SOLE PROPRIETORSHIP & PARTNERSHIPS

Question 1

What is corporate law?

Answer 1

Rules and regulations that govern the formation of companies, close corporations, sole proprietorships, and partnerships

Includes Common Law, Close Corporations Act 69 of 1984, Companies Act 61 of 1973, and Companies Act 71 of 2008

Question 2

What is a sole proprietorship?

Answer 2

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

Question 3

What is a partnership?

Answer 3

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

Question 4

What is a close corporation?

Answer 4

Operates as a company with simpler rules and a maximum of 10 members, governed by the Close Corporation Act

Question 5

What are profit companies?

Answer 5

Companies formed with the purpose of financial gain, may be private or public

Question 6

What are non-profit companies?

Answer 6

Companies not formed for financial gain, requiring a minimum of 3 incorporators

Question 7

What are state-owned companies?

Answer 7

Companies owned by the state to undertake commercial activities

Question 8

What are personal liability companies?

Answer 8

Companies with separate legal personality where directors are jointly liable for debts

Question 9

What is the main feature of a sole proprietorship?

Answer 9

It does not form a separate legal entity distinct from its owner

Question 10

What is ‘unlimited liability’ in the context of a sole proprietorship?

Answer 10

The personal assets of the owner are at risk for business debts

Question 11

What does ‘no perpetual succession’ mean for a sole proprietorship?

Answer 11

The business terminates when the owner dies

Question 12

What are the advantages of a sole proprietorship?

Answer 12

• Easy to start
• Lower overhead costs
• Freedom to adjust the business

Question 13

What are the disadvantages of a sole proprietorship?

Answer 13

• No limited liability
• Limited access to capital
• Cannot accommodate more than one person

Question 14

What defines a partnership?

Answer 14

A legal relationship created by a contract between two or more persons for mutual benefit

Question 15

What are the essential components of a partnership?

Answer 15

• Legal relationship or association
• Agreement between parties
• Contribution of money, property, labor, or skill
• Joint benefit

Question 16

What is the maximum number of persons allowed in a partnership as per the Companies Act 61 of 1973?

Answer 16

Twenty persons

Question 17

In a partnership, what does ‘jointly and severally liable’ mean?

Answer 17

Partners are individually responsible for the debts of the partnership

Question 18

What is meant by ‘substance versus form’ test in partnerships?

Answer 18

A court examines the facts of the arrangement rather than the labels given to it

Question 19

What is a key requirement for contributions in a partnership?

Answer 19

Each partner must bring something of commercial value to the partnership

Question 20

What is the significance of ‘making and sharing profits and losses’ in a partnership?

Answer 20

The object of a partnership must be to make a profit

Question 21

What happens if the purpose of a partnership is not profit-making?

Answer 21

It is not considered a partnership

Question 22

What is the recommended practice for establishing a partnership?

Answer 22

It is recommended to reduce the agreement to writing for protection

Question 23

What did the court hold in Fink v Fink regarding profit sharing?

Answer 23

It is impossible to accept that partners may share equal profit whereas they did not contribute equally to the partnership.

Fink v Fink 1945 WLD 226

Question 24

What is required for the establishment of a partnership?

Answer 24

An express or implied agreement between potential partners containing the essentialia of a partnership.

A written agreement is recommended for protection.

Question 25

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

Answer 25

Where all essentials are present, the court must conclude it is a partnership unless evidence shows otherwise. ## Footnote V v De Wet 1953 (1) SA 612

Question 26

What is a key factor in assessing the existence of a partnership agreement?

Answer 26

The intention of the parties to associate themselves as partners.

Question 27

What are silent partnerships also referred to as?

Answer 27

Extraordinary partnerships.

Question 28

What defines an anonymous partnership?

Answer 28

One or more partners is not known to the general public. ## Footnote Requires at least three partners to avoid the assumption of a sole proprietorship.

Question 29

What is the liability of an anonymous partner?

Answer 29

Not liable to the creditors of the partnership, but liable to other partners for their pro rata share.

Question 30

What is a partnership en commandite?

Answer 30

A partner is only liable for debts up to the amount of his agreed contribution. ## Footnote The liability is limited compared to an ordinary partner.

Question 31

What did the court determine in Eaton & Louw v Arcade Properties about anonymous partnerships?

Answer 31

An anonymous partnership is created where parties agree to share profits while some partners remain anonymous. ## Footnote Eaton & Louw v Arcade Properties (Pty) Ltd 1961 (4) SA 233 (T)

Question 32

What is the nature of the relationship between partners?

Answer 32

A relationship of utmost good faith (uberrimae fidei).

Question 33

What regulates the internal relationships of partners?

Answer 33

A partnership agreement or, in its absence, the implications of law.

Question 34

What is the default assumption regarding partner management?

Answer 34

All partners are entitled to take part in management unless agreed otherwise.

Question 35

What happens if one partner makes a decision regarding the partnership business?

Answer 35

All partners are bound by that decision.

Question 36

What is the characteristic of partnership property?

Answer 36

Partnership property is jointly owned by the partners.

Question 37

What is a fiduciary duty in the context of partnerships?

Answer 37

Partners must act in good faith and in the best interests of each other.

Question 38

What are the consequences of breaching fiduciary duty?

Answer 38

Contracts may be unenforceable, a partner cannot buy from partnership property without consent, and breach entitles a co-partner to claim dissolution.

Question 39

What must each partner do regarding profits?

Answer 39

Account to the others for what he has received in pursuit of the business.

Question 40

What is the concept of joint and several liability?

Answer 40

Each ordinary partner is liable for the debts of the partnership, and creditors may sue any partner for the entire debt.

Question 41

What are the ways a partnership may be dissolved?

Answer 41

Lapse of time, completion of partnership business, agreement, change of membership, death, court order.

Question 42

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

Answer 42

The partnership is terminated unless there was an agreement to continue.

Question 43

What are the consequences of the dissolution of a partnership?

Answer 43

The partnership is terminated, but partners may still be liable if third parties were unaware of the dissolution.

Question 44

Fill in the blank: A partnership may be dissolved by _______.

Answer 44

agreement.

Question 45

True or False: An anonymous partner can actively participate in the business of the partnership.

Answer 45

False.