FORMS OF BUSINESS ENTERPRISE International Senior Law Project Commercial Law Programme Windhoek 2009

1. FORMS OF BUSINESS ENTERPRISEInternational Senior Law Project Commercial Law ProgrammeWindhoek 2009

2. Introduction Skills essential to advising on the optimal Business Enterprise for your client - Understand the client, as well as the client�s business needs Understand the client�s strategic objectives for the transaction at hand Have a good understanding of commerce fundamentals Have an ability to add value to your client�s business interests (protect, preserve, enhance)

3. Forms of Business Enterprises Business can be conducted through various Business Enterprises (vehicles), including - Sole proprietorships Partnerships (joint venture) Companies (private or public) Close Corporations Business Trusts Co-operatives

4. Why choose one business vehicle above another? Number of participants Participation in management Question of personal liability - legal persona Existing rights (e.g. difficulty in transferring) Tax and Finance considerations Costs and ease of setting up, administering and operating the enterprise

5. Sole Proprietor An individual conducts business in his/her own name (may have a trading name) All profits and benefits accrue to the individual All risk and liability vests in the individual All contracts are concluded in the individual�s name Advantages/Disadvantages?

6. Partnership Two or more �partners� agree to establish a partnership in terms of which - they will each make a contribution to the partnership their aim is to generate profit, which will be shared, among them the partnership will be operated for the partners� joint benefit A partnership is not a separate legal entity, which stands apart from the individual partners � so individual partners are liable for partnership liabilities

7. Partnership � Formalities Because a partnership arises from a contract � must comply with all the usual contracting requirements (contractual capacity, consensus, contract must be lawful, performance must be lawful) No formal requirements - contract may be concluded orally, in writing or tacitly Essential elements (�Essentialia�) for establishing a partnership must be present May generally not have more than 20 partners (South Africa) Legal entities may also be parties to a partnership

8. Essentialia of a Partnership Contribution � each partner must make a contribution or undertake to make a contribution it may be property, services, skills and/or capital contribution must have a commercial value Objective of making a profit To be divided among the partners � the parties must intend to make a gain or profit in which each partner may expect to share. No partnership can exist without community of profit Joint benefit of the parties � each partner must benefit from the partnership

9. Partnership � Naturalia The natural consequences (�Naturalia�) of a partnership � these are consequences which apply by operation of law. These consequences can be excluded by the partnership contract Mutual mandate � unless there is an agreement to the contrary, each partner has the � capacity to perform any legal act on behalf of partnership can bind the partnership and a third party can hold partnership liable � must only prove contract fell within the sphere activity of the partnership business The proportion in which the net profit is shared is linked to Contributions made by the Partners

10. Rights and Duties of Partners The obligation to share in the net loss � a partner may validly be excluded from the obligation to share in a net loss The proportion in which the net loss is shared The proportion in which the assets are divided upon dissolution The proportion in which the partners are co-owners of the assets of the partnership � the assets of the partnership do not belong to the partnership but to the partners jointly

11. Rights and Duties of Partners Duty of utmost good faith must be shown among the partners Termination or Dissolution of a Partnership - terminated or dissolved by agreement operation of law Happening of an event the unilateral act of one of the partners Consequences of dissolution Liquidation of partnership

12. Companies Main advantage of a company as form of business enterprise is � That it has separate legal or juristic personality Perpetual succession Tax flexibility of income A company cannot have exactly the same rights as a human being � it has to work through its organs Acquires legal personality with rights and duties of its own In certain circumstances the courts disregard the separate legal personality of a company (�pierce the corporate veil�)

13. Company Laws Formation, Membership and types of Company Procedure for registering a company Memorandum of Association and Articles of Association of a company � regulate to administration of the Company Company law is based on the principle of majority rule Minority shareholders may institute common-law and statutory actions Two types of company namely Companies with a share capital Companies limited by guarantee A company with a share capital can either be a public company or a private company � a company limited by guarantee (Section 21 Company) � liability is limited by its memorandum of association

14. Companies - the current possibilities The following is a diagrammatic exposition of the types of companies:

15. Companies Members and shareholders Company organs and officers The fiduciary obligation of the directors of a company Share capital is the amount contributed to the company by the shareholders in order to conduct its business Rules exist to govern the maintenance of share capital and to prohibit reductions of share capital, to the detriment of creditors

16. The Close Corporation Has the advantage of separate legal personality � normally for a small business undertaking Formation and membership of a close corporation Acquires legal personality upon its registration with the Registrar of Close Corporations Membership of a close corporation is limited to 10 or fewer (natural) persons Any member is an agent of the corporation with regards to a person who is not a member and who is dealing with the corporation A close corporation has no organs. Its members fulfill both management and control functions in the normal course of events. Fiduciary duties and duties of care and skill to corporation, are similar to those owed by directors to a company Consent in writing of members or member holding at least 75 percent of member�s interest required for certain acts

17. The Close Corporation (cont) Capital of the enterprise A close corporation does not issue shares, but only has member�s interest Maintains the capital of the enterprise by protecting the solvency and liquidity of the corporation Representation of a close corporation Any member of a corporation has the capacity to act as its agent and by doing so binds the corporation Conversions Companies may be converted into close corporations and vice versa

18. The Business Trust Introduction A business trust is any trust used to carry on a business for profit Very flexible Object Object of making a profit in order to benefit the trust beneficiary or beneficiaries Requirements Specific aspects Not a separate legal person Trustees act on behalf of trust and hold trust assets Continues for as long as stipulated in Trust Deed

19. Co-operatives Definition Separate legal persona on registration � of its own kind; Promotes the business of its members and acts as their agent Characteristics of a co-operative: Must be registered with Director of Co-ops Membership is contractual � and no numeric restriction Name must include the word �co-operative and �LTD� as last word Members are issued with �shares� Affairs are managed by a board of directors Profits are distributed as bonuses or surplus