Commerce
One of the most important decisions confronting an individual setting out to conduct business is the choice of the appropriate legal form for the business enterprise. This choice is important insofar as risk, protection from creditors, taxation, estate planning and succession is concerned.
Such a decision will inter alia have to be based on considerations concerning the attributes of each entrepreneurial form as well as its advantages and drawbacks. The five most important business enterprises which are used most frequently as currently in South Africa are:
- The Sole Proprietorship
- The Partnership
- The Close Corporation
- The Company
- The Business Trust
THE SOLE PROPRIETORSHIP
The Sole Proprietorship is the most general form of business entity involving only one person and thus an appropriate form of business enterprise for the small businessman. As proprietor of the business the owner carries the full risk in respect of the business as there is no distinction between his private assets and the assets of the business. This may result in the sequestration of the owner’s personal estate and in the event of such owner being married in community of property, the estate of his/her spouse. The income of the business is taxed on the normal scale applicable to married or unmarried individuals.
THE PARTNERSHIP
A close corporation is a business entity registered in accordance with the Close Corporation Act. A close corporation is a separate legal persona as it can acquire its own rights and obligations independent to its members whose liability will be limited to the contributions of the members. A close corporation is a simple, cheap and more flexible type of business entity for the small enterprise. The undertaking has relatively few members and enjoys the advantage of having a separate legal personality. A close corporation will enjoy perpetual succession in that it continues despite the death or other incapacity of its members unlike in the event of a Sole Proprietorship or Partnership, which would terminate upon the happening of such events.
CLOSE CORPORATION
A close corporation is a business entity registered in accordance with the Close Corporation Act. A close corporation is a separate legal persona as it can acquire its own rights and obligations independent to its members whose liability will be limited to the contributions of the members. A close corporation is a simple, cheap and more flexible type of business entity for the small enterprise. The undertaking has relatively few members and enjoys the advantage of having a separate legal personality. A close corporation will enjoy perpetual succession in that it continues despite the death or other incapacity of its members unlike in the event of a Sole Proprietorship or Partnership, which would terminate upon the happening of such events.
COMPANIES
A company is an entity registered in accordance with The Companies Act and endows such a body with a separate legal identity. A company has a separate legal persona, thus the company exist independently of its members and the assets of the company belong to the company itself. A company can acquire its own rights and obligations independent of its shareholders whose liability save in the event of such shareholder having bound himself as surety, will be limited to the contributions of the shareholders. A company will enjoy perpetual succession in that it continues despite the death or other incapacity of its shareholders. The shareholders of a company as the contributors of capital do not necessarily participate in the day-to-day running or management of the business which functions are entrusted to Directors appointed by such shareholders. A company mobilising capital from the general public may be registered as a public company and may or may not in turn be listed on the Stock Exchange. The Private Company (Pty) Ltd is aimed at the small enterprise not reliant upon public funding.
BUSINESS TRUST
The trust is a legal concept, which may be utilised for a variety of purposes, amongst other for carrying on a business. A business trust is delivered as a trust where the trustee does not simply protect and manage the trust assets but uses these for carrying on a business for profit in order to benefit the trust’s beneficiary or to further the assets of the trust.
The Donor is the person who donates funds or assets for the ultimate benefit of the beneficiaries. Trustees are appointed in accordance with the Trust Deed and are responsible for the management and control of the trust property. The beneficiaries are the persons who are nominated within a Trust Deed and who benefit in respect of the trust property. The beneficiaries either have a vested or non-vested right to the beneficial interest to the Trust. The Trustees have the power to decide when to distribute the Trust Income or capital.
The Beneficiary in respect of a discretionary trust has no vested right to the beneficial interest and/or trust assets and thus has no attachable assets in his own personal estate other than any potential loan account which may accrue to him. The utilisation of a business trust is not a favourable option. Generally the most favourable option is either a close corporation or a company.
Kindly contact Spencer-Pitman Inc directly as they have “Shelf” Corporations or Companies available for immediate use.
Insolvency law
a deceased estate and a married couple’s joint estate are sequestrated while a company or close corporation is liquidated. In simplified terms, if a person’s debt has become too great and is impossible to manage and such person’s liabilities exceed his/her assets, the individual is insolvent (bankrupt). In certain cases such a person can eliminate his debt and re-obtain a normal life free of debt.
This is done by way of a procedure involving an application to court for the sequestration of such a person’s estate. Upon sequestration, a trustee is appointed by the Master of the High Court, who is placed in control of the insolvent’s estate. Creditors are then no longer able to pursue the insolvent directly. There is a misconception that the insolvency procedure has been created to allow the people to incur debt and walk away.
This is not the case, as it is the trustee’s duty to guard creditor’s interests and an application for the sequestration of a debtor’s estate can be a very effective procedure to compel the debtor to pay. The insolvency procedure is therefore to the advantage of both insolvents and creditors alike.
WHAT ARE THE REQUIREMENTS ?
- Your liabilities must exceed your assets.
- The sequestration or liquidation must be to the advantage of your creditors.
- There must be sufficient free residue (in other words assets) to pay the costs of the sequestration or liquidation application.
VOLUNTARY SEQUESTRATION
This is where a debtor applies to court for the sequestration for his own estate. The following persons may apply:
- Estate of natural person: the debtor or his agent.
- Partnership: all the partners resident in South Africa or their agent.
- Estate of a deceased debtor: executer.
- Joint estate of spouse married in community of property: both spouses.
- Estate of person unable to manage in community of property: both spouses.
- Estate of person unable to manage his own affairs: curator bonis.
COMPULSARY SEQUESTRATION
An application for compulsory sequestration is brought when a creditor applies to court for the sequestration of his debtor’s estate.
An applicant for the compulsory sequestration of a debtor’s estate needs to know that:
He has established a claim, which entitles him to apply for the sequestration of the debtor’s estate.
The debtor is actually insolvent, ie his liabilities, fairly estimated, exceed his assets, fairly valued; OR the debtor has committed an Act of Insolvency.
There is a reason to believe that it will be to the advantage of creditors if the debtor’s estate is sequestrated
LIQUIDATION
The court may liquidate companies for a variety of reasons. In liquidation applications you have to establish commercial insolvency. This means an inability to pay debts as and when they become due in the ordinary course of business.
METHODS
- Compulsory liquidation by the court.
- Voluntary liquidation by a creditor or a member.
- Liquidation of a close corporation.
Once a liquidation order has been made by the court, a liquidator is then appointed by the Master of the High Court. The Master’s duty is to take control of all assets, convert dues to cash and then to pay creditors in proportion to their claims.
REHABILITATION
Subject to complying with certain requirements, an insolvent can be rehabilitated (ie. He can be declared no longer insolvent). Generally this can happen four years after the date upon which the insolvent’s estate was sequestrated. However under certain circumstances this can take place sooner.
Rehabilitation occurs automatically after 10 years have lapsed. Rehabilitation is a discretionary remedy and the court may impose conditions in its order rehabilitating the insolvent.
The rehabilitation of an insolvent puts an end to the sequestration and relieves the insolvent of every disability resulting from the sequestration. It also discharges all the debts of the insolvent, which were due, or the cause of which had arisen, before the sequestration.
Matrimonial law
There are various forms of matrimonial property systems available in South African law. A marriage can be concluded In Community Of Property or Out Of Community Of Property.
If the marriage is concluded Out Of Community Of Property the Accrual System can be included or excluded.
Various factors such as Insolvency, death or divorce must be considered when making a choice of marital system.
Other special considerations should also be taken into consideration such as age, financial circumstances, prospects and personal preferences of the parties.
IN COMMUNITY OF PROPERTY
In South Africa the standard form of marriage is in Community Of Property. This means that two estates are joined and each spouse owns an undivided half share. Each party has the right of disposal over the assets of the joint estate.
Although consent is required from the other party to alienate or encumber estate assets, written consent is only required in certain cases.
Creditor’s may seize the entire estate to satisfy debts of either party. Thus on insolvency the whole estate is lost.
Upon termination of the marriage by death or divorce, assets which are not always capable of division have to be divided or sold. Marriage In Community Of Property is not ideal for individuals who intend to partake in business ventures.
OUT OF COMMUNTIY OF PROPERTY
This is the form of marriage where by means of an ante-nuptial contract, community of property and profit and loss is excluded.
The contract is registered in the Deeds Office. The Ante-Nuptial Contract provides that in respect of property and contracts, there is no change in the legal status of the parties. Each has his/her own estate. Neither party is liable for the debts of the other.
The parties are entitled to enclose any conditions in an ANC provided that such conditions are legal and morally correct.
There are two types of ANC, namely one which specifically excludes the accrual system or one in which the Accrual System is applicable.
The exclusion of the Accrual System has the legal effect that both parties lead completely separate financial lives and that neither party has a claim against the other on termination of the marriage.
ACCRUAL SYSTEM
When the Accrual System is applicable each spouse still retains financial and legal independence and equality. However when the marriage is terminated either by death or divorce the accruals of each separate estate excluding inheritance and donations received during the subsistence of the marriage and any other accruals specifically excluded by the parties are divided equally or in agreed proportions. At the commencement of the marriage the parties declare the value of their separate estate and this value will increase according to the consumer price index to determine its present day value as previously declared in the Ante-nuptial contract.
Upon termination of the marriage the value of the two estates are compared. The smaller growth value is then deducted from the larger growth value and the balance is divided between the parties in equal shares.
The Accrual System if used may apply specifically to certain assets or it may exclude certain assets.
Conveyancing
Conveyancing Attorneys are highly specialised in property matters. They are bound by the rules of the Law Society of the Cape of Good Hope and must be in possession of a valid Fidelity Fund Certificate, which will protect the client’s money when it is held in a trust account.
The typical procedure could be as follows:
The Conveyancer contacts a Financial Institution, usually a bank, advising them of the sale of the property. The Conveyancer then furnishes the bank with the Title Deed of the property for sale. The bank advises the Conveyancer of the outstanding balance or settlement amount of the Bond owing on the property. The existing Bond is cancelled and the signed document is lodged at the Deeds Office.
The Conveyancer gives the Bondholder Attorneys assurance that the payment of any money due will be made on the date of registration of the property at the Deeds Office.
It is the Convenacer’s duty to contact the relevant Municipality which has jurisdiction over the area in which the property is situated to request, a valuation certificate which details the valuation of the property. This document is needed in order to obtain a transfer duty receipt from the Receiver of Revenue.
The transfer of the property may only be registered in the Deeds Office after the Municipality has provided the Clearance Certificate. The Rates Clearance Certificate is only issued once the full amount of rates payable on the property to the end of the current rates year has been paid in advance.
The Conveyancer drafts a Power of Attorney whereby the Seller authorises the Conveyancer to act on his behalf for purposes of registering the transfer of ownership of the property at the Deeds Office.
Declarations must be drafted on behalf of both the Purchaser and the Seller and must be furnished to the Receiver of Revenue. Transfer Duty is payable to the Receiver of Revenue on the sale of the immovable property.
The Purchaser and the Seller must provide affidavits duly signed by themselves confirming their correct names, identity numbers, marital status and solvency.
The Purchaser is liable to settle the transfer costs which are comprised of :
- Conveyancer’s own fees plus VAT thereon;
- the cost of the valuation certificate;
- the transfer duty;
- the deeds office fee;
The financial institution which is instructed to grant the Purchaser a bond must notify the Conveyancer thereof. The Conveyancer then furnishes the bond attorneys with a copy of the new title deed of the property. This document contains the description of the property which is to be bonded and the details of the Purchaser. The Purchaser is liable to pay the costs of the bond attorneys for drafting the documentation on the Purchaser’s behalf.
When all the relevant documentation has been finalised the Conveyancer arranges a simultaneous “lodgement” at the Deeds Office. On the prearranged date all the attorneys simultaneously hand in their documentation to the Deeds Office. These documents are then allocated to a specific examiner who inspects all the documents and approves it for registration. This procedure could last for approximately 10 working days in the Deeds Office.
Wills
We provide legal services with regard to Estates and Trusts, drafting of Wills and services provided in relation to wills and estates.
By having a correctly drafted Will one can be assured that one’s loved ones are well provided for as all one’s property needs are taken care of.
A person who dies without a Will, dies “intestate”. When a person dies intestate, the state is appointed to distribute his assets. In the event of there being minor children the state appoints Guardians for such children who are responsible for them.
A Will is the foundation for effective financial and estate planning and we urge you to contact us immediately should you not have a current Last Will and Testament.
It is essential to have a properly drafted Will so as to assure one’s peace of mind.
We assist our clients by providing:
- The preparation of Wills
- Estate planning
- The creation of Trusts
- The administration of Estates
- Curatorships
Labour law
Labour Relations in South Africa are governed by the Labour Relations Act of 1995 and further Acts promulgated since 1996.
The contract of employment and the employment relationship are regulated by the Basic Conditions of Employment Act of 1997, the Wage Act and the provisions of the Labour Relations Act.
The Employment Equity Act makes provision for the abolishment of discrimination in all employment policies, practices, procedures and the labour market. It also provides for the implementation of affirmative action in respect of previous disadvantaged persons in the work place.
The Basic Conditions of Employment Act provides for the minimum terms of which employees must be employed in regard to. The Act governs areas such as annual leave, sick leave overtime, and daily and weekly maximum working hours. Certain provisions of the Act are regarded as terms of an employment contract whether or not the employer and employee make provision therefor. The Wage Act establishes minimum wages and conditions of service for particular industries and trades.
The Labour Relations Act restricts unfair labour practices of specific acts on the part of the employer. The Act has codified principles relating to the requirements that dismissals be substantively and procedurally fair.
The Labour Relations Act aims to encourage voluntary collective bargaining and the settlement of disputes.