MRL2601_ Entrepreneurial Law_ exam pack .

MRL2601_ Entrepreneurial Law_ exam pack . Explain the process for the conclusion of a contract to the benefit of a third party (stipulatio alteri) A person concludes a contract with another contracting party in terms of which the last-mentioned will offer certain benefits to the company to be formed. If the company is formed, it can accept the offer or decline it. The risk is that the company may not come into existence or may not accept the offer. The person who concluded the contract will only incur liability under the contract if specifically so provided. 7. Explain the process of nomination of a company to be bound to terms of an agreement under the common law. A person concludes the pre-incorporation contract subject to a term that he or she will have the option to nominate a third party in his or her place within a specified period. Upon incorporation of the yet-to-be-formed company, this person then nominates the company to become a party to the contract in his or her place. The risk is that the company may refuse the nomination or not be able to comply with the obligations in terms of the agreement. In such circumstances, the original debtor will only incur liability if this is specifically agreed on. 8. Explain what is meant by cession and delegation. What is the risk attached to this alternative means of conclusion of a pre-incorporation contract? “Cession” is the transfer of rights and “delegation” means the transfer of duties or liabilities. When using this cession and delegation method, which is a combination of the two processes, to conclude a pre-incorporation contract, a person concludes the contract in his or her own name. After the company is registered, this person cedes the rights and delegates the obligations under the contract to the company. The risk associated with this method is that the consent of all three parties is required for delegation of duties. In other words, the company and the other contracting party must agree to the substitution of the company as the new debtor. All rights and duties not accepted by the company will remain with the original person unless it is specifically agreed otherwise. 9. What are the benefits of concluding a pre-incorporation contract under the common law instead of under section 21 of the Companies Act? The common law alternatives (except for agency, which is impossible) could be used more effectively and safely to avoid possible personal liability. The common law constructions have a major advantage over the statutory method because, in terms of the common law, the person acting on behalf of the proposed company is not automatically liable if the company is not incorporated or fails to ratify the contract completely.
Activity 1 John and Jane want to incorporate a catering company, De-lish Pty (Ltd), together. Before the company is registered Jane sees a delivery vehicle that would be perfect for use in their catering business. (a) Advise Jane regarding the formal requirements to conclude a contract on behalf of the yet to be formed company in terms of section 21 of the Companies Act. Downloaded by: studyengine | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material 3 To conclude a binding contract under section 21 of the Companies Act the following formal requirements must be met: The contract must be concluded in writing; The person concluding the contract on behalf of the yet to be formed company must act or profess to be acting as an agent for a company that is not yet registered; The board of the company must within 3 months of its incorporation ratify the contract. (b) If De-lish (Pty) Ltd is never incorporated would Jane incur liability for performance in terms of the contract? Section 21 of the Companies Act provides for joint and several liability of the person or persons who concluded the contract on behalf of the proposed company. In other words, should the company fail to ratify the contract completely or reject it, or not be registered this person or persons will incur liability toward the other contracting party for liabilities created in terms of the agreement. (c) Advise Jane of alternative common law methods of concluding the contract to avoid possible personal liability. To avoid possible personal liability, an option agreement, cession of rights and delegation of duties, a nomination or a contract to the benefit of a third party could provide a safer option. The promoter must however ensure that the contract is properly formulated to specifically exclude personal liability. Examples of questions in previous exams dealing with this topic: QUESTION 1: Busi wishes to conclude a contract for the purchase of a property on behalf of a company which she intends to incorporate next year. Advise Busi of the requirements that need to be adhered to in terms of the Companies Act 71 of 2008 in order for the contract to be binding on the company when it is formed. (4) To conclude a binding contract under section 21 of the Companies Act the following formal requirements must be met: • The contract must be concluded in writing; • The person concluding the contract on behalf of the yet to be formed company must act or profess to be acting as an agent for a company that is not yet registered; • The board of the company must within 3 months of its incorporation ratify the contract or not reject it. Downloaded by: studyengine | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material 4 QUESTION 2: Anne, Jack and Sam are three friends who wish to start their own publishing company. While driving one Saturday afternoon, Jack comes across the perfect office building. He wishes to purchase this building on behalf of the proposed company. Advise Jack of two common law alternatives of concluding a contract that will bind the company when it is registered. Explain the process of transfer of liability from him to the company in each instance.? (6) Cession and delegation “Cession” is the transfer of rights and “delegation” means the transfer of duties or liabilities. When using this cession and delegation method, which is a combination of the two processes, to conclude a pre-incorporation contract, a person concludes the contract in his or her own name. After the company is registered, this person cedes the rights and delegates the obligations under the contract to the company. The risk associated with this method is that the consent of all three parties is required for delegation of duties. In other words, the company and the other contracting party must agree to the substitution of the company as the new debtor. All rights and duties not accepted by the company will remain with the original person unless it is specifically agreed otherwise. Nomination A person concludes the pre-incorporation contract subject to a term that he or she will have the option to nominate a third party in his or her place within a specified period. Upon incorporation of the yet-to-be-formed company, this person then nominates the company to become a party to the contract in his or her place. The risk is that the company may refuse the nomination or not be able to comply with the obligations in terms of the agreement. In such circumstances, the original debtor will only incur liability if this is specifically agreed on. Option The option granter (offeror) undertakes to keep the substantive offer open for a period of time. The option is then ceded to the company upon its incorporation. If the company accepts the offer, a contract comes into being. Otherwise, the person who concluded the option agreement will only remain personally liable if the option agreement provides for liability. Contract for the benefit of a third party (stipulatio alteri) A person concludes a contract with another contracting party in terms of which the last-mentioned will offer certain benefits to the company to be formed. If the company is formed, it can accept the offer or decline it. The risk is that the company may not come into existence or may not accept the offer. The person who concluded the contract will only incur liability under the contract if specifically so provided. --------------------------------------end of unit------------------------------------------------------------ Downloaded by: studyengine | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material Learning Unit 5: Registration of company names 1. What are the criteria for the names of companies in terms of the Companies Act 71 of 2008? The Companies Act restricts a company name only as far as it is necessary to • protect the public from misleading names which falsely imply an association that does not exist • protect the interest of the owners of names and other forms of intellectual property (such as trademarks) from other persons passing themselves off as such owners or coat-tailing on the owners’ reputation and good standing, and • protect the public from names that would fall within the ambit of expression that does not enjoy constitutional protection because of its harmful or other negative nature To avoid deception of the public, the name of a company may not • be the same as the name of another company, external company, close corporation or cooperative; or the name of a business which has already been registered in terms of the Business Names Act 27 of 1960; or a trademark which has been filed for registration in terms of the Trade Marks Act 194 of 1993; or a mark, word or expression protected in terms of the Merchandise Marks Act of 1941 • be confusingly similar to a name, trademark, mark, word or expression as described above (subject to a few specific exceptions) • give the false impression that the company is associated with the government or with a particular person or government office, etc., and • include any word, expression or symbol that may constitute propaganda for war, incitement of imminent violence, or advocacy of hatred based on race, ethnicity, gender or religion, or incitement to cause harm Also note the following: • The Companies Act does not make provision for the registration of a shortened or translated name. • A name reservation in a foreign language must be accompanied by a certified translation and certificate of translation. • In terms of the Consumer Protection Act 68 of 2008, members of the public are required to register their business/trading name/sole proprietorship/partnership names with the Commission. • Where, according to the Commission, there is a possibility that the name is similar to the name of another company or another business undertaking or trademark, or that the name gives the impression that there is a connection between the company that is applying and another entity or state organ, the Commission may compel the applicant to inform parties that may be interested by serving them with a copy of the application and name reservation. If the company’s name is to be associated with another existing business, the Commission will require proof from the applicant company that the associated company was made aware before registration that a similar name would accordingly be allowed. Downloaded by: studyengine | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material • The Companies Act also allows any person who has an interest in the name of a company to apply to the Companies Tribunal for it to determine whether or not the name is in accordance with the requirements of the Companies Act. 2. Is it always necessary for a company to reserve a name before registration? No. If a proposed name is rejected, the company may usually still be registered and the registration number then becomes the name of the company at incorporation until an appropriate name has been reserved or approved. 3. Is it possible to reserve a company name for future use? Yes. In order to reserve a name, a form CoR 9.1 must be completed and a filing fee is payable. A name reservation is valid for six months. It is possible to apply for an extension of a name reservation for an additional 60 business days by lodging a form CoR 9.2 and paying a filing fee.In terms of section 12 of the Companies Act, a name may be reserved for use at a later stage, to be used for a newly incorporated company, or to be used as a replacement for an existing name of a company. 4. Would it be possible for one company to transfer a name to a different company? Yes. Someone who has applied for the reservation of a name may transfer the reserved name to another person by lodging a form CoR 11.1. 5. Which types of companies cannot function without an acceptable name (cannot be registered under a registration number only by the Commission?) Non-profit companies are not allowed to have registration numbers as their names. 6. Who can order a name change where a name to be registered is similar to an existent company’s name? The High Court can make an order to change a name if the matter is referred to it and passing-off is successfully proven. Disputes regarding names may also be referred to the Companies Tribunal or the Human Rights Commission in terms of section 160 of the Companies Act. 7. What factors are considered in order to ascertain whether or not a name is objectionable? Peregrine Group (Pty) Ltd & others v Peregrine Holdings Ltd & others: The activities that the companies engaged in; The similarity in the names and whether it would cause confusion; The client bases of the respective companies; whether the name is undesirable and calculated to cause harm to the other company; The likelihood that members of the public would be confused in their dealings with the competing companies; The date of registration of the companies would also play a role Downloaded by: studyengine | Distribution of this document is illegal S - The Marketplace to Buy and Sell your Study Material 8. How should the name and registration number of a company be used? Section 32 of the Companies Act 71 of 2008 requires that a company furnish its full name or registration number to any person on demand. It further prohibits the misstating of the name or registration number, and the stating of the name in such a way that it may mislead or deceive a person. A company must use its registered name at all times, and not a modified version of such name. In the case of a profit company, the name may consist of a registration number only, followed by the words “South Africa”. If the Registration Certificate is issued with an interim name by the Commission, the company is obliged to use its interim name. The interim name is used until the company’s name has been amended. 9. What happens when the name and registration number of a company is not reflected properly on its stationery etc?