Sole Proprietor & Partnerships

Question 1

What are the sources of South African corporate law?

Answer 1

Common Law, Close Corporations Act 69 of 1984, Companies Act 61 of 1973, Companies Act 71 of 2008, Roman and Roman Dutch principles.

Question 2

What is a sole proprietorship?

Answer 2

The simplest form of business owned by one person, governed by common law.

Question 3

What defines a partnership?

Answer 3

A legal relationship arising from an agreement between two or more people to operate a business.

Question 4

What is a close corporation?

Answer 4

A business organization that operates as a company but has simpler rules and is easier to run.

Question 5

What types of companies are defined in the Companies Act 71 of 2008?

Answer 5

• Profit companies
• Nonprofit companies
• State-owned companies
• Personal liability companies

Question 6

What is the legal implication of a sole proprietorship?

Answer 6

The business does not form a separate legal entity; the owner is personally liable for business debts.

Question 7

What is meant by ‘unlimited liability’ in a sole proprietorship?

Answer 7

The owner’s personal assets are at risk if the business incurs debts it cannot repay.

Question 8

What are the advantages of a sole proprietorship?

Answer 8

• Easy to start and terminate
• Lower overhead costs
• Freedom to adjust the business
• No joint and several liability for associates’ debts

Question 9

What are the disadvantages of a sole proprietorship?

Answer 9

• No limited liability
• No perpetual succession
• Limited access to capital
• Cannot accommodate more than one owner
• Limited business skills of the owner

Question 10

What are the essential characteristics of a partnership?

Answer 10

• Legal relationship
• Agreement between parties
• Contribution of money, property, labor, or skill
• Profit-sharing among partners

Question 11

What is the requirement for the number of partners in a partnership?

Answer 11

Must have two or more persons but not exceed twenty.

Question 12

What is the principle of joint and several liability in partnerships?

Answer 12

Partners are jointly and severally liable for the debts of the partnership.

Question 13

What are the essentials of a partnership according to the court?

Answer 13

• Contribution
• Joint benefit
• Making and sharing profits and losses
• Lawfulness

Question 14

What does the ‘substance versus form’ test entail?

Answer 14

A court examines the true nature of arrangements rather than relying on labels or forms.

Question 15

What is the consequence of dissolution on a partnership?

Answer 15

Legal grounds for dissolution affect liability and external relations.

Question 16

Fill in the blank: A partnership is formed by a _______ between two or more persons.

Answer 16

[agreement]

Question 17

True or False: A partnership is considered a separate legal entity from its members.

Answer 17

False

Question 18

What is the impact of partnership property ownership?

Answer 18

Partnership property is co-owned by the partners.

Question 19

What does the term ‘perpetual succession’ refer to in business entities?

Answer 19

The ability of a business to continue its existence beyond the life of its owners.

Question 20

What are the components of the essentialia of a partnership?

Answer 20

• Contribution
• Lawful purpose
• Joint benefit
• Profit-sharing

Question 21

What do profits in a partnership context refer to?

Answer 21

Net profit, not gross profit

This distinction is important for understanding the financial outcomes of a partnership.

Question 22

What is one of the four essentials of a partnership?

Answer 22

Making and sharing profits and losses

The object of a partnership must be to make a profit.

Question 23

In the case of S v Perth Dry Cleaners & Launderers, what did the court determine regarding partnership?

Answer 23

The business was not capable of making profit and thus inconsistent with partnership

This highlights the necessity of profit-making capacity for a valid partnership.

Question 24

Does a partnership cease to exist if profits are not realized due to poor trading conditions?

Answer 24

No, the partnership will not cease to be a partnership

The intent to make a profit is what matters, not the actual realization of it.

Question 25

How do partners usually share profits if not fixed by agreement?

Answer 25

According to the proportions contributed to the partnership ## Footnote This principle ensures fairness in profit distribution.

Question 26

What was held in Fink v Fink regarding profit sharing?

Answer 26

Partners may not share equal profit if they did not contribute equally ## Footnote This ensures equity based on contribution.

Question 27

What is required for the establishment of a partnership?

Answer 27

An express or implied agreement between potential partners ## Footnote No formalities are needed for a partnership to exist.

Question 28

What did the court decide in V v De Wet regarding partnership agreements?

Answer 28

If all essentials are present, it is concluded as a partnership ## Footnote This emphasizes the importance of essentialia in partnerships.

Question 29

What is an extraordinary partnership?

Answer 29

Partnerships with unique characteristics suited for investors only ## Footnote These include anonymous partnerships and partnerships en commandite.

Question 30

What defines an anonymous partnership?

Answer 30

One or more partners are not known to the public ## Footnote This allows for financial participation without public disclosure.

Question 31

What is the liability of an anonymous partner?

Answer 31

Not liable to the creditors of the partnership ## Footnote This protects anonymous partners from personal liability.

Question 32

What is a partnership en commandite?

Answer 32

A partner with limited liability up to their agreed contribution ## Footnote This concept allows for reduced risk for certain partners.

Question 33

What must partners in a partnership do according to fiduciary duties?

Answer 33

Act in good faith and in the best interests of other partners ## Footnote This creates trust and accountability among partners.

Question 34

What are the consequences of breaching fiduciary duty?

Answer 34

Contracts entered in breach may be unenforceable and a partner may face dissolution claims ## Footnote Breach of fiduciary duty can seriously impact partnership stability.

Question 35

What is the duty to account in a partnership?

Answer 35

Each partner must account for what he has received in pursuit of the business ## Footnote This ensures transparency and fairness in profit distribution.

Question 36

What is joint and several liability in a partnership?

Answer 36

Each partner is liable for the entire debt incurred by the partnership ## Footnote This means a creditor can pursue any partner for the full amount owed.

Question 37

What can lead to the dissolution of a partnership?

Answer 37

Lapse of time, completion of partnership business, agreement, change of membership, death, or court order ## Footnote These factors can terminate the partnership relationship.

Question 38

What happens to the partnership upon the death of a partner?

Answer 38

The partnership is terminated unless otherwise agreed ## Footnote This underscores the precarious nature of partnerships.

Question 39

What is the partner's obligation when entering into a contract on behalf of the partnership?

Answer 39

All partners are bound to that transaction ## Footnote This reinforces the collective responsibility of partners.

Question 40

What was determined in the case of Curtis and Curtis v Beart regarding partnership dissolution?

Answer 40

Misconduct causing loss of confidence is grounds for dissolution ## Footnote This highlights the serious nature of partner relationships.

Question 41

What is the consequence of partnership dissolution?

Answer 41

The partnership is terminated, but partners may still be liable to third parties ## Footnote Notice of dissolution is crucial to limit liability exposure.

Question 42

What is Sipho's argument for a larger share of the profits?

Answer 42

Sipho feels entitled to a larger share of the profits because he contributed the most in capital. ## Footnote This raises questions about the agreement on profit-sharing among partners.

Question 43

What do Lerato and Themba argue regarding profit sharing?

Answer 43

Lerato and Themba insist that profits should be shared equally as initially agreed. ## Footnote This reflects the importance of adhering to initial agreements in partnerships.

Question 44

Did Sipho consult with the other partners before signing the lease agreement?

Answer 44

No, Sipho signed a lease agreement without consulting Lerato and Themba. ## Footnote This action raises issues of decision-making authority within the partnership.

Question 45

What are Lerato and Themba's feelings about the lease agreement signed by Sipho?

Answer 45

Themba and Lerato are unhappy about the high rental costs and the lack of consultation. ## Footnote This indicates a potential conflict in partnership governance.

Question 46

What action did Sipho take that raised concerns of breach of fiduciary duty?

Answer 46

Sipho diverted potential clients to a separate company he registered in his name without informing the other partners. ## Footnote This could constitute a serious breach of fiduciary duty to the partnership.

Question 47

What are Lerato and Themba considering in light of Sipho's actions?

Answer 47

Lerato and Themba are considering dissolving the partnership. ## Footnote Dissolution could be a response to breaches of trust and fiduciary duty.

Question 48

Was a valid partnership formed between Sipho, Lerato, and Themba?

Answer 48

Yes, a valid partnership was formed, supported by essential elements required under South African law. ## Footnote Essential elements include mutual consent, a lawful purpose, and sharing of profits.

Question 49

Is Sipho entitled to a greater share of the profits due to his capital contribution?

Answer 49

No, Sipho is not entitled to a greater share of the profits unless agreed otherwise. ## Footnote Profit-sharing should reflect the initial agreement unless a written contract states otherwise.

Question 50

How should profits and losses be shared in the absence of a written agreement?

Answer 50

Profits and losses should be shared equally among partners in the absence of a written agreement. ## Footnote This is a common practice unless otherwise specified.

Question 51

Was Sipho allowed to sign the lease agreement without consulting others?

Answer 51

No, Sipho was not allowed to sign the lease agreement without consulting the other partners. ## Footnote This raises questions about authority and decision-making within the partnership.

Question 52

Do Sipho's actions bind the partnership?

Answer 52

Yes, Sipho's actions may bind the partnership, depending on the authority granted to him. ## Footnote This relates to the principles of agency in partnership law.

Question 53

Has Sipho breached his fiduciary duties as a partner?

Answer 53

Yes, Sipho has breached his fiduciary duties by diverting clients. ## Footnote Fiduciary duties require partners to act in the best interests of the partnership.

Question 54

What are the possible legal consequences of Sipho's actions?

Answer 54

Possible legal consequences include dissolution of the partnership and liability for damages. ## Footnote Legal actions can vary based on the severity of the breach.

Question 55

What grounds do Lerato and Themba have for dissolving the partnership?

Answer 55

They have grounds due to breach of fiduciary duty and lack of consultation in decision-making. ## Footnote Grounds for dissolution can be based on misconduct or significant disagreements.

Question 56

What legal process must be followed for the dissolution of the partnership?

Answer 56

A formal process must be followed, which includes notifying all partners and possibly filing documents with legal authorities. ## Footnote The exact process may vary based on jurisdiction.

Question 57

What are the consequences of dissolving a partnership?

Answer 57

Consequences include the distribution of assets and liabilities, and possible legal disputes. ## Footnote Dissolution can lead to complex legal and financial implications.