TUTORIAL ONE

HALEY NXUMALO NXMLIN010

Question 1

Discuss the advantages and disadvantages of a sole proprietorship.

Advantages –

 Easy to establish: A sole proprietorship is the simplest of all the structures for a
single-owner business. As the owner, you are responsible for all business debts,
losses, and liabilities, but are also entitled to all the business profits, too. There
are no legal formalities to establishing sole proprietorship (e.g. no registration
with CIPC).
 Flexibility: There are few formal business requirements. Since there are no
partners, board members, or shareholders, the owner has the final say in all
business decisions. This can allow for more agility and responsiveness, as there is
no need to consult with or gain approval from others.
 Profits, Responsibility and Decision Making: Sole proprietors take all profits for
themselves and do not need to share responsibilities and decisions with any other
person. The owner is entitled to all profits from the business but is also
responsible for all losses and debts. The funds don’t have to be shared or
allocated among multiple parties, providing more financial freedom but also
increasing personal risk.
 Taxation: Only the sole proprietor himself/herself is taxed; the business is not
taxed separately.
 Sole proprietors do not run a risk of incurring joint and several liability for
debts incurred by other associates.

Disadvantages –

Unlimited Liability: which means you share the liability and financial risks of the
business. Any claim a creditor has against your business is your personal responsibility
too. Sole proprietor’s personal assets are at stake and may be liquidated if the business
fails.
Taxation: For example, all profit from the business activities is attributed to the sole
proprietor which affects your taxable income and can lead to paying higher taxes and
falling into a higher tax bracket. This is opposed to companies, that can retain profit in
the company and will pay the flat company tax rate regardless of income.

No ‘perpetual succession’: Business will usually come to an end when the sole proprietor
dies.

Limited access to capital – the resources of the enterprise are limited to what the single
owner has, or can borrow (his creditworthiness).

Question 2

Vernon and Yvette formed a partnership to prospect for and to acquire rights to platinum. In
terms of the partnership agreement, Vernon was directed to prospect on a certain farm on
behalf of the partnership. However, he discovered platinum on a neighbouring farm and,
without informing Yvette, obtained the rights to this platinum for himself.

Which duty has been breached in these circumstances? Discuss the content of this duty and
include in your answer what Yvette's legal position is.

The duty that has been breached is ‘fiduciary duty/duties of partners.’

Stipulating that they must act in good faith – This means that each partner is in a
position of trust in relation to the other partners, and is obliged by law to act in the best
interests of other partners. The court's decision in Wegner v. Surgeson 1910 TPD 571
said that "one partner cannot overreach the other partner during the continuance of the
partnership, nor can he dissolve the partnership with such an intention and yet retain
the benefits that flow from his act." Partner fiduciary duty to one another is hence
evident. As per the Wegner ruling, a partner is obligated to divulge to his other partners
all the information he possesses that could impact the partnership's matters.

Consequences of acting in good faith include: (1) a partner cannot compete with the
partnership's business; (2) he cannot take advantage of a benefit owed to the
partnership for himself; (3) and a partner cannot pursue a personal, or "secret," profit
that he keeps for himself while pursuing the partnership's business.

Yvette’s legal position is: she can either

Make the contract entered into Vernon with a third party in breach of a fiduciary duty
be unenforceable; (2) A partner may not buy from partnership property without the
consent of co-partners; (3) Breach entitles a co-partner to claim dissolution of the
partnership.

Question 3

“A partner has not only the powers of an agent, but he may also be said to be a surety for his
fellow partners, for they are liable singuli et in solidum ... And not only is a partner an agent,
but he sustains a double character of agent and principal in one and the same transaction. . .”

Discuss this statement and refer to decided cases to substantiate your answer.

Relationship between partners and outsiders: If a partner enters into a contract on

behalf of the partnership, all the partners are bound to that transaction. A third party
may evoke the concept of estoppel to preclude one from avoiding liability as a partner –
Furthermore, one partner has an implied authority to consent to the judgment on
behalf of the partnership. Implied authority is created where the principal tacitly (by
conduct rather than words) authorises an agent to perform an act on his behalf.

In Goodrickes v Hall and Another 1978 (4) SA 208 (N) the court took the view that in
matters relating to the carrying on of the business of the partnership, one partner can
act as an agent for his or her co-partners.

In Potchefstroom Dairies v Standard Fresh Milk Supply Company 1913 TPD 506 the
court held that ‘ a partner has not only the powers of an agent, but he may also be said
to be a surety for his fellow partners, for they are all liable…’