
form by providing that a person dealing with a company in good faith is entitled to
assume that the company has complied with all of the procedural requirements in terms
of the Companies Act, 2008, MOI and any rules of company, unless the person knew or
ought to have known of any failure by company to comply with its formal and
procedural requirements.
 Week 2: Corporate Finance

2. Introduction to Corporate Finance; Shares

as a Source of Finance and the Nature of
Shares

Generally, there are two sources of funding available to the directors of a company:
Debt and Equity.

The term ‘securities’ in the Companies Act, 2008 refers to both shares and debt
instruments. An example of a debt instrument is a debenture.

Debt: Money or assets obtained by a company when it does any of the

following: issues debt instruments such as debentures; obtains long-term and / or
short-term loans; enters into lease agreements; obtains credit terms from its suppliers,
effectively allowing the company to pay in the future for goods or services already
received; obtains overdraft facilities from banks.

Debt instrument: are any securities other than the shares of a company.

Debenture: is one form of debt instrument. A company must include its debt
instruments in its register of issued securities. Security document must indicate
whether the debt instrument is secured or unsecured. A debt instrument may
have a number of rights attached to it, such as voting rights.

Equity: consists of shares and retained income. A way in which a company can obtain
funding for its business operations is by issuing shares.

Retained income: Instead of paying all profits to shareholders by way of dividends,

the directors can choose to retain all or some of those profits in the business to fund
operations and expansions.

Share: Section 1 of the Companies Act, 2008 defines ‘share’ as one of the units into
which the proprietary interest in a profit company is divided. A share is property
that can be traded.

Shareholder: is one of the contributors of the fund (share capital) that sets up a
company.

Securities: Any shares, debentures, or other instruments, irrespective of their form or

title, issued or authorised to be issued by a profit company.

A company’s MOI must set out a company’s authorised shares by specifying the
classes of shares, and the number of shares in each class.

The company’s MOI must set out in respect of each class of shares, the distinguishing
designation for that class, the preferences, rights, limitations, and other terms
associated with that class.

All shares of any particular class have the same rights and limitations.

If shares have different preferences, rights, limitations, or other terms attaching to them,
then they are classified as different classes of shares. Those shares with the same
rights and limitations will form part of the same class. Rights include rights such as
voting, sharing in the profits, and participating in new shares of capital or in the
distribution of assets in the event of the company being wound up. The classes of
shares commonly encountered include ordinary shares, preference shares, unclassified
shares, and ‘blank’ shares.

Ordinary shares: Ordinary shareholders usually receive dividends after the

preference shareholders have received theirs. They have the right to receive any of the
company’s surplus assets after it has been wound up. They normally have the right to
vote at meetings of the shareholders.

Preference shares: are classified as cumulative, non-cumulative, participating,

redeemable and/or convertible shares. They provide their shareholders with a
preference over the other shareholders to dividends and/or a return on capital on
winding-up. You would look at the MOI and the terms of issue of shares to determine
the preference that has been conferred. Preferential shareholders usually do not have a
right to vote, except they have an irrevocable right to vote on any proposal to amend
the preferences, rights, limitations, and other terms associated with their shares.

Cumulative preference shares: If a dividend is not declared in a particular year, the

right to a dividend is carried over to the next year and the preferential shareholder will
receive two years’ dividends before the ordinary shareholders receive their dividends.

Participating preference shares: After receiving preference dividends, the preferential

shareholder may be given the right to also receive normal dividends along with or just
after the ordinary shareholders.

Preferential right to capital on winding-up: The preferential shareholder has a

preferential right to their contribution to the capital on winding-up.

Convertible preference shares: The preferential shareholder has the right to convert
the preference shares to shares of another class after a certain date.

Unclassified shares: These shares can be classified by the BOD. This allows the
board to re-classify shares into one or more existing classes of authorised shares or to
increase the number of authorised shares of an existing class.

‘Blank’ shares: Class of shares that does not specify the associated preferences,
rights, limitations or other terms of that class. The board must determine the associated
preferences, rights, limitations and other terms. These shares must not be issued until
the board has determined this.

Deferred shares: These are shares that are issued to the founders of a company that
entitle them to dividends only if the dividend exceeds a certain threshold and after
ordinary shareholders have been paid.

Issued shares: These are shares issued that have been allocated to a particular
shareholder.

The BOD may resolve to issue shares of the company at any time within the classes
and to the extent that the shares have been authorised by or in terms of the company’s
MOI. The BOD will determine the consideration and terms on which the shares will be
issued.

Unissued shares: These are shares that have been authorized but not yet issued.
Directors have the power to reclassify authorized yet unissued shares from shares of
one class to shares of another and to increase or to decrease such authorized shares.

Capitalisation shares: These are ‘bonus’ shares that are issued instead of dividends.
They arise as a result of the capitalisation of the profits of the company rather than their
distribution.

In terms of Section 41(3) of the Companies Act, 2008, if there is an issue of shares
where the voting power of the class of shares so issued will be equal to or exceed 30
per cent of the voting power of all the shares of that class held by shareholders
immediately before the transaction or series of transactions, then such issue of shares
requires approval of shareholders by special resolution.

Pre-emptive rights: If a company proposes to issue any shares, each shareholder

has the right before any other person who is not a shareholder of that company to be
offered, and within a reasonable time, to subscribe for, a percentage of the shares to be
issued equal to the voting power of that shareholder’s general voting rights immediately
before the offer was made.

In terms of Section 39 of the Companies Act, 2008, the right of pre-emption is the
default provision and shareholders of a private company automatically have this pre-
emptive right unless it is changed or abolished by the company’s MOI. Public and
State-owned companies do not have this automatic right.

Certificated security: A security that is evidenced by a certificate.

Uncertificated security: These are securities that are not evidenced by a certificate
or written instrument and are transferable by entry without a written instrument. They
are instruments that are held and transferred electronically.
Financial assistance: Section 44 of the Companies Act, 2008, set out the
requirements that a company must comply with if it is going to provide financial
assistance in respect of the issue of any of its securities. These requirements are that:
the board is satisfied that immediately after providing the financial assistance the
company would satisfy the solvency and liquidity test; the terms under which the
financial assistance is proposed to be given are fair and reasonable to the company;
and any conditions or restrictions respecting the granting of financial assistance set out
in the company’s MOI have been satisfied.

Distribution: is the transfer of both cash and other assets by a company to its own
shareholders or to the shareholders of any company within the same group.

The payment of dividends is a form of distribution.

The payment of a distribution must meet certain requirements: The BOD has
authorised the distribution. It reasonably appears that the company will satisfy the
solvency and liquidity test immediately after completing the proposed distribution and
the BOD has by resolution acknowledged that it has applied the solvency and liquidity
test and reasonably concluded that the company will satisfy the solvency and liquidity
test immediately after completing the proposed distribution.

2. Capital Regulation in the Companies Act,

2008

The Companies Act, 2008 introduced the solvency and liquidity test which must be
applied and passed before certain transactions take place, such as declare dividends,
or buy back shares.

The solvency and liquidity test must be applied when: a company wishes to
provide financial assistance for the subscription of its securities in terms of section 44. If
a company grants loans or other financial assistance to directors and others as
contemplated in section 45; before a company makes any distribution as provided for in
section 46; if a company wishes to pay cash in lieu of issuing capitalisation shares in
terms of section 47; and if a company wishes to acquire its own shares as provided for
in section 48.

A company will satisfy the test if it is both ‘solvent’ and ‘liquid’.

The solvency and liquidity test: In terms of section 4 of Companies Act, 2008 a
company satisfies the solvency and liquidity test at a particular time if, considering all
reasonably foreseeable financial circumstances of the company at the time, the assets
of the company, as fairly valued, equal or exceed the liabilities of the company, as fairly
valued; (this is the solvency portion of the test) and it appears that the company will be
able to pay its debts as they become due on the ordinary course of business for a
period of 12 months after the date on which the test is considered; or in the case of a
distribution contemplated in paragraph (a) of the definition of ‘distribution’ in section 1,
12 months following that distribution (this is the liquidity portion of the test).

Week 3: Shareholders and Company

Meetings

Section 1 defines a shareholder as the holder of a share issued by a company and

who is entered as such in the certificated or uncertificated securities register of the
company.

And Part F of Chapter 2 provides that a ‘shareholder’ is a person who is entitled to

exercise any voting rights in relation to a company, irrespective of the form, title or
nature of the securities to which those voting rights are attached. You will recall from
the previous unit that voting rights are usually attached to ordinary shares, but other
types of shares and debentures can provide for voting rights as well. Thus, a holder of
a debenture would fall under this definition as well.

The Companies Act, 2008 defines securities as any shares, debentures or other
instruments, irrespective of their form or title, issued or authorised to be issued by a
profit company. When the Companies Act, 2008 refers to securities, it refers to both
shares and debt instruments such as debentures.

A shareholder can include the holder of a debt instrument who has been granted voting
rights.
Share: One of the units into which the proprietary interest in a profit company is divided

Shareholders' Meeting: A meeting of the holders of a company’s issued securities

who are entitled to exercise voting rights in relation to that matter.

Before a meeting of shareholders can be held, it has to be properly called and

convened.

A meeting is properly convened if the prescribed notice for convening the meeting was
given by persons who have the relevant authority to convene the meeting. Notice to a
meeting must be given to all persons who are entitled to receive notice of the meeting.
A meeting must be convened for a time, date and place that is accessible to the
shareholders of the company. A meeting may commence only if a quorum is present.

The record date is important because it is the date that determines shareholders rights,
which is the right to receive notice of a meeting and vote at a meeting.

In terms of Section 1 of the Companies Act, 2008, the record date is the date on
which a company determines the identity of its shareholders and their
shareholdings for the purposes of the Act.

The Board of Directors (BOD) may set a record date, which must not be earlier
than the date on which the record date is determined or more than 10 business
days before the date on which the event or action is scheduled to occur and
must be published to the shareholders in the prescribed manner. Where BOD
does not give the record date, it is the latest date by which the company is required to
give shareholders notice of that meeting or the date of the action or event.

BOD or any other person specified in MOI or rules may call a shareholders’ meeting at
any time. There are instances when a shareholders’ meeting must be called: when
the MOI or Companies Act, 2008 states that the BOD is required to convene a meeting
and refer a matter to a decision by shareholders; and when a meeting is demanded by
shareholders that have at least 10% of voting rights on the matter to be decided.

Notice of Meetings: Proper notice must be given of the meeting. It must be in writing
and must include the date, time and place for the meeting. If there is a record date, the
notice must include the record date and the notice should explain general purpose of
meeting or specific purpose. For a public company or non-profit company, the notice
must be given 15 days before date of meeting, for other companies 10 days before the
date of meeting. A proposed resolution must accompany the notice convening the
meeting indicating the percentage of voting rights required for resolution to be adopted.
The notice must also contain a statement that the shareholder can appoint a proxy in
place of shareholder participants required to provide proof of identity at the meeting.
For an AGM the notice must also contain a summary of the Annual Financial
Statements that will be tabled at the meeting and the procedure to obtain a complete
copy.

Proxy: A person who is appointed to represent a shareholder at a meeting. The

Companies Act, 2008 allows a shareholder to appoint any individual in writing as his or
her proxy.

Quorum: Minimum number of members who have to be present at the meeting before
the meeting can commence. Shareholders’ meeting may not begin until sufficient
persons are present at the meeting to exercise at least 25% of all the voting rights that
are entitled to be exercised in respect of at least one matter to be decided at the
meeting. The MOI may specify higher or lower percentage in place of the Companies
Act’s default quorum of 25%. If company has more than 2 shareholders, at least 3 must
be present.

Conduct of Meetings: Voting can be done by a show of hands, poll or through

electronic communication.

In terms of section 60 of the Companies Act, 2008, it is possible to take decisions

without convening a meeting, the company must submit a proposed resolution to every
person who is entitled to vote on the resolution. Shareholders are then entitled to
exercise their vote in writing within 20 days from receiving the proposed resolution and
must return the written vote to the company. AGMs however can only be convened by
having a meeting.

Annual General Meeting: The first AGM must be held not more than 18 months after
the company’s date of incorporation. Subsequent meetings must be held not more than
15 months after the date of the previous annual general meeting. The matters that must
be discussed at the AGM include: the presentation of the director’s report; the audited
financial statements for the immediately preceding financial year and the audit
committee report; election of directors; appointment of an auditor for the ensuing
financial year and appointment of the audit committee; and any matters raised by
shareholders.

There are two types of resolutions that can be passed at a meeting: ordinary and
special resolutions.

Ordinary Resolutions: A resolution adopted with the support of more than 50% of the
voting rights exercised on the resolution.

Special Resolution: A resolution adopted with the support of at least 75% of the voting
rights exercised on the resolution or a ‘different’ percentage specified in the MOI.
The MOI can change the percentage required for the ordinary resolution (make it
higher) and the special resolution, as long as there is a 10% difference between
ordinary and special at all times.

Have a look at Table 5.1 in your textbook to see the types of matters that require that a
special resolution has to be passed.

Week 4: Corporate Governance

Structures
Directors and Board Committees
Section 1 of the Companies Act defines a director as a member of the board of a
company as contemplated in section 66 or is an alternate director. It also includes any
person occupying the position of a director/alternate director by whatever name
designated to such person.

For certain sections of the Companies Act, 2008 (section 75 and 76), the following
persons are considered to be directors; directors, alternative directors, prescribed
officers, members of board committees, and members of the audit committee.

In terms of section 66 of the Companies Act, 2008, the business and affairs of a
company must be managed by or under the direction of its board.

Number of Directors: A private company must have at least one director, while
public and non-profit companies must have at least three directors.

First Directors of a Company: Every incorporator is deemed to be a director

until sufficient directors have been appointed to meet the required minimum number of
directors.

Ex-Officio Director: A person who holds an office as a director of a company solely

as a result of that person holding another office or title or status.

MOI Appointed Director: This type of director does not have to be appointed by
the shareholders and the MOI can specify how and by whom such a director is
appointed.
Alternative Director: A person elected or appointed to serve, as occasion requires,
as a member of the board of a company in substitution for a particular elected or
appointed director of that company.

Elected Director: A director elected by the shareholders. In a profit company, at

least 50% of directors must be elected by the shareholders.

Temporary Director: A person who is appointed to fill a vacancy.

Executive Director: A director who is also an employee and is involved in the day-
to-day management of the company.

Non-Executive Director: These are directors that are not employees of the
company and not involved in the day-to-day management of the company.

Filling of Vacancies
A vacancy, other than as a result of an ex officio officer ceasing to hold office, must be
filled by a new appointment or new election conducted at the next AGM of the
company, otherwise within six months at a shareholders’ meeting. The company must
file a notice with the CIPC within ten business days after a person becomes or ceases
to be a director of the company.

Removal of Directors
A director may be removed by the shareholder and in some instances, by the board of
directors. This will be done by a resolution adopted at a shareholders’ meeting. A
director may also be removed by a resolution of the BOD if a director has become
incapacitated to the extent that the director is unable to perform the functions of a
director and is unlikely to regain that capacity within a reasonable time; or the director
has neglected or been derelict in the performance of the functions of director.

Board Committees
In terms of section 72 of the Companies Act, 2008, the Board of Directors may appoint
any number of board committees and may delegate any of the authority of the board to
a committee. However, a director cannot use the appointment of a committee as a
shield against his or her own responsibility. The BOD or the particular director will
remain liable for the proper performance of a director’s duty despite the delegation of
the duty to a committee. Every SOC and listed company must appoint a social and
ethics committee. A public company, SOC and any other company required in its MOI
must have an audit committee. Other possible committees include the remuneration
committee, nomination committee and risk management committee.

Board Meetings
These are meetings that are held by the BOD. Director authorised by the Board may
call a meeting at any time. There are certain instances in which a board meeting must
be called, e.g., if required to do so by at least 25% of the directors, where the board has
at least 12 members. Minutes of all board and committee meetings must be kept by the
company.

Director’s Duties and Disqualification to Act as

Director
Directors’ Duties

Section 76 of the Companies Act, 2008 sets out the “Standards of directors’ conduct”
and is a form of a partially codified regime of directors’ duties which includes the
director’s fiduciary duty and duty of reasonable care. These duties are supplemented
with other provisions dealing with conflict of interest (s 75), directors' liability (s 77),
Indemnities and insurance (s 78).

The Companies Act, 2008, created a statutory defence for directors in the form of the
“business judgment test” who can use this test to prove that they have not acted in
breach of their duties.

The common law principles remain to the extent that they have not been narrowed by
the Companies Act, 2008 and the above duties are not in substitution for any duties of
director under the common law. Under the common law, directors have the fiduciary
duty to act in good faith to the benefit of the company as a whole, and to avoid a
situation where the director’s personal interest conflicts with that of the company.

Directors’ Personal Financial Interests

Section 75 of the Companies Act, 2008 deals specifically with a director’s personal
financial interest and states that if a director’s personal interest is in conflict with those
of the company, the director should disclose the conflict of interest in the manner
described in the section.

Standards of Directors’ Conduct

A director must exercise the powers, perform the functions of director, in good faith and
in the best interests of the company and must act with a certain degree of care,
diligence and skill.

Position of a Director and Information

A director must not use any information he has obtained as a director for any personal
benefit or to cause any harm to the company or a subsidiary of the company. A director
must communicate to the board any information that comes to the director’s attention
that is material to the company.
Fiduciary Duty and Duty of Care, Skill and Diligence

The Companies Act, 2008 confirms that a director is under a fiduciary duty and that he
or she must act with a certain degree of care, skill and diligence. In terms of section
76(3) of the Companies Act, 2008, a director must exercise the powers and perform the
functions of a director in good faith and for a proper purpose, in the best interests of the
company, and with the degree of care, skill and diligence that may reasonably be
expected of a person carrying out the same functions in relation to the company as
those carried out by that director, and having the general knowledge, skill and
experience of that director. To determine whether or not a director as acted with the
required degree of care, skill and diligence his actions must pass both the objective and
subjective test.

 The Objective Test: What a reasonable director would have done in the same
situation.
 The Subjective Test: Taking into account, the general knowledge, skill and
experience of the particular director.
 The Business Judgment Test: Section 76 (4) of the Companies Act, 2008
provides that a director satisfies their obligations if they have taken reasonably
diligent steps to become informed about a particular matter; and either the
director had no material personal financial interest in the subject matter of the
decision (and had no reasonable basis to know that any related person had a
personal financial interest in the matter), they disclosed the conflict of interest as
required by S 75 of the Act, and the director had a rational basis for believing,
and did believe that the decision was in the best interest of the company. It
entails that a director should not be held liable for decisions that lead to
undesirable results where such decisions that were made in good faith, with care,
and on an informed basis which the directors believed were in the interest of the
company.

Liability of Directors

A number of sections in the Companies Act, 2008 provide for the personal liability of
directors. In terms of section 77, the company may recover loss, damages or costs
sustained by the company from the director under certain circumstances.

In terms of section 218 (2), any person who contravenes any provision of this Act is
liable to any other person for any loss or damage suffered by that person as a result of
that contravention. As such, anyone can claim against a director personally if that
director contravened any provision of the Act and thereby caused that person to suffer
monetary loss.

In terms of section 78 of the Companies Act, 2008, a company cannot undertake not to
hold a director liable for breach of fiduciary duties. A company can take out indemnity
insurance to protect a director against any liability or expenses for which the company
is permitted to indemnify a director for.

Ineligible and Disqualified Persons

Certain persons are disqualified or ineligible from being directors.

 Ineligible: Absolutely prohibited from becoming a director of a company and

there are no exceptions to this prohibition. The following persons are ineligible:
juristic person, unemancipated minor or a person under similar legal disability, or
a person who does not satisfy any requirement in a company’s MOI.
 Disqualified: Except persons being prohibited by a court of law, the other
disqualifications provided for in the Companies Act, 2008 are not absolute, and a
court has a discretion as to whether to allow such disqualified persons to be
appointed as a director. The following persons are disqualified: prohibited by
court of law, person declared to be a delinquent, unrehabilitated insolvent, person
prohibited by public regulation, person convicted or imprisoned for theft, fraud,
forgery or perjury, and a person disqualified in terms of a company’s MOI.

Application to Declare a Person Delinquent or Under Probation

In terms of section 162 of the Companies Act, 2008, a court can declare a person to be
a delinquent or to be under probation. The company, shareholder, another director, the
company secretary, and various other interested persons can bring the application to
court.

A person who has been declared to be a delinquent is disqualified from being a

director. There are various grounds for having a director declared to be a delinquent
director, see table 6.6 in your textbook. One of the grounds is that the director grossly
abused the position of director. Another is that the director took personal advantage of
information or an opportunity contrary to S 76 (2), and a further one is that the director
acted in a manner materially inconsistent with the duties of a director. However, this is
just three of the many possible grounds.

Auditors and Company Secretary

The Companies Act, 2008 contains a number of sections that regulate a company’s
financial disclosures and maintenance of accounting records. In terms of Section 30 of
the Companies Act, 2008, all public and SOC companies must prepare annual financial
statements within six months after the end of its financial year. The AFS must include
an auditor’s report.

In terms of section 44 of Auditing Profession Act, it is the auditor’s duty to examine a

company’s financial statements and accounting records and express an opinion on the
truth and fairness, in all material respects, of the statements and the accountant’s
adherence to financial reporting standards.

In terms of section 1 of the Auditing Profession Act, an ‘audit’ means the examination
of, ‘in accordance with prescribed or applicable accounting standards, (a) financial
statements with the objective of expressing an opinion as to their fairness or
compliance with an identified financial reporting framework and any applicable statutory
requirements; (b) financial and other information, prepared in accordance with suitable
criteria with the objective of expressing an opinion on the financial and other
information’.

Role of the Auditor

An auditor attests that the financial statements fairly represent a company’s financial
condition and past performance and by doing so reinforces the reliability of financial
information.

Auditor

An individual registered as an auditor with the Independent Regulatory Board of

Auditors.

In terms of section S 29 (1) (e) of the Companies Act, 2008, the company must state on
any financial statements whether they were audited or independently reviewed or
whether they were not audited or not reviewed.

An auditor is appointed by a company in terms of a contract in terms of which the

auditor is obliged to perform certain services for the client and failure to perform the
obligations properly in terms of this contract can lead to the auditor being personally
liable to its client for any loss suffered by that client as a result of inadequate
performance.

Which Companies’ Financial Statements are subject to an Audit?

Public Companies and State-Owned companies must be audited and appoint an audit
committee.
In terms of regulations made in terms of section 30(7) of the Companies Act, 2008, the
Minister may determine that certain private companies must also have their AFS
audited, otherwise, all other private companies (except owner-managed) private
companies require an independent review of their AFS.

Companies Required to Appoint an Auditor

Public companies; state-owned companies, any private company that, as its primary
activity, holds assets in a fiduciary capacity for persons not related to the company
value of assets exceeds R5 million, any private company with a ‘public interest score’ in
that financial year of between 100 and 349 points if its AFS were internally compiled, a
company whose MOI requires it to be audited, a company that voluntarily has its AFS
audited either as a result of a directors’ or shareholders’ resolution, and any non-profit
company that was incorporated by the State, organ of state, a SOC, an international
entity, a foreign state entity or a company, or was incorporated primarily to perform a
statutory or regulatory function.

All other companies require an independent review of their financial statement except
owner-managed private companies.

Appointment and Independence of an Auditor

A public company, SOC and certain private companies must appoint an auditor every
year at the AGM. In terms of section 90 of the Companies Act, it must be a registered
auditor, must not be a director or company secretary or prescribed officer of the
company, must not be an employee or consultant of the company, who has been
engaged for more than one year in either the maintenance of any of the company’s
financial records, or the preparation of any of its financial statements. Cannot be a
person who, alone or with a partner or employees, habitually or regularly performs the
duties of accountant or bookkeeper, or performs related secretarial work for the
company and must not be a person, who at any time during the five financial years
immediately preceding the date of appointment acted in a capacity that would have
precluded that person from being appointed as the auditor of the company and must be
acceptable to the company’s audit committee as being independent of the company.

Resignation of Auditors and Vacancies

If a vacancy arises in the office of auditor of a company, the board of the company must
appoint a new auditor within 40 business days if there was only one auditor.

The Process for Appointment

Before making appointment to fill a vacancy, the board must propose to the company’s
audit committee within 15 business days after the vacancy name of at least one
registered auditor. The board can appoint if it does not receive a written objection within
five (5) days from the audit committee.

Rotation of Auditors

In terms of section 92 of the Companies Act, 2008, the same auditor may not serve as
the auditor of a company for more than five consecutive financial years. The reason for
this rule is to ensure that the auditor of a company remains independent of the
company and is able to express an objective opinion on a company’s AFS.

Rights of Auditors

Section 93 of the Companies Act, 2008 sets out rights of auditors. An auditor of
company has right of access at all times to the accounting records and all books and
documents of the company, including that of a subsidiary company.

If the auditor of a holding company, the auditor has the right to attend any general
shareholder’s meeting. If necessary, an auditor may apply to court for an appropriate
order to enforce its rights as an auditor.

An auditor appointed by a company may not perform any services for that company
that would place the auditor in a conflict of interest.

Audit Committee
At every AGM a public company, SOC, and any other company that has voluntarily
determined to have an audit committee must elect an audit committee which comprises
of at least three members. The members of the audit committee should be non-
executive independent directors of the company and should be an independent person
that can act objectively and without bias.

Duties of the Audit Committee

 Nominate, for appointment as auditor of the company, under section 90 of the

Companies Act, 2008, a registered auditor.
 Determine the fees to be paid to the auditor.
 Determine the auditor’s terms of engagement.
 Ensure that the appointment of the auditor complies with the provisions of the
Companies Act, 2008 and other legislation.
 Determine the nature and extent of any non-audit services that the auditor may
provide to the company or that the auditor must not provide to the company
(including related company)
 Pre-approve any proposed agreement with the auditor for the provision of non-
audit services of the company.
 Prepare report to be included in AFS for that financial year.
 Make submissions to the board.
 Perform other functions determined by the board.
 Ensure the registered auditor is independent of company.

Company Secretary

The company secretary is the chief administrative officer of a company. A public

company and a SOC, as well as companies required to do so in terms of their MOI
must appoint a company secretary. Directors must be satisfied that the person is
suitably qualified with the necessary experience to perform the duties of company
secretary.

Duties of a Company Secretary

 Provides directors with guidance in respect of their duties, responsibilities and

powers.
 Makes the directors aware of any law relevant to or affecting the
company.
 Reports to the company’s board any failure on the part of the company
or a director to comply with the Companies Act, 2008.
 Ensures that minutes of all shareholder’s meetings, board meetings
and the meetings of any committees of the directors, or of the
company’s audit committee are properly recorded in accordance with
the Companies Act, 2008.
 Certifies in companies AFS whether the company has filed required
returns and notices in terms of the Companies Act, 2008 and whether
all such returns and notices appear to be true, correct and up to date.
  Ensures a copy of AFS is sent to all persons entitled to it in terms of the
Companies Act, 2008.

Week 5: Remedies and

Enforcement

Remedies and the Enforcement of Rights Ensuring

Compliance with the Companies Act, 2008

The Companies Act, 2008 provides rights to shareholders to protect their rights, such
as section 163 offers, relief from oppressive or prejudicial conduct, section 161 allows
for an application to protect the rights of securities holders, and section 164 provides for
dissenting shareholders’ appraisal rights.

Remedies against Directors who have Abused their Position: Remedies include
the right to apply for an order of delinquency or probation in terms of section 162 and
the right to institute an action on behalf of the company in terms of section 165.

The Derivative Action in Terms of 165: The derivative action is a court action
instituted by any of the persons described in section 165 on behalf of the company in
order to protect the company’s legal interests. The remedy is available against an
alleged wrongdoer who is in control of the company.

The Statutory Remedies available to Shareholders to Protect their own Rights:

This includes relief from prejudicial/oppressive conduct in terms of section 163,
dissenting shareholders’ appraisal rights in terms of section 164, rights of shareholders
to require a company to pay fair value in exchange for their shares in certain
circumstances, and additional relief to protect the rights of securities holders in terms of
section 161 in the form of declaratory orders or other appropriate relief.

Enforcement of Rights ensuring Compliance with the Companies Act, 2008: There
are four alternatives for addressing complaints regarding alleged contraventions of the
Act or for the enforcement of rights:

1. Attempt to resolve the dispute using ADR procedures.

 2. Apply to the Companies Tribunal for adjudication only in respect of any matter for
which such an application is permitted in the Act.
3. Apply to the High Court.
4. File a complaint with the CIPC, which could result in the Commission after
investigating the complaint issuing a compliance notice.

The Companies Act, 2008 is generally a system of administrative enforcement.

The CIPC is the body responsible for enforcement of the Act. The Companies Tribunal
functions include the review of certain decisions of the CIPC while the High Court’s
primary forum for resolving disputes in respect of the interpretation and enforcement of
Companies Act.

Week 6: Other Types of Businesses

Close Corporations
The Close Corporations Act 69 of 1984 (“Close Corporations Act”) introduced a
cheaper, less regulated option for the entrepreneur of small enterprises. This form of
business provides a simple, inexpensive and flexible form of incorporation for the
enterprise consisting of a single entrepreneur or small number of participants. A close
corporation, like a company, acquires legal personality upon incorporation. In terms of
the Companies Act, 2008, no new close corporations may be registered. However,
existing close corporations continue to exist alongside companies or conversions of
companies to close corporations are permitted by the Companies Act. Close
corporations may, however, convert to companies.

Define Partnership

Definition:

If we were to break it down, a partnership consists of the following elements:

1. A Legal relationship.
2. Created by way of a contract (can be written or verbal).
3. Has two or more persons.
4. Each of the partners makes a contribution.
5. The partnership is for the partners' joint benefit.
6. The object of the partnership is to make a profit.

If all the elements in 1 – 6 above are present, then it is a partnership.

South African law has adopted the aggregate theory of partnership which treats a
partnership as an aggregate or collection of individual parties being the partners. The
partners are owners of partnership property as co-owners in undivided shares. The
rights and liabilities of the partnership are considered to be their rights and obligations.
The partnership does not have legal personality.

Types of partnerships
Universal Partnerships: The Partners contribute all their property or all their profits to
the partnership. It is usually for an open-ended period and for wide-ranging purposes
with a commensurate sharing of the profits of their enterprises.

Two types of Universal partnerships: Universorum bonorum (which is usually in

marriage) and the second type occurs in commercial undertakings where the partners
agree that all that they acquire from whatever form of commercial activity shall be
treated as part of the property of the partnership.

Particular Partnerships: Partners contribute their resources for a particular defined

purpose only.

Ordinary Partnerships: Partners are jointly and severally liable for all of the debts of
the partnership.

Extraordinary Partnerships: The liability of certain partners is limited in some ways.

There are three types of extraordinary partnerships: anonymous partnership,
partnership en commandite and special partnership.

Essentials of a Partnership

There are four essentials of a partnership:

 1. Each partner brings something to the partnership.

2. The business should be carried for the joint benefit of the partnership.

3. The object should be to make a profit.

4. The contract between the parties should be a legitimate contract.

When all four of these essential elements are present, it is a partnership agreement,
and it does not matter what else the partners may decide to call it. If one of the
essentials are missing, it is not a partnership agreement.

Contribution: Every partner must make a contribution that must have commercial
value. This could be labor or skill, money or property. The most common form of
contribution is money.

Joint Benefit of the Parties: The business should be carried out for the joint benefit of
the parties. South African law does not recognise a partnership where one partner is
entitled to all the losses and one partner is entitled to all the profits.

Business should be carried out to Make a Profit: The purpose of the partnership
should be to make a profit. This is why charitable institutions or sports clubs cannot be
considered partnerships.

Legitimate Contract: A partnership is established by means of a valid agreement or

legitimate contract which must embody the basic essentials of a partnership and must
be entered into with the clear intention of creating a partnership.

A valid partnership agreement = Essentials + intention to create a partnership.

Other Legal Formalities: A partnership must comply with the law. It does not have to
be in writing and there are no formalities required. However, if the partners wanted to,
they could agree to formalities themselves.

Example:

In Pezzutto v Dreyer 1992 (3) SA 379 (A), the court held that for a partnership to come
into existence, ‘there must be an agreement to that effect between the contracting
parties’. The court further stated that what is necessary to create a partnership
agreement is that the essentialia of a partnership should be present. The court
confirmed that the three essentials are:

1. Each of the partners bring something into the partnership, whether it be money,
labor or skill.

2. The business should be carried on for the joint benefit of the parties.

3. The object should be to make a profit.

4. A fourth requirement is that the contract should be a legitimate one.

Relationship between Partners; Authority of
Partners to Contract and Personal Liability
of a Partner

Contract uberrimae fidei: The partnership is a contract of the utmost good faith, and
the relationship must be based on mutual trust and utmost confidence.

Each partner is in a fiduciary relationship towards the others.

The partners have the following rights:

1. A right to share in the profits of the partnership.

2. A right to participate in the management of the business.

3. The right to compensation.

4. The right to inspect the partnership books.

5. The right to distribution of assets on dissolution.

The partners also have duties to the partnership:

1. The duty to make a contribution towards the partnership.

2. A duty to share in the losses.

3. A duty of care and skill.

4. A duty of full disclosure.

5. A duty to account.

The value of the utmost good faith gives rise to four duties of the partner:

1. Duty to accept and fulfil the obligations of the partnership agreement.

2. Duty to acquire benefits for partnership.

3. Duty to guard against a conflict of interest.

In addition, a partner has a duty to disclose to all co-partners all information in their
possession that affects the partnership and may not conceal facts from their partners if
knowledge of such facts may have an influence on the remaining partner’s decision
regarding the partnership.

When a partner contracts on behalf of the partnership, that partner acts as a principal in
relation to themself, and as a representative of the other partners. They act as an agent
and bind all the remaining partners, provided they act within the scope of their authority.
The partner is acting as both an agent to the partnership and a principal in one and the
same transaction.

Each partner is jointly and severally liable for partnership debts. During existence of the
partnership, creditors of the partnership cannot sue the partners individually but must
sue all of them.

Define a business trust

A business trust is a legal entity that is created to hold and manage assets for the
benefit of its beneficiaries. In South Africa, a business trust is regulated by the Trust
Property Control Act, which sets out the requirements for the formation and operation of
a trust.

To form a business trust in South Africa, you will need to draft a trust deed that outlines
the purpose of the trust, the identity of the trustees, and the rights and obligations of the
beneficiaries. The trust deed must be signed by the founder of the trust and the
trustees.

Once the trust has been established, the trustees will be responsible for managing the
assets of the trust in accordance with the terms of the trust deed. The beneficiaries of
the trust will receive the benefits of the trust, such as income or capital gains.

A business trust can be a useful structure for businesses in South Africa, as it provides
a way to hold and manage assets separate from the business itself. This can help to
protect the assets from creditors and other risks associated with the business.