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BSCI 121 Test 2
U8-9
| Term | Definition |
|---|---|
| Trust | Fiduciary arrangement where trustee hold & manages assets on behalf of beneficiaries. Not a juristic/legal person but has a separate legal identity for tax purposes for example. |
| Trusts are governed by | Common Law & Trust Property Control Act 57 of 1988 |
| Trust deed | Document outlining terms of trust, including duties of trustee & rights of beneficiary. Trust instrument |
| Legal relationship | Created by means of an instrument of the law |
| Requirements for establishment of valid trusts | - Founder (natural/legal person) has intention to establish a legal trust that creates obligation - Trust property is defined - Certain purpose of trust - beneficiaries named - Lawful purpose of trust |
| Types of trusts | Ordinary trust & Bewind Trust |
| How are trusts formed | Inter Vivos & Mortis Causa |
| Ordinary trust | Ownership trust Trustees have ownership & control of assets Rights given beneficiaries: Discretionary trust |
| Bewind trust | Curatorship/ special trust Beneficiaries have ownership, but assets are controlled by trustees Rights given beneficiaries: Vesting trust |
| Inter Vivos Trust | Living trust - created & becomes effective while founder/settlor is alive Ex: estate planning, asset protection, management of assets |
| Inter Vivos features | Founder can modify & revoke trusts - given setup Management & distribution according to founders wishes - even after death Trust established privately - distribution doesn't go through public probate process No need for will or probate process |
| Mortis Causa Trust | Testamentary trust Created as result of founder's death, through terms in will |
| Mortis Causa features | Management & distribution of deceased's assets to beneficiaries (especially is beneficiaries ae minors). Irrevocable Assets go through probate process & is subject to legal procedures that govern admin of estate |
| Trust advantages | Limited liability - beneficiaries aren't liable for trust's debt & obligations Asset protection - from creditors Tax efficiency - able to defer capital gains tax & reduce future estate duty on beneficiary Ensure continuity in business operations |
| Registration of business trust | 1. Trust deed - reflect purpose, management & distribution of assets 2. Appointment of trustees - they must be issued Letters of Auth by Master of High Court 3. Registration with Master of HC 4. Compliance with regulatory req 5. Maintain ongoing admin |
| Trustee duties | Fiduciary duties: adhere to trust deed Loyalty: Avoid COI & prioritise beneficiary interest Account: Maintain accurate fin records & provide relevant info about trust activities Invest Prudently: Balance risk & reward in best interest of beneficiaries |
| Beneficiary rights | Right to be informed about assets, liabilities & management activities of trust Entitled to receive benefits as stipulated in trust deed Enforce trust - take legal action against trustees if they fail in duties or breach terms in the deed |
| Parties to a trust | Founder Trustees Beneficiaries Master of HC- where applicable |
| Founder | Creates trust by transferring assets into trust & establishing trust deed Rights: establish terms & revoke or amend if trust is revocable inter vivos Duties: fund the trust & clearly define the terms to avoid disputes |
| Trustees | Individuals/entities appointed by founder to manage assets & ensure trust admin through TPC Act 57 of 1988 Rights: reasonable compensation & reimbursement of expenses Duties: fiduciary, loyalty, account, invest, adhere to deed, register trust property |
| Beneficiaries | Individuals whom benefit from trust Rights: Info, Income, enforcing trust & removal of trustees Duties: Comply with conditions & provide info to facilitate proper admin |
| Master of High Court | Not a party of the trust; but plays crucial role Oversee administration Issue letter of authority to trustees Ensue compliance with TPC act 57 of 1988 Intervene in dispute or irregularity |
| Business Trust | Legal arrangement where trustees manage & control assets for benefit of beneficiaries, specifically for commecial purposes |
| Trading trusts | Voting trust: Shareholders with multiple shares transfer voting rights Agricultural purposes: Circumvent prohibition of subdivision of Agricultural land act Property holding Investment Estate planning Other: Employee share scheme, BEE etc |
| Application of business trust | Trust vs Company |
| Ownership | Trust: Trustees own & represent; perpetual succession; trading risk lies with trust Company: Continuity; Company owns & directors represent; separate legal entity |
| Formation: | Trust: Contractual agreement/deed to be registered with Master of HC Company: Memo & articles of association certificate of incorp; to be registered with CIPC |
| Taxpayer: | Trust: apply with SARS; founder (s7(3)); beneficiaries (s25B(3)); trustees; (s25B(2)) Company itself is taxpayer |
| Income tax: | Trust: flat rate 45%; special sliding scale 18-45%; Company: 27% |
| Formalities: | Trust: Master could require statements & auditing, but AGM's optional Company: Statements, auditing & AGM's could be required |
| Other applications | Trust: Few statutory regulations; privacy; limited beneficiary rights; lower admin costs Company: Regulated by Companies Act & Common law; limited privacy; shareholders protected by companies act; higher admin costs |
| Features of CC | Assets in own name Conclude contracts in own name Legal proceedings in own name Has a registered name to be used at all times - shortened versions are allowed |
| Purpose of CC | Simpler & cheaper legal structure |
| Number of participants | Trust: max 20 CC: max 10 |
| Legal personality | Trust: Quasi Legal Personality - Trustee's estate is not estate of trust CC: exists separately from members - perpetual succession |
| Liabilities | Trust: Quasi legal personality - liability ito contracts rights & duties CC: members ae liable to creditors - court may disregard separate legal entity |
| Aim | Trust: Not limited to profit CC: Not limited to profit only Partnership: Profit |
| Shares | Trust: Shares issued in public trusts CC: No shares & no share capital |
| Founding documents & governing | Trust: Trust deed & Trust Act CC: Association Agreement & Closed Corporations Act |
| Control | Trust: Trust deed states guidelines of founder & follows Trust Act CC: All members have a say in the business |
| Audit formalities | Trust: Per founder instructions CC: Comply with IFRS, must be audited if it holds assets in fiduciary capacity, less audit formalities than company |
| CC advantages | Simple control Decision reached in writing - no AGM Can obtain member interest & assist individual to obtain interest in CC Can hold shares in Company Independence: separate estates; own profit; no proportional ownership; repesentation (act) |
| CC disadvantages | Every member can participate in management & can bind CC without knowledge or consent from other members |
| Name of CC | Change: register for amended founding statement Allowed: Any letters, language, symbols approved by minister Not allowed: Similar to existing cc or comp, trademarks, no misleads Req: abbr: CC, complete name displayed on office & official publications |
| CC to private company | No new CC formations - existing can exist indefinitely Encouraged to convert to company: simplifies legislation, reduce regulatory burden 75% of members needs to approve conversion |
| How to convert | Application with affidavit of auditor Founding statements are cancelled Registrar advertises application MOI with indication that 75% + gave permission CIPC receives MOI Members become shareholders LP in new form Members become liable (Comp Act) |
| Founding statements | Constitutive documents / source that answers what is the capital, what is the name of corp, principal business & who contributed what Founding members contribute assets, money & services New members buy-in with money |
| Association agreement | Regulates internal relations between members and the CC Constitutive document that answers how resolution passed, how corp is represented & how meetings are convened (how) Rights & obligations of each member |
| Members interest in CC | Not tangible Incorporeal property Bundle of personal rights - like share in company |
| Acquisition of membership interest from EXISTING members | Purchase, donate or exchange-contract can serve as cause Settlement must be in agreement with co-operation; absence of agreement: all members must agree Cession agreement Forced sale - insolvent estate Deceased estate Liquidation Pledge agreement |
| Insolvent estate | Members interest must, irrespective of Association Agreement, follow the insolvency act Sold to: existing members, outsiders that qualify (trustee must give written notice to CC) within 28 days |
| Deceased estate | Executer turns interest into money according to association agreement Absence of AA provisions: interest transferred to heirs that qualify if all members consent or sold within 28 days on terms of insolvency |
| Court order | On request of a member, court can order that a member cease to be a member in CC based on: Incapabilities, Actions that negatively affect CC, Behaviour making management difficult, other circumstances that is reasonable to court |
| Amendment to Founding statement | Amended founding statement by form CK2 Principal business, memberships, member interests, details of contributions - within 28 days with all member signatures Name & address of registered office/ acc official or end of financial year - before change |
| Termination of CC | Voluntary estrangement; Insolvency; Testament; De-registration; Liquidation; Court order; Inability; Conduct; Conversion |
| Duties of members | Fiduciary: honest, good faith, best interest, not exceeding power, avoid COI, non-compete |
| AA for management | All members entitled to participate, equal rights. 51%, 75% of 100% for specific instances Regulates: Majority votes requirements; payment to members Not regulated: Insolvency interest disposal, disqualification, right to call mtg |
| Votes for matters not in aa | 100: Acquire member interest/ assist with acquisition; loans; ratification of contracts; acc official appointments; amending AA 75: Change principal business; disposal of control, undertaking & assets; sale of immovable assets 51: legal proceedings |
| Payments to members | In relation to membership - calculated ito membership interest 100% agreement |
| Quorum | 75% of members personally present at mtg If less than 75% are in attendance, mtg adjourned 7-21 days On day 21, after 30 minutes, a quorum is constituted |
Created by:
CARA.FAURIE
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