CONTRACTING ON BEHALF OF AN ENTERPRISE Sole Proprietor Partnership Company Close Corporation FORMS OF BUSINESS ENTERPRISES Not a separate entity Owner of business concludes contracts Rights amp duties of contract is owners responsibility ID: 459742
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LEARNING UNIT 6CONTRACTING ON BEHALF OF AN ENTERPRISESlide2
Sole ProprietorPartnershipCompany
Close Corporation
FORMS OF BUSINESS ENTERPRISESSlide3
Not a separate entityOwner of business concludes contracts
Rights & duties of contract is owners responsibility
Owner can use an Agent to act on their behalf
SOLE PROPRIETORSlide4
Exists independently of partnersPartners conclude contracts
Partners can have separate estates therefore special rules apply
PARTNERSHIP Slide5
Each partner can perform any actThis falls within the partnership business
Such act binds all partners
Each partner representing co-partners =
MUTUAL MANDATE
Can be excluded between partners
Then such partners will not conclude other contracts
MUTUAL MANDATESlide6
A partner concludes a contract on behalf of partners
All partners are jointly responsible
Third party can sue all partners & recover debt from partnership assets
If partnership assets do not cover debt, then can be claimed from partners personally
Partners can then claim their portion from the partner that concluded contract
JOINT & SEVERAL LIABILITYSlide7
Company exists separately from its members
Members = Shareholders + Owners
Own assets
Shareholders not responsible for debt
Limited liability – they will only lose what they invested in company
COMPANYSlide8
Legal acts a natural person can do but a company cannot
Capacity of company = founding documents
THE CAPACITY OF A COMPANYSlide9
Acts that fall outside the company were invalid in the pastThis resulted in ULTRA VIRES DOCTRINE
Outside companies not assured of contract validity
THE ULTRA VIRES DOCTRINESlide10
Courts used this doctrine for the aboveContract with a company, you should know the company constitution (founding documents)
Memorandum of Association & Articles of Association of a company are available for public view
THE DOCTRINE OF CONSTRUCTIVE NOTICESlide11
No company act can be invalidIf a company’s main object is to buy & sell shoes & they contract to buy clothes, the contract is still valid even though they exceeded their main objective
Ultra Vires contract becomes valid
SECTION 36 OF THE COMPANIES ACTSlide12
Famous rule from Royal British Bank
Before directors could borrow money from company
When lender sued company for money, company said that it was not bound to a contract
Court said company bound because the lender did not know internal company rules
Outsiders expected to know content of public documents & not internal rules
THE TURQUAND RULESlide13
Exists separately from members
Has its own assets & liabilities
Members not responsible for debt
Ultra Vires Doctrine does not apply
Each member has power to bind corporation to contract
Member’s power is limited
CLOSE CORPORATIONSlide14
Revision Exercise Page 85Questions 1 – 9
We will check on Friday, 19 October 2012
HOMEWORK