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COMMERCIAL LAW - FAQ's             Back to home page


Mercantile law is not a separate subject in itself but rather a collection of different branches of law which are important in the commercial sphere. The branches are company law (ie the law relating to companies and other juristic persons), the law of negotiable instruments (ie cheques, promissory notes, etc) and the law of insolvency (bankruptcy).

Other branches of law, such as labour law and the law of taxation, also impact commercial law, and Attorneys and Law Firms who practise commercial law, sometimes referred to as Commercial Lawyers, have the requisite cross-skills to render an invaluable service to the business community. Their clients range from sole proprietors and partnerships, to small, medium and large listed companies.

Mediation saves both time and money as it aims to avoid costly litigation proceedings. 

Legal Information

A lot of legal information is now available on-line without the need to consult with an attorney – such legal information includes: Company Search, Credit Enquiries, Director Search, Deed Search, Consumer Tracing and Debtor Management. Legal City is one of SA’s leading on-line legal information providers and you can read an overview of their products here.  Kilgetty Secretarial Services is one of the top company secretarial services in South Africa, and you can read an overview of their services here.

Pro Scripto are one of the leading forensic document examiners in SA – if you have doubt regarding the authenticity of a document (such as a will) a signature or handwriting, you can contact them here.


trm tax risk management


  1. What is meant by Sole Proprietorship or Sole Trader?
  2. What are the features of a partnership and what are the different types of partnerships?
  3. What are the features of a close corporation and can I still register a close corporation?
  4. What are the features of a Limited Company?
  5. What are the features of Co-operatives?
  6. What are the features of a Section 21 Company?
  7. What are the features of a trust?
  8. What type of business’ require a licence?
  9. When should a business register as a VAT vendor?
  10. What should I do if my tax affairs are not in order?
  11. Does the voluntary disclosure programme also apply to violations of exchange control?
  12. Are there any tax breaks and measures available to small businesses that ease both the tax and compliance burdens?
  13. Must ‘expatriates’ register for tax and file tax returns?
  14. When is a debtor said to be insolvent?
  15. When may the court accept surrender of a debtor’s estate? (voluntary surrender)
  16. What are some of the requirements for compulsory sequestration?
  17. What is meant by a ‘business rescue’ under the new Companies Act?
  18. What about ‘collusive dealings’ that may have taken place before the sequestration?
  19. How does the new Consumer Protection Act affect franchisees?
  20. What is a franchise agreement?
  21. What are the requirements for a valid franchise agreement?
  22. When does a franchisee have the right to cancel a franchise agreement?
  23. What terms cannot be included in a franchise agreement?
  24. What are the requirements for giving support to franchisees?
  25. What are BEE codes and how will the new B BBEE Act affect my company?
  26. How are competition matters in the economy regulated in South Africa??
  27. Insurance - What are the different types of car insurance available??
  28. How do I minimise the risk of being overinsured??

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1. What is meant by Sole Proprietorship or Sole Trader?


  • An individual who conducts his own business is known as a sole trader: he is entitled to receive all the profits which his person may make, and is solely responsible for the liabilities of the undertaking even to the extent of his entire personal estate.
  • There is no distinction between the assets and liabilities of the business and any other assets and liabilities that the individual may have. Hence if the business makes losses and becomes insolvent (i.e. if the assets cease to be to satisfy the claims of all the creditors) he, too, is declared insolvent and all his assets are liable to be seized for realization in settlement of the claims of his creditors. Consequently, a creditor could in the appropriate circumstances be entitled to attach the individual’s home in order to settle a debt.
  • The chief advantage of sole proprietorship type of business is the greater personal interest which the proprietor is able to take in his/her business than is possible in a larger concern.
  • A sole proprietor is responsible for all the business decisions of his or her proprietorship. Apart from insolvency, a sole proprietor’s business will be terminated by his or her death or by closing down. In either of these events, his executor or liquidator will wind up the business, realizing the assets (often by means of a liquidation sale) and paying the creditors out of the proceeds thereof. Any surplus remaining after all the claims against the business have been settled will, in the case of death, pass to the heirs or other beneficiaries in terms of any will which the deceased may have left, while in the case of closing down, the residue will accrue to the proprietor.

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2. What are the features of a partnership and what are the different types of partnership?


  • A partnership is a contract between two or more parties whereby each contributes or undertakes to contribute towards an enterprise to be carried on jointly by them with the object of making a profit or sharing it between them.
  • No formalities are required for the formation of a contract of partnership. The contract takes effect from the moment consensus is reached, except where the parties agree that they will not be bound until a written contract is prepared.
  • In order to avoid possible future misunderstandings, it is desirable, though not legally enforceable, for the parties to engage the services of an attorney to draw up the terms of their agreement to form a partnership in a document known as a ‘Deed of Partnership’ or ‘Articles of Partnership’. This document will set out inter alia, the respective shares and the profits of the partnership to which each partner is to be entitled (and the share of the losses for which partner will be responsible), the interest, if any, to be credited to each partner in respect of the capital invested, and to be debited in respect of drawings made in anticipation of profits, and the basis on which any partner may retire from the partnership. If these matters are not agreed upon at the time of the formation of the partnership, disputes, possibly leading to litigation, can easily arise subsequently.
  • While some partners may be active or managing partners, and others may be ‘sleeping partners’, the partnership has no separate legal existence distinct from the partners who constitute it. If the partnership becomes insolvent, all the partners are declared insolvent also.

Extraordinary partnerships differ from ordinary partnerships in the following respects:

  1. An extraordinary partner has no right to participate in the management of the partnership business, whereas an ordinary partner has this right, unless the parties have agreed otherwise
  2. an extraordinary partner, unlike an ordinary partner, is not liable to creditors of the partnership, as long as he is not held out to be, and does not act as, an ordinary partner.

An extraordinary partner is liable to the active partners for partnership losses. In the case of a so called anonymous partnership (also called a silent or sleeping partnership) he or she is liable for his full pro rata share. If the partnership is a partnership en commandantite, he or she is liable for a sum not exceeding his or her capital contribution to the partnership. A partnership en commandantite is one in which the partners agree among themselves that the business of the partnership is to be carried on by some but not all of the partners, the dormant (and undisclosed) partners taking no part in the conduct of the business but only contributing towards its capital.

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3. What are the features of a close corporation and can I still register a CC?


  • A Close Corporation, governed by the Close Corporation Act,1984, is like a company, only less expensive and less complicated to run. A CC is more expensive to run than a partnership or sole trader because you need to pay an accounting officer to ‘do the books’ of the business. You also have to keep records for the CC and each member has to keep records for tax businesses.
  • The people who own and mange the CC are called members. There are no shareholders or a chairperson of the board like a company has. A CC cannot have more than 10 members.
  • The law sees a Close Corporation as separate from its members. This means that unlike sole traders or a partnership the assets and debts belong to the Close Corporation, and the assets and debts of the members have nothing to do with the CC.
  • If the business is a CC and the CC has a letterhead the registration number of the CC and all the names of the members must be printed at the bottom of the letterhead. The registered name and number must also appear on cheques.

Signing surety

  • Suppliers may be scared that a CC has no money to pay. Suppliers therefore often make sure that somebody signs surety for the CC, which means that if the CC does not have the money to pay, the person who has signed the surety will have to pay (be liable for) the debt.
  • Members of a close corporation must always write CC behind the name of the close corporation, for example Cool Leathers CC. If members do not put CC behind the name whenever they write it, then the law does not see the CC as separate from its members and the debts and assets of the CC are not separate from the debts and assets of the members.
  • If the business is a CC and the business has a letterhead, the registration number of the CC and the full names of the members must be printed on the letterhead. The number will look something like this: CK2008/031666/23.
  • If the business has an office, then the owner must have a sign up showing the business is a CC. For example, if Annie has a dry cleaning business, then she must have a sign up saying "ANNIE’S DRY-CLEANING SERVICES CC’.

A CC can end through voluntary deregistration or liquidation and the assets belong to the CC and not the members. If the CC ends, the assets are shared out among the members in the way that was agreed in the founding documents.

From 1 May 2011 no new CC’s can be requested.

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4. What are the features of a Company?


Companies are subject to the Companies Act, 2008, which came into effect on 1 May2011. Up to that date the Companies Act of 1973 was enforced. The new Act is lengthy and complicated and should you wish to form a company, or buy a shelf company that is already formed, it is advisable to consult with an attorney. A Memorandum of Incorporation (MOI) needs to be drafted and then registered with the CIPC, thereby incorporating the entity.

  • Companies have shareholders who put money into the business and are the owners of the business. Directors are the mangers of the business. The law sees a company as separate from its shareholders and directors. This means that like a CC, the assets and debt belong to the company and the assets and debts of the shareholders and directors have nothing to do with the Company.
  • Suppliers or financial institutions which lend money to companies will often ask the shareholders or directors to sign surety for the company. If the Company cannot pay its debts, then the people who have signed surety will have to pay the company’s debts.
  • Directors and shareholders of companies must always write (Pty) Ltd or Pty (under the new Act) behind the name of the company. If they write the name without (Pty) Ltd or Pty behind it, the law does not see the company as separate to its shareholders, and the debts and assets of the company are not separate from the debts and assets of the shareholders.
  • If the business is a company and the company has a letterhead, the registration number of the company and all the names of the directors must be printed at the bottom of the letterhead. The registered name and number must also appear on cheques.
  • A company can end through voluntary deregistration or liquidation. The assets belong to the company and not the shareholders, and if the company ends, the assets are shared among the shareholders.
  • Under the Companies Amendment Act, a private company may be registered as an ‘Incorporated Private Company’ provided its memorandum of association contains a provision that the directors and former directors shall be liable jointly and severally, together with the company , for such debts and other liabilities of the company as are contracted during their period of office .In this case the name of the company will not terminate with the words (Pty) Ltd but, instead, with the single word ‘Incorporated
  • The credit-worthiness of an incorporated private company is clearly greater than that of an ordinary private company, since there is no possibility of the directors hiding behind the principle of limited liability; while the liability of shareholders is limited, that of the directors is unlimited in respect of debts incurred while they acted as directors.

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5. What are the features of co-operatives?


The Co-operatives Act (No 14 of 2005) was implemented on 2 May 2007. Anyone starting a co-operative must first register it with the Registrar of Co-operatives at the Department of Trade and Industry which is based in the CIPC offices in Pretoria. The Office of the Registrar is responsible for registering and deregistering co-operatives, as well as analysing financial statements from co-operatives. They will also provide a sample constitution for a new co-operative and, if necessary, provide assistance in drawing up a constitution.

Once the co-operative is registered it becomes a ‘legal person’ meaning that is has legal powers similar to those of companies and other groups. For example, it can continue to exist even if its membership changes over time. It can open bank accounts and own land and other property.

The Department of Trade and Industry will be able to give it special support if it:

  • Follows the co-operative principles.
  • Promotes equity and participation by its members.
  • Consists of black people, women, youth, people who live in rural areas or women or people with disabilities.

The principles of a co-operative are:

  • It is owned by all its members. The members each make a contribution to the co-operative.
  • Management makes decisions together with the members.
  • Management is accountable to its members.
  • Members themselves decide how to organize the co-operative, for example what the wages and working hours will be.
  • Profit and loss is divided among the members.

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6. What are the features of a Section 21 Company?


  • Section 21 of the Companies Act, allows for a ‘not for profit Company’ or ‘association not incorporated for gain. Section 21 Companies resemble business orientated (for profit) companies in their legal structure, but do not have a share capital and cannot distribute shares or pay dividends to their members. Instead they are limited by guarantee, meaning that if the company fails, its members undertake to pay a stated amount to creditors.
  • A Company has a two-tiered governance structure consisting of the members and directors. The members exercise their powers in general meetings for example by having the power to appoint and remove directors, amend the founding documents of the company, and dispose of the NPO’s assets. The directors have broad executive responsibility. However, they must appoint independent auditors and convene an annual general meeting at which various matters, including the presentation of the audited statements are attended to.
  • Section 21 companies, like for- profit companies are governed by the Company Act and have an independent legal personality. The Registrar must approve the name that you have chosen for the company before it can be registered for which you will require to engage the services of an attorney – the annual reporting requirements for companies are also complex and extensive and not always suited for small community-based organisations.

To register a Section 21 Company:

  • Your organisation must be established with a lawful objective
  • Your main objective must be the religion, the arts, science, education, charity, social activity or a communal or group interest
  • All income and property must only be used for the promotion for the main objective and no amount or asset may be given or distributed to the organisation’s members or office bearers, except as reasonable compensation for their work for the organisation.
  • On dissolution of the company, all surplus assets must be transferred to another organisation with similar purposes.
  • Along with public companies, the organisation must have at least seven founding members and two directors.

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7. What are the features of a trust?


  • A trust is an arrangement, set out in a written document called a Trust Deed in which an owner or founder hands over property and/or funds to a group of people (called trustees) who administer the assets for the benefit of other people (called beneficiaries) for a stated objective.
  • A trust is governed by a board of trustees. Trustees’ powers are usually as wide as possible to enable them to achieve the objective of the trust, and usually similar to the powers of a company. Trustees are expected to exercise their duties with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. Trustees should not make self-serving decisions and should avoid taking decisions in situations where there is a conflict between what is best for the trust and what is best for the trustee personally (conflict of interests) They may receive reasonable payment for their work unless the trust deed forbids this.
  • Trusts are registered by the common law and the Trust Property Control Act . Except in certain circumstances, such as tax and insolvency purposes, trusts do not have an independent legal personality. If there is a legal dispute (litigation) the trustees acting in that capacity sue or get sued, not the trust, although trust property is protected and the Trust Property Control Act requires trust property to be kept separate from trustees’ personal property. Trusts are also required to have their own bank accounts.
  • You need to engage the services of a notary public to write and attest your trust deed, which must then be registered of the High Court. The trust deed mentions your intended trustees but it is the Master who actually formally appoints them. The Master of the High Court may ask the trustees to provide security for the proper performance of their duties and this is usually arranged through an insurance company. If a person wants to do away with the need of this security, the Master usually require that you appoint auditors and give a full set of reasons why the trustees should be exempted.
  • Except in certain specified circumstances, a trust does not have a legal personality. However trust property is protected and a trustee acting in that capacity is not personally liable for trust debts. (except if he or she has been grossly negligent or committed fraud). The requirements for public disclosure for trusts are very limited and there need not be an auditor or annual financial statements unless these are required by the trust deed.

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8. What type of business require a licence?


The following types of businesses require a licence:

  • If you intend selling alcohol, (governed by the Liquor Act, 2003)
  • Making and selling of perishable foods
  • Health or entertainment activities, such as a business involving sauna, massage, snooker, billiards, slot machines, a night club, disco, movie theatre etc.

Whether applying to the local council or the Liquor Board for a licence or liquor licence, it advisable to engage the services of an attorney who can assist you. Different government departments will contact the owner to make an appointment to visit and inspect the business premises. The following inspectors will visit the premises:

  • Town planner, to see if the business is in an area that is zoned for business
  • Health inspector, to see that the business follows all the health rules
  • Inspector from the Fire Department to see that the business is not a fire hazard
  • Mechanical Engineer

The inspectors must visit the business within 30 days of receipt of your application, and should the inspectors want the owner to make some changes to the business premises, the owner or his attorney must apply to the council for another 14 days in which to complete the changes. If the owner does not apply for the additional 14 days and the changes have not been completed 30 days after submitting the application, the owner will have to apply again and the inspectors will have to come again.

Traders do not have to apply for a new licence every year, but they do have to apply for a new licence if:

  • If they move their business to other premises
  • If the business is sold, the new owner will have to apply for a licence
  • If the activities on the premises are changed where a licence for the new activity is required.

It is a criminal offence to operate without a licence when this is required by the nature of the business. The owner can be fined or given a prison sentence up to three year, so if you are unsure whether your business requires a licence, consult with an attorney. It is also a criminal offence to sell alcohol without a liquor licence.

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9. When should a business register as a VAT vendor?


Value-added tax (VAT), governed by the Value Added Tax Act, 1991, is paid by each producer or distributor who handles the goods before they reach the final consumer. It is called value-added tax because tax is paid at every stage where value is added to the product.

  • A business must be registered as a vendor if the valuable turnover (the total of all sales without subtracting the costs is more than R1 million per year.
  • When starting a business, and you think the turnover will be more than R1 million, then you have to register as a vendor.
  • If the turnover of the business is less than R1 million per year, the owner can choose to register or not. If you register, it is called voluntary registration. If the turnover is less than R50 000 per year, the business is not allowed to register. If you don’t have to register it is advisable to only do so if the business buys lots of things from suppliers and can claim back VAT to reduce the amount of VAT you owe SARS.

If the business is a sole trader or a partnership, the owners must register in their own names. If the business is a CC or Company, the owners must register in the name of the business.

SARS will issue the business a registration number, called a VAT invoice number. This number requires the person or business to charge 14% VAT on the goods or services the business sells. A VAT invoice should contain the following:

  • The words ‘Tax Invoice’
  • The VAT registration number of the business
  • The amount of VAT paid by the customer separately from the price of the goods or services. Ensure to check that the VAT invoices you receive from other businesses have all these details on them if you are going to claim the VAT back from SARS. If an invoice does not have all these things you cannot claim back from SARS.

Businesses registered for VAT must keep records, which show how much VAT they have collected. Even after the business has closed, the business must keep the records for 5 years. These are examples of records that must be kept:

  • Invoices from your business to customers
  • Invoices from your supplier to you
  • A list of debtors and creditors
  • Bank statements, deposit slips, and copies of cheques.
  • Books of account

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10. What should I do if my tax affairs are not in order?

Income Tax in South Africa is governed by the Income Tax Act.

Sections 225 to 233 of the Tax Administration Act 28 of 2011 took effect on 1 October 2012. The act contains a new disclosure programme for taxpayers to regularise prior violations.

  • For a taxpayer to successfully apply for relief under the new voluntary disclosure programme, it is necessary that the taxpayer has committed a default. A default is defined in section 225 of the Act as meaning the submission of inaccurate or incomplete information to SARS or the failure to submit information or the adoption of a tax position which resulted in the taxpayer not being assessed for the correct amount of tax, or the correct amount of tax not being paid by the taxpayer, or an incorrect refund being made by SARS.
  • A prerequisite for applying for relief under the act is that the taxpayer is not aware of a pending audit or investigation that has commenced but has not yet been concluded.
  • The Act requires that the disclosure must be voluntary, and involve a default which the taxpayer has not previously disclosed. The disclosure must be complete and full in all material respects, and must involve the potential imposition of an understatement penalty in respect of the default, and not result in a refund due by SARS.
  • Finally, the act requires that the disclosure must be made in the prescribed manner.

The new voluntary disclosure program available under the new act is not as attractive as that available under the previous legislation in that the taxpayer remains liable to interest which is payable on the late payment of the tax in question.

The approval of the voluntary disclosure program and the relief available under the act must be evidenced by a written agreement concluded between SARS and the qualifying person. Section 230 of the act requires that the agreement must be prepared in the prescribed format, and must contain details of the facts pertaining to the default on which the disclosure relief is based, as well as the amount payable by he taxpayer, and must contain details of arrangement and dates for payment and relevant undertakings by the taxpayer and SARS.

SARS is entitled to withdraw the voluntary disclosure relief granted where it is established that the taxpayer failed to disclose a matter that was material for purposes of making valid voluntary disclosure as envisaged in Section 227 of the act.

For this and other tax related legal advice contact a Tax Attorney.

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11. Does the voluntary disclosure programme also apply to violations of exchange control regulations?


  • Under the Voluntary Disclosure Programme and Taxation Laws Second AmendmentAct, No 8 of 2010, during the period I November to 31 October 2011, taxpayers could apply for relief under the Voluntary Disclosure Programme and at the same time could regularise violations of the exchange control violations by applying for relief from the Financial Surveillance Department of the South African Reserve Bank.
  • In its guide to the Tax Administration Act, SARS indicates that the voluntary disclosure programme will not provide relief on interest payable to SARS, or exchange control, and that the programme contained in the act will only deal with tax matters. Thus, at this stage it would appear that there are no permanent plans for a permanent exchange control voluntary disclosure programme.
  • Those persons who have contravened the exchange control, regulations, and did not utilise the previous voluntary disclosure programme, would be required to approach their authorised dealer to assist them with an application to regularise their exchange control affairs.
  • The levy payable in regularising breaches of the exchange control regulations could range from 20% to 40% of the amount of the contravention in question. The quantim of the levy finally payable to the South African Reserve Bank will, among other things, depend on whether the applicant chooses to retain the funds abroad or return the funds to South Africa

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12. Are there any tax breaks and measures available to small businesses that ease both the tax and compliance burdens?


  • SBC tax - introduced in 2001, where businesses with an annual turnover of up to R14 million (R20 million from the 2013/2014 tax year) pay less tax. Businesses taxed under the SBC dispensation enjoy a potential tax saving of about R60 000 per year (South Africa’s SBC tax rate for small firms is between 0% and 28%) and can also write of equipment against taxable income in the year in which it was bought. Firms must select to be taxed as SBC, which Sars then checks to see if they qualify for the tax: business owners can’t have shares in more than one business, can’t derive more than 20% of their revenue from investments and the rendering of personal service and can’t be a personal service provider unless they employ three or more people. In 2011 about 90 000 businesses got the tax break.
  • Turnover tax- introduced in 2009, in which firms with firms with just basic accounting records and a turnover of up to R1 million can pay less tax. Only 10 000 businesses have registered for turnover tax as it does have a serious drawback: businesses pay tax regardless of whether they make a profit or not, whereas under ordinary income tax they would at least be guaranteed a zero tax rate in the event of a loss. Furthermore, once signed up for a turnover tax a business must stay in the system for at least three years.
  • Venture capitalist incentive-introduced in 2009, allows individuals to make upfront tax deductions if they invest in venture capital companies, which in turn invest in certain type of small enterprises. The downside is that when an individual disposes of their shares in a venture capital company Sars would - in one year - recoup the full amount of an investor’s deduction and apply capital gains tax to any profits made from selling the shares.
  • A research and development (R and D) tax incentive that came into effect in 2006 also benefits many small firms.
  • Sars has also carried out a number of other initiatives to ease the tax burden for small firms-such as a tax amnesty in 2006, lifting the turnover threshold for VAT to R1 million and introducing a special concession to allow smaller firms to submit VAT three times a year, instead of bi-monthly.


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13. Must expatriates register for tax and file tax returns?


Filing a tax return for expatriates is mandatory for all expatriates, outbound and inbound, where their income is in excess of the tax threshold or where they earn a specific type of South African income.

  • A key factor is to determine his or her tax status as a tax resident or non-resident in SA.
  • With the introduction of the residence basis of taxation with effect from years of assessment commencing on or after 1 January 2001, a definition of resident was introduced into the Income Tax Act. A person who qualifies as a resident as defined in section 1 of the Act is subject to tax in the Republic on worldwide receipt and accruals.
  • A resident is someone who is either ordinarily resident in SA or who falls within the requirements of the ‘physical presence test’ Though the act does not define ordinary resident, the courts have interpreted it as one who considers SA to be the place to which he or she will return from his or her wanderings. A person who is not ordinarily resident may still be a tax resident by virtue of physical presence. The difference in filing for a resident is that he or she files a return disclosing world-wide income and capital gains, while a non-resident files disclosing his or her SA sourced income and capital gains, subject to certain exclusions.
  • There is also a misconception that foreign workers (non-residents for tax purposes) do not have to register as taxpayers, file tax returns in SA as long as they spend less than 183 days a year in the country. This is not true. While tax relief might be the end result, this is up to SARS to assess on the basis of the tax return filed. If there is no double tax agreement between SA and the country of origin, the non-resident would certainly be liable for tax on income sourced here. If a double tax agreement does apply, SARS will confirm the application before deciding if tax relief is applicable.
  • As with residents living and working outside SA, non residents must file an annual tax return and keep travel and other records, which form part of the physical presence test. In essence the physical presence test provides that where you would have been present in SA for at least 91 days/year in each of the current and previous 5 years and at least 915 days in total during the previous 5 years, you will be regarded as a resident from the first day of the current year. Tax residency can be broken by leaving SA for a stretch of 330 days.
  • With regards to being ordinarily resident, a person’s usual or principal residence could be described more aptly in comparison to other countries as the person’s real home. The above approach was followed by the courts.
  • Courts in both Canada and the UK have held that physical presence at all times is not a requisite to be ordinarily resident in a country. The effect of the above is that a natural person may be tax resident in SA even if that person was not physically present during the relevant year of assessment. The purpose, nature and intention of the taxpayer’s absence must be established to determine whether the taxpayer is till ordinarily resident.
  • The circumstances of the person must be examined as a whole, and the personal acts of the individual must receive special attention, as one is entitled to look at the taxpayer’s mode of life beyond the particular period under consideration. It is not possible to specify over what period the comparison must be made. The comparison must cover a sufficient period to determine whether the person is ordinarily resident.

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14. When is a debtor said to be insolvent?


  • In terms of the Insolvency Act, 1936, a debtor who cannot satisfy the claims of all of his creditors may be sequestrated (declared insolvent) by the court. The main purpose of such an order is to secure an equitable distribution of the debtor’s assets among all his creditors. Execution in the usual way against the property of an insolvent debtor invariably results in one or a dew creditors being paid in full and the majority receiving nothing towards the satisfaction of their claims-if you are a creditor with unpaid debts you may have to consult with an experienced attorney to ensure you do not end up in this position.
  • Sequestration seeks to ensure that whatever assets the debtor has are distributed pro rata among all creditors in accordance with a predetermined order of preference.
  • Although sequestration does not exist to alleviate the position of the debtor, it does hold certain advantages for him or her: for one thing it liberates the person immediately from debt-collection proceedings initiated by dissatisfied creditors; and secondly, it offers the person, once the insolvency has run its course, of becoming rehabilitated (regaining his or her solvency), and amassing a new estate free of the shackles of old debts.

For this reason the debtor’s estate may be sequestrated in 2 ways:

  • The debtor himself (or his agent) may apply to court for acceptance of surrender of the estate, also referred to as voluntary surrender.
  • A creditor or creditors (or his or their agent) may apply to court for the sequestration of the debtor’s estate, also known as compulsory sequestration.

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15. When may the court accept the surrender of a debtor’s estate? (Voluntary surrender)


The court may accept the surrender of a debtor’s estate if it is satisfied of the following:

  • The debtor’s estate must, in fact be insolvent. The test is whether the debtor’s liabilities, fairly estimated, exceed his assets, fairly valued. Inability to pay debts is not conclusive evidence of insolvency.
  • The debtor must own realizable property of sufficient value to meet the costs of the sequestration which are payable out of the free residue (ie the unencumbered portion) of the estate.
  • It must be evident that sequestration will be to the advantage of creditors.

In addition the court must be satisfied that the preliminary procedural steps outlined below have been followed:

  • Has published a notice of surrender
  • Has given notice to each creditor
  • Has lodged a statement of affairs, and
  • Filed an application at court

Before reaching a decision, the court may direct the applicant or any other person to appear and be examined before it. Even if the court is satisfied that the statutory requirements have been fulfilled, it has a discretion to refuse the surrender.

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16. What are the requirements for compulsory sequestration?


The issue of winding up close corporations and companies unable to pay their debts has become very involved and complex with the advent of the new Companies Act, 2008.

A distinction under the old Companies Act, 1973 ( set out below) in relation to liquidation was, technically, never ‘solvent’ v ‘insolvent’ companies, but rather ‘companies able to pay their debts v ’companies unable to pay their debts’, with factual insolvency merely being a factor to be taken into account in determining these questions.

It is essential to consult with a commercial lawyer on these issues as they are aware of the various divergent views out there, and are able to address and distinguish any case law that is supportive of your case.

A debtor commits an act of insolvency in the following circumstances:

  • Departure/absence from South Africa

If he or she leaves South Africa, or is out of South Africa and remains absent from it with the intent by doing so to evade or delay payment of the debts.

  • Failure to satisfy judgement

If the court has given judgement against him and he fails, upon the demand of the sheriff to satisfy it or to indicate to the sheriff disposable property sufficient to satisfy it, or it appears from the return made by the sheriff that he has not found sufficient disposable property to satisfy the judgement

  • Disposition of property

If he makes, or attempts to make any disposition of any of his property which has, or would have the effect of prejudicing his creditors or of preferring one creditor above another

  • Removal of property

If the debtor removes, or attempts to remove, any of his property with intent to prejudice his creditors or to prefer one creditor above another

  • Arrangement for release from debts

If the debtor makes or offers to make, any arrangement with any of his creditors for releasing him wholly or partially from his debts

  • Failure to act in terms of surrender

If, after having published a notice of surrender of his estate, he fails to lodge a statement of his affairs, or lodges a statement which is incorrect or incomplete in material respects, or fails to appear for surrender of his estate on the date mentioned in the notice.

  • Written notice of inability to pay

If he gives notice in writing to any of his creditors that he is unable to pay any of his debts

  • Inability to pay after notice of sale of business

If, being a trader, he gives notice of his intention to sell his business and is thereafter unable to pay all his debts.

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17. What is meant by a ‘business rescue’ in the new Companies Act?


Chapter 6 of the new Companies Act of 2008, which came into effect on 1 May 2011 relates to the grounds which are sufficient to get a court order commencing business rescue proceedings.

  • The question pertaining to grounds for business rescue relates to whether an applicant for business rescue can be successful if he can merely show that a winding down of the Company under business rescue will yield a better result for creditors and shareholders than would the liquidation of the company.
  • An interpretational difficulty arises here because if one looks at the definition of a business rescue in section 128(1) (b) of the Companies Act, there is a suggestion that the alternative object – a better return for creditors and shareholders – then a liquidation is sufficient for a business rescue order.
  • But when looking at the actual operative section, which provides for business rescue pursuant to court applications by ‘affected persons’ (creditors, shareholders, trade unions, employees) it appears that one necessarily has to satisfy the court that there is a reasonable prospect for rescuing the company – that is, a ‘better return’ in itself is not enough – you have to show that you can keep the company going.
  • If the business rescue practitioner comes to the conclusion that the company cannot be rescued, he must (not may) under section 14(2) apply to court to discontinue business rescue and place the company in liquidation.
  • The question becomes even more relevant as directors and officers of financially stressed companies try to convince the court to grant business rescue orders, thereby shielding them from the preying eyes of a liquidator and the potential personal liability for the debts of the company if there was reckless trading (section 424 of the previous Companies Act, which is still applicable to liquidations)
  • Only a handful of applications for ‘business rescue’ have been successful – if you are considering a ‘business rescue’ for your business, be sure to consult with a commercial lawyer who can give you the necessary advice.

Read more about Business Rescue here.

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18. What about collusive dealings before the sequestration?


  • After the sequestration of the debtor’s estate, the court may, upon application, set aside any transaction entered into before the sequestration, whereby he, in collusion with another person, disposed of property belonging to him in a manner which had the effect of prejudicing his creditors or preferring one of his creditors above another.
  • Any person who was party to such collusive disposition shall be liable to make good any loss thereby caused to the insolvent estate in question and shall pay for the benefit of the estate, by way of penalty, such sum as the court may adjudge, not exceeding the amount by which he would have benefitted by such dealing if it had not been set aside; and if he is a creditor he shall also forfeit his claim against the estate.
  • Such compensation and penalty may be recovered in any action to set aside the transaction in question.

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19. How does the new Consumer Protection Act affect franchisees?


The definition of “consumer” in the new Consumer Protection Act includes a franchisee, irrespective of whether that franchisee is an individual or a juristic person.

As a result, a number of the provisions of the Act will be applicable to franchisors. In particular, the following issues will now be closely regulated:

  • The manner in which franchise opportunities are advertised and marketed;
  • The manner in which franchise agreements are negotiated;
  • The terms of franchise agreements; and
  • The supply of goods and services by the franchisor to the franchisee.


20. What is a franchise agreement?


According to research by Research IQ for the Franchise Association of South Africa (FASA) released in August 2013, franchising generated R300 billion for the previous year, employing more than 300 000 people and with more than 30 000 franchised stores in South Africa. The Act sets out the main characteristics of a franchise agreement that distinguishes it from other agreements are as follows:

  • the franchisor grants the franchisee the right to carry on business under a system or marketing plan developed or controlled by the franchisor;
  • the franchisee’s business will be substantially or materially associated with the franchisor’s brand (including trade marks and advertising programs or any similar marketing and branding programs owned, used or licensed by the franchisor); and
  • the franchisee can be contractually obligated to receive goods or services supplied by or at the direction of the franchisor.

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21. What are the requirements for a valid franchise agreement?


Franchise agreements must be in writing and signed by or on behalf of the franchisee.


The agreement must be written in plain language so that an ordinary franchisee, with average literacy skills and minimal experience as a franchisee, could be expected to understand the content, significance and import of the agreement without undue effort, having regard to:

(a) the context, comprehensiveness and consistency of the agreement;

(b) its organisation, form and style;

(c) the vocabulary, usage and sentence structure used; and

(d) the use of any illustrations, examples, headings or other aids to reading and understanding.

The National Consumer Commission may publish plain language guidelines to assist franchisors.

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22. When does a franchisee have the right to cancel a franchise agreement?


A franchisee may cancel a franchise agreement without cost or penalty within 10 business days after signature by giving written notice to the franchisor.

What other protection is available to franchisees?

  • The manner in which a franchise is advertised, marketed or otherwise negotiated must not be unfair, unreasonable or unjust.
  • A franchisor must not charge franchise, marketing or other fees relating to the franchise, or the supply of goods and services under the agreement which are unfair, unreasonable or unjust.
  • The other terms of the franchise agreement must not be unfair, unreasonable or unjust.
  • The franchisor cannot require the franchisee to waive any of their rights or assume any obligation; or waive any liability of the franchisor on terms that are unfair, unreasonable or unjust, or impose any such terms as a condition of entering into a transaction.

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23. What terms cannot be included in the franchise agreement?


The following terms and conditions cannot be included in a franchise agreement:

  • any terms or conditions that have the general purpose or effect of:
    • defeating the purposes and policy of the Act;
    • misleading or deceiving the franchisee; or
    • subjecting the franchisee to fraudulent conduct.
  • Any terms and conditions which directly or indirectly purport to waive or deprive the franchisee of a right they have under the Act, or which allow the franchisor to avoid any obligation they have under the Act, or which sets aside or overrides any provision of the Act.
  • Any terms and conditions which authorise the franchisor todo or omit to do anything that is unlawful in terms of the Act.
  • Any limitation or exclusion of liability for any loss directly or indirectly attributable to the gross negligence of the franchisor or any person acting for or controlled by them.
  • Any term that requires the franchisee to enter into a supplementary agreement, or sign a document which tries to negate or override the protections offered by the Act.
  • Any false acknowledgement by the franchisee that no representations or warranties were made to them by the franchisor or anyone on its behalf before the agreement was concluded.
  • Any false acknowledgement that the franchisee has received goods or services, or a document that is required by the Act to be delivered to the franchisee.
  • Any forfeiture clause, whether it be for money or otherwise, if the franchisee exercises any right in terms of the Act or to which the franchisor is otherwise not legally entitled to.
  • Any term that authorises the franchisor to enter any premises for the purposes of taking possession of goods to which the agreement relates.
  • Any undertaking by the franchisee to sign in advance any documentation relating to the enforcement of the agreement, irrespective of whether such documentation is complete or incomplete at the time it is signed.
  • Any consent to predetermined costs relating to the enforcement of the franchise agreement.
  • An undertaking by the franchisee to deposit their identity document, credit or debit card with the franchisor, or to provide their personal identification code or number to access their bank account.
  • Any such term will be void and will either be severed from the franchise agreement, if possible, or the entire agreement will be void.

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24. What are the requirements for giving support to franchisees?


When a franchisor undertakes to perform any services for or on behalf of a franchisee, they must, having regard to the circumstances and any specific criteria or conditions agreed between the parties:

  • perform and complete those services in a timely manner;
  • give timely notice to the franchisee if there is going to be any unavoidable delays in the performance of the services;
  • perform the services in a manner and quality that persons are generally entitled to expect;
  • if any goods are required for the performance of the services, such goods must be free of defects and of a quality that persons are generally entitled to expect;
  • return any property made available by the franchisee for the performance of the services in at least as good a condition as it was in when the franchisee handed it over.

If the franchisor fails to perform a service to these standards, the franchisee may require the franchisor to either:

  • remedy any defect in the quality of the services performed or goods supplied; OR
  • refund to the franchisee a reasonable portion of the fees paid for the services performed and goods supplied, having regard to the extent of the franchisor’s failure.

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25. What are BEE codes, and how will the new B-BBEE set of codes affect my Company?


BEE is about 7 elements that together make up 100 points. They are:

  • BEE procurement
  • Enterprise Development, which together with procurement makes up 35% of the total BEE scorecard.
  • Socio-economic development
  • Skills development
  • Employment equity
  • Ownership
  • Management

Every aspect of the revised codes are in response to the effectiveness of the current codes which has been subjected to much abuse with many companies ignoring BEE, or misrepresenting their BEE status, or cheating on all aspects of the BEE scorecard.

The new codes place more emphasis on fronting which appears to include any company that does not include a scorecard. The consequence of this is that the procurement mechanism is being partly replaced with a legal obligation to comply. In effect non-compliance in the past meant potential losses, whereas now it means potential fines or even imprisonment.

Commentators believe that the new set of codes does not address the problems such as abuse of the scorecard, fronting, non compliance of BEE, verification agency abuse, may rather worsen many of the existing, and that overall its going to become more difficult to get a high score. Section 73(A)(3) and (4) of the Competition Amendment Act confers criminal liability on individual cartel members

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26. How are competition matters in the economy regulated in South Africa?


In 1998, the democratic government of South Africa established a new framework of Competition Regulation. Three independent bodies, which replaced the Competition Board, were created by the Competition Act, 1998. These are the Competition Commission, the Competition Tribunal and the Competition Appeal Court. This Act also made it compulsory for firms to notify the Commission and/or the Tribunal about mergers and acquisitions above a certain monetary threshold.

  • The Commission is the investigation and enforcement agency. The Tribunal is the adjudicative body, very much like a court. The Appeal Court considers appeals against decisions of the Tribunal.
  • In practice, the Competition Act regulates two broad areas of competition, mergers and acquisitions on the one hand and prohibited practices (anti-competitive conduct) on the other hand.
  • In relation to mergers, the Commission investigates and makes a decision about intermediate mergers. With large mergers however the Commission conducts an investigation and makes a recommendation to the Tribunal for decision. 
  • In respect of prohibited practices, the Commission investigates and may when it so determines, refer such matters to the Tribunal for prosecution.
  • Sometimes the Commission and the party will agree the terms of a settlement in which case the Tribunal must decide whether to confirm the agreement in order to give it the force of law. 
  • Private parties may also approach the Tribunal for interim relief in prohibited practice cases.
  • If the Commission does not refer a matter which a member of the public brought to it, the member of the public can bring the case directly to the Tribunal if the Commission has issued it with a certificate of non-referral.
  • The Tribunal is required to hold hearings in each matter. Its proceedings are open to the public. In almost all cases, apart from a few procedural type cases, three Tribunal members must hear a case and make a decision. 
  • Once the Tribunal has arrived at a decision, it publishes its reasons on this website.
  • Tribunal members are appointed to serve a five year term of office by the President. Terms of office can be renewed. Tribunal members typically have experience in law or economics. 
  • The Tribunal is also served by a full time staff, presently 14 people, who operate through three divisions, registry, corporate services and research.
  • For more information contact the Registrar of the Tribunal.

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27. Insurance- What are the different types of car insurance available?

Short Term Insurance is governed by the Short Term Insurance Act, 1998.

This offers you the most extensive cover. For example, you will be covered in the event of theft or hijacking, an accident, fire and even for damage resulting from natural disasters such as hailstorms. Comprehensive insurance also covers you for the damage caused by you to another person's vehicle.

Third Party, Fire and Theft:

This cover does not offer you any protection if your car is involved in an accident, or you accidentally drive into the wall of your garage. You are only covered for the costs sustained by the other party in an accident, if you are at fault, but you will be responsible for the costs of repairing your own vehicle.

Third Party:

This is usually the cheapest cover available and only offers cover for incidents where you have been in an accident and pays for damage to the other driver's car, if you were at fault.

Total Loss:
This cover only insures you  for the event where your car is written off completely, or stolen. So , if your car is in an accident and is deemed to require extensive repairs but is not written off, you will be responsible for the cost of repairs. 

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28. How do I minimise the risk of being overinsured?


  1. You could get a discount if you bundle car and home cover. Ask for a combined quote without making any changes to benefits you might get in the event of a claim.
  2. If you took out insurance when you were under 25, you attracted higher premiums. Update your personal details.
  3. Be aware of the difference between retail, trade and market value. Retail value is the price you would pay to buy a similar vehicle, trade value is what a dealer would be willing to pay if you traded in your car (also known as book value) and market value is the average between the retail value and trade value.
  4. Many car policies offer services like towing and lockout assistance. You risk being overinsured if you also belong to an organisation such as the Automobile Association.
  5. You pay additional waiver fees when you rent a car. Similar coverage may be part of your policy. SOme credit cards also offer limited coverage on damage to rental cars as long as you use that credit card to pay for the rental.
  6. If you have moved home, the new area might not pose as high a risk as your old neighbourhood when it comes to crime or weather phenomena. you may also have had new security systems installed, or have done renovations that reduce the risk of flooding or other natural disasters.
  7. If you own a sectional title property, the body corporate is legally bound by the Sectional Titles Act to insure buildings for their replacement cost - you must insure contents.
  8. Check the warranties on household appliances and similar goods sold by retailers. Check your credit card policy wording before you buy an item that is sold with the option of paying for an extended warranty; you might already be covered.


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