Chapter 7 - Legal Issues - Business Ownership PDF

Chapter 7 -- Legal issues Introduction - Discusses various ownership options available to entrepreneurs. - Highlights factors influencing the decision on the best form of ownership. - Outlines legal requirements such as tax, employer registration, and insurance. - Emphasizes the...

Chapter 7 -- Legal issues Introduction - Discusses various ownership options available to entrepreneurs. - Highlights factors influencing the decision on the best form of ownership. - Outlines legal requirements such as tax, employer registration, and insurance. - Emphasizes the importance of understanding specific legal aspects. - Emphasizes the responsibility of entrepreneurs to choose the appropriate business form. - The type of business depends on the service or product desired and the desired business organization. Legal aspects that the business owner should comply with - Registering with local authority for trade license. - Registering with Receiver of Revenue for Value Added Tax. - Registering for income tax for self and employees. - Registering with Department of Labour for Unemployment Insurance Fund (UIF) and Compensation for Occupational Injuries and Diseases Fund (COIDF). - Both employers and employees contribute to UIF. - Employers report accidents and diseases to COIDF. - COIDF provides compensation for disablement caused by occupational injuries and diseases sustained or contracted by employees during employment. Types of ownership - Sole Proprietorships - A business where the owner works alone, not registered as a legal entity. - Owners bear all business profits, risks, losses, and debts. - Owners are personally liable for all actions. - Ownership cannot be transferred, given as a gift, or inherited. - Owners are liable for all debts and claims arising from business operations. - Capital acquisition potential depends on the business owner's financial strength and creditworthiness. - Owners are liable to pay the business's tax from their personal income. - Transferring ownership is not possible with sole proprietorship. - Partnerships - A legal entity formed between co-owners to operate a business for profit. - Partners may be natural persons or juristic persons. - Partners sign contracts in their personal capacity. - Partners are jointly liable for all the debts of the partnership. - Any change in the partnership dissolves the existing partnership. - Partners are jointly liable for all the claims against the partnership during the existence of the partnership. - If the partnership is dissolved, partners are jointly liable for partnership debts. - Partners are taxed individually on their share of this income. - Transfer of ownership is more complex by the number of partners involved. - Company - A company is an association of people incorporated under the Companies Act (No. 71 of 2008). - The Act aims to provide businesses with more capital than sole trading. - Two types of companies can be incorporated: Companies with a share capital (private companies) and Companies limited by guarantee (non-profit organizations). - Private companies must be registered with the Registrar of Companies, identified by the words '(Proprietary) Limited' or '(Pty) Ltd' after its name. - The administration of the company is entrusted to its directors, appointed by a general meeting of shareholders. - The Memorandum of Incorporation (MOI) sets out the rights, duties, and responsibilities of shareholders, directors, and others within a company. - To register a company, the required number of people must complete a Notice of Incorporation and register an MOI. - Cooperatives - The Co-operatives Act (No. 14 of 2005) defines a cooperative as an autonomous association of persons united voluntarily to meet their common economic, social, cultural needs and aspirations. - The Act provides several legal characteristics of cooperatives. Registration process - Companies and Intellectual Property Commission (CIPC) is responsible for new business registration. - CIPC sub-directorate of Department of Trade and Industry. Intellectual property - Understanding Intellectual Property - Intellectual property refers to all creations or products of the human mind that can be used for commercial gain. - It includes ideas, inventions, designs, processes, know-how, or skills specific to an enterprise and its owners. - Legal protection is necessary to ensure the creator derives full commercial benefit from the intellectual property and no unauthorised user or infringer uses it. - Protecting Intellectual Property - Copyright is a legal concept enacted by most governments, giving the creator of original work exclusive rights. - In South Africa, all work created on or after 1 January 1978 receives copyright protection while creators are alive and for 50 years after their death. - Copyrights registered with the CIPC automatically protect copyrightable works from the moment of their creation under the Copyright Act. - Design Registration - Designs must be registered before an individual or company has rights to them. - The Paris Convention allows registration of designs in other countries six months after registration in your home country. - In South Africa, a specialized law for design protection applies, the Design Act (No. 195 of 1993). - Registration can be made through the CIPC with the Registrar of Design. - The maximum duration of protection is 15 years for an aesthetic design and ten years for a functional design from the registration date or from the date released. - Patents - Patents are the registered, exclusive right of an inventor to make, use, or sell an invention. - A South African patent application can serve as a basis for the inventor to claim \'convention priority\' in respect of foreign applications in most other industrialised countries. - There are two primary types of patents: utility and design patents. - Defensed and Opposite Patent Aggregation - Defensive patent aggregation (DPA) is the practice of purchasing patents or patent rights to keep them out of the hands of entities that would assert them against operating companies. - Opposite patent aggregation (OPA) is the purchasing of patents to assert them against companies that would use the inventions protected by such patents and to grant licenses to these operating companies in return for licensing fees or royalties. - Trademarks: - Refer to specific work, phrase, symbol, design, sound, smell, colour, product configuration, group of letters, or numbers. - Used by companies to identify their products or services and distinguish them from others. - Aim to prevent consumers from confusion about the origins of a product or service. - Registered under the Trademarks Act (No. 194 of 1993). - The trademark owner may allow a licensee to use the trademark, but must ensure no public deception or confusion. - The trademark should be followed by the generic name of the product and should be distinctive by its color, typeface, or background. - The words \'Registered Trademark\' are abbreviated by symbol®. - A trademark is automatically registered for ten years from the date of the original application, which can be renewed. - Counterfeit Goods: - Stealing the intellectual property of another person robs them of the economic benefits of those rights recognized under patent, trademark, and copyright legislation. - Counterfeiting is the manufacturing, producing, or making of any goods without the authority of the owner of intellectual property rights to the protected goods. - Examples of goods that are sometimes copied and become counterfeited include designer-label items, chart-topping films and music copied onto blank DVD, video and audio tapes, MP3 players, art works, and computer software. Taxation - Taxes are levied by the central government and administered by the South African Revenue Service (SARS). - Provinces can levy taxes on immovable property. - Sole traders and partnerships must register as provisional taxpayers with their local SARS office. - Companies also register as taxpayers, paying different rates based on their earnings. - Two main taxes are imposed by the South African government: direct and indirect taxes. - Direct tax is imposed on an individual person or property, paid directly to the government. - Indirect tax is imposed on a transaction, increasing the price of goods, resulting in higher prices for consumers. - SARS manages all tax, ensuring compliance with tax laws and collecting correct tax amounts. - Sole proprietorships and partnerships must include their income in their gross income. - Individual taxpayers pay between 18 and 41% tax, depending on their earnings. - Individual taxpayers qualify for a primary rebate, a return of part of the amount given in payment of the tax. - Trusts are a separate legal entity to their trustees and beneficiaries, taxed at 40% on taxable income per annum with no rebates. - SARS introduced special rates of taxes for small business corporations in 2000. Contracts - Contracts: - Contracts are legally binding agreements between two or more parties. - They can be in writing or not, but they must meet four basic conditions: legality, agreement, consideration, and capacity. - Entrepreneurs need to check the small print, ensure the contracting party is genuine, complete the arrangement before signature, request a copy, and seek legal advice for complex arrangements. - Employment Contracts: - Employers must have an employment contract outlining duties, wage, and policy requirements. - They must ensure employees are paid according to applicable awards and receive their statutory entitlements. - Memorandum of Understanding (MOU): - MOUs express mutual accord and specify mutually accepted expectations. - They are simpler and more flexible than contracts. - Lease Agreement: - A lease is a contractual arrangement where the owner grants the use of hire property to another person under certain conditions. - The lessee is expected to make payments for the use of an asset. - Service Levy Agreement: - A service levy agreement is an agreement between two or more parties, where one is the customer and the others are service providers. - It can be a legally binding formal or informal contract. - Terms of Reference: - This document provides details of an assignment for an individual evaluator or teams of evaluators. Registration with the department of labour - Businesses with employees must register with the Department of Labour to contribute to Unemployment Insurance and Compensation Funds. - Unemployment Insurance Fund (UIF) - Established through the Unemployment Insurance Act (No. 63 of 2001 as amended). - Employees can draw from UIF when unemployed. - Exempted employees include foreign workers, workers under 24 hours, learnership agreements, and public sector employees. - Compensation Fund - Provides compensation for disability caused by occupational injuries, diseases sustained or contacted by employees, and death resulting from such injuries or diseases. - Employers must contribute to the Compensation Fund and report any accidents and occupational diseases. Trading licences - Trading licenses are issued by local municipalities. - Businesses should contact their local authority for business establishment. - The Business Act (No. 71 of 1991) governs trading licenses. - Activities allowed include selling or supplying meals or perishable foodstuffs, providing health facilities or entertainment, and hawking meals and perishable foodstuffs. Labour legislation governing employment in SA - Labour Relations Act (No. 66 of 1995) - Basic Conditions of Employment Act (No. 75 of 1997) - Occupational Health and Safety Act (No. 85 of 1993) - Skills Development Levies Act (No. 9 of 1999) - Skills Development Act (No. 97 of 1998) - Employment Equity Act (No. 39) - Broad-based Black Economic Empowerment Act (No. 53 of 2003) - Protection of Personal Information Act (No. 4 of 2013) - Financial Intelligence Centre Act (No. 38 of 2001) - Consumer Protection Act (No. 68 of 2008) - Business owners should be aware of these Acts.