Basic Business Law. Lesson 7. Smaller Business Entities

More documents

Recommendations

Info

Partnerships also has structural limitations that can inhibit their growth. • The capital that can be raised from the partners is limited to the number of partners. • There is instability in existence. - A successful firm can be dissolved on the death, insolvency, or lunacy of a partner • It is difficult to value the time and skills of the different partners. • The firm may lack public confidence. There is no legal obligation to publish accounts, and this could lead to public mistrust. • The risk of loss of private property influences the partners to avoid risk and play it safe. • Profits must always be shared with others. 2.5. The rights of a partner in a business partnership A partner in a business partnership has the right to take part in the day-to-day management of the firm. This means that he must be consulted and heard when decision regarding the business is made, have access to the books and accounts of the business and has the right to use the property of the partnership. Partners have the right to represent the business and to bind the firm contractually. Each partner has the right to share in the profits as agreed by the partners and to get interest on capital contributed to the business. Every partner has the right to prevent the admission of new partners or the expulsion of existing partners, and a partner may retire with the consent of other partners. 2.6. The duties of a partner Each partner has the duty to carry on with business, show good faith and take reasonable care in conducting business. This duty involves all of the following: • The partners must use their knowledge and skill to secure maximum benefits for the firm. • The partners must observe good faith and fairness towards each other. • The partners must give true and proper financial accounts to each other. o A partner must explain his expenses if demanded to do so by the other partners. o A partner must pay over personal profit from a partnership activity to the company. • A partner must provide full information of activities affecting the firm to his co-partners. • Every partner must attend diligently to his/her duties in the conduct of the business. • The partners must hold and use the partnership property exclusively for the purpose of business. • A partner may not compete with the partnership. While each party has the right to share in the profits, they also have the duty to share in the losses of the partnership. This duty involves all of the following: • Partners are jointly and individual liable to third parties for all successful claims resulting from business activities. • Partners share the losses equally when there is no agreement regarding their profit share ratio. • If any loss is caused to the company because of fraud committed by a partner or the wilful neglect of a partner, then such a partner must indemnify the firm for the loss. • A partner is bound to act within the scope of authority. If the authority is exceeded and the business suffers a loss, then he/she shall have to compensate the business for the loss.
A partner cannot assign or transfer his partner interest to an outsider, and so make that person a partner in the firm without the consent of other partners. He is free to assign his share of the profit and his share in the assets of the firm, but then the assigned person will not be entitled to interfere in the conduct of the business. A partner is not entitled to receive any kind of remuneration for taking part in the conduct of the business. But in practice, the working partners are paid remuneration and commission as they agreed. 2.<strong>7.</strong> The extend of the liabilities of a partner to third parties. Every partner is jointly and severally liable for all acts of the business done while he is a partner. A creditor of the business can sue all the partners jointly or individually. If any loss or injury is caused to a third party or a penalty is imposed because of the wrongful act (or omission) of a partner, the company is liable to the same extent as that partner. When a partner, who seems to be acting within his authority, receives money or property from a third party and then misuses it, the business can be held liable for the abuse of the money or property. The same will apply where a firm receives money or property from a third party in the course of its business and any of the partners misuses the money or property. An incoming partner is liable for the debts and acts of the business from the date of his admission into the business, while a retiring partner is liable for the acts of the business done before his retirement. A retiring partner will remain liable until a public notice of his retirement is given. 3. The future of close corporations Close Corporations are often small, practical, and less formal business entities and are characterised in name by the letters CC at the end of it. For example “Timeless Operations CC”. Under the Companies Act of 2008, smaller businesses will no longer be subject to strict financial reporting and auditing requirements. This allows companies with similar characteristics to that of close corporations to be formed and means there is no longer a need for close corporations. Existing close corporations will continue to exist indefinitely and will still be governed by the Close Corporations Act 69 of 1984. In effect they will be treated as private companies, and the Close Corporations Act will be brought into line with legislation on private companies. It is no longer possible to register any new close corporations or to convert a company into a close corporation. 4. Trusts 4.1. The Nature of a trust A trust is a structure to which property is transferred and is then administered by trustees on behalf of one or more beneficiaries, in accordance with the trust instrument which could be a trust deed or a will.
Page 1 and 2: Basic Business Law Lesson 7: Smalle
Page 3: The partners have a personal intere
Page 7 and 8: Trusts classified on the basis of t
Page 9: 5.3. The duties of the parties to a

Basic Business Law. Lesson 7. Smaller Business Entities

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?