Case Study: Bake'd Bliss Bakery (QUIZ 1 PDF)

CASE STUDY Lindiwe and Jabu, long-time friends of over a decade, found themselves at a turning point in their lives. After a casual chat one evening, Jabu confided in Lindiwe that he was struggling to make ends meet and was worried about paying his upcoming rent, which was due in just a few days. He...

CASE STUDY Lindiwe and Jabu, long-time friends of over a decade, found themselves at a turning point in their lives. After a casual chat one evening, Jabu confided in Lindiwe that he was struggling to make ends meet and was worried about paying his upcoming rent, which was due in just a few days. He had unexpected university expenses pile up and was short on funds. Lindiwe listened attentively, empathizing with Jabu's predicament. Without hesitation, Lindiwe offered a solution. "Look, Jabu," Lindiwe said with a reassuring smile, "Let me help you. I can loan you R 10,000 to cover your rent. You can pay me back whenever you're able to, no rush." After graduating with his BSc (Agriculture) majoring in plant pathology at the UFS, Jabu approached Lindiwe with a business proposal. With a vision of opening a trendy bakery in Bloemfontein, they began to explore the possibility of an entrepreneurship for selling cannabis and hemp baked goods. With Lindiwe's recent inheritance of R 2 million from her mother, they had the initial capital to make their dream a reality. Both of them were very realistic about the current uncertainties linked to cannabis use and licensing in South Africa, and decided to first open a traditional bakery with the aim of introducing cannabis products at a later stage. In July 2023, Lindiwe and Jabu started discussing the possibility of opening a bakery, aptly named "Bake'd Bliss." Lindiwe's financial prudence led her to consider the best way to structure their business. Jabu, with the advised he received from his friend in his second year of his LLB studies, insisted on registering a closed corporation. However, Lindiwe, wary of potential liabilities, expressed concern about protecting her personal assets. They were both uncertain about the specific requirements to kickstart the business successfully. After a year of meticulous planning, Bake'd Bliss finally opened its doors on 20 July 2024. Their store was stocked with multiple baking-related items: pastries, cakes, baking equipment, decorating tools, bakery accessories, ingredients, disposable bakery supplies, cleaning tools, 4 laptops, prepacked flour, and a container accidentally filled with a mixture of sugar cubes, dark brown sugar and demerara sugar. The final touch was the new cash register that Lindiwe bought from the local Kloppers store. With their rental space secured, Bake'd Bliss quickly became a popular place to meet, especially among young professionals and students. Lindiwe and Jabu had always believed in giving back to their community, and their latest endeavour was a testament to their shared values. They decided to start a regular donation of baked goods to the Bloemfontein-based children's shelter. They believed that their combined efforts could make a real difference in the lives of the shelter's young inhabitants. However, they knew that they had to reconsider their involvement in this project once they introduce their cannabis products. The newfound financial freedom allowed both Lindiwe and Jabu to purchase their own homes in Bloemfontein. Lindiwe had her sights set on a property in Pentagon Park. However, an unexpected hurdle presented itself: the current resident believed they had a rightful claim to the property due to their longstanding occupancy with the permission of the original owner, their son-in-law. Moreover, the residents said that they would take everything with them if they had to leave, including everything in the garden, even the trees. Lindiwe was faced with a legal conundrum, unsure of how to proceed. Meanwhile, Jabu encountered his own challenges while trying to purchase vacant land just outside Bloemfontein, which he intends to use for cannabis cultivation at a later stage. Local community members warned him of the potential for expropriation of the land in the coming years, casting a shadow over his investment. Amidst these concerns, Jabu decided to splurge on a new car, a Omoda C5 GT. The dealership's congratulations and the handing over of the car keys marked a significant milestone. Lindiwe, on the other hand, took a different financial route. She leased a second-hand VW Polo from Sam, and after two years of driving it, she decided to purchase the car. With some savings remaining, she explored an unexpected investment opportunity: sheep farming. Inspired by a successful local farmer's sheep investments in the Free State, Lindiwe ventured into the world of livestock. She visited a farm, and the farmer pointed to a female Merino sheep, which she purchased for R 3500.00. Furthermore, Lindiwe's business acumen extended to another car deal. She bought a car that Sam previously leased to Jane. To her satisfaction, Jane agreed to continue leasing the car. KEY NOTES FOR CONSIDERATION LAW OF PROPERTY Property refers to all assets owned by a person, including immovable and movable property. Intangible or incorporeal property is intangible or intangible, while corporeal property is tangible and touchable. Two main ways of acquiring ownership in South Africa are original acquisition and derivative acquisition. Original acquisition Original acquisition involves legal ownership of the property, even if the predecessor did not legally own or agree to transfer the property 1. Occupatio: Occupatio involves gaining control over unowned property. The intention is to become the owner of the property. Physical control is necessary. Examples include catching wild animals or fish in their natural state. If a previous owner has abandoned their property, the new owner takes control. Original acquisition is achieved when the property no longer has an owner. 2. Accessio Accessio involves the combination of two corporeal things, resulting in the accessory corporeal property becoming part of the principal corporeal property. Principal corporeal property retains its identity and independence when combined with the accessory corporeal property. Accessio can be categorized into three types: 1. Accession of immovables to immovables: This occurs naturally, such as soil moving  between properties. 2. Accession of movables to immovables: This occurs when a movable is attached to an immovable by human action, resulting in the owner of the immovable property becoming the owner of the movable property. 3. Accession of movables to movables: This occurs when two movables are attached to each other to create one object, resulting in the owner of the principal movable property becoming the owner of the new property. 3. Manufacturing Uses someone else's material without permission. New item cannot return to original form. Example: Wine made from someone else's grapes. Owner of grapes can claim compensation from new owner. 4. Mixing and Fusing (commixtio et confusion) Mixing involves combining solids from different owners, making it impossible to identify individual solids. Fusing involves combining a liquid and a solid or a liquid belonging to two different owners. Both must be done without the original owners' permission. Example: mixing mineral water with flour, resulting in joint ownership of the new item. The elements in the new item cannot be separated again.] 5. Expropriation: Constitution states that Government can expropriate property for public use. State compensates property owner for loss. Owner doesn't need consent; expropriation can occur without agreement. 6. Prescription: Ownership can be acquired through open and undisturbed possession for 30 years. Open possession means ownership is not secret or with original owner's consent. Undisturbed possession means original owner doesn't exercise ownership rights. New owner can acquire ownership even if property belongs to another person. Reasons for prescription include long-term property ownership and original owner's neglect. Derivative Acquisition Only if the original owner collaborates with the new owner. The new owner does not acquire more rights than the original owner. For example, if a house has a panhandle driveway, the new owner does not acquire more rights. Ownership in a cash sale is transferred once the purchase price is paid in full. Ownership in a credit sale usually passes immediately, but may be agreed upon by the buyer and seller. Ownership of immovable property is only acquired when transfer is registered in the deeds office. The original owner must deliver the property to the new owner. There are several methods of delivery, including formal handover. Methods of Delivery Actual delivery: The transferor delivers the property to the transferee or their representative. Constructive delivery: The object is not physically handed over because of its size or type. Clavium traditio: The transferor hands over something that allows the transferee to gain physical control over the property. Traditionio longa manu: If the transferor points out the property to the transferee so that the transferee can take physical control of the property. Traditionio brevi manu (delivery with the short hand): If the transferee already has physical control of the object, but does not intend to control it as if he were the owner, then delivery has not taken place. Constitutum possessorium: The opposite of traditio brevi manu is constitutum possessorium. The transferor is in physical control of the object and will remain in physical control of the property. Attornment: Where delivery takes place by attornment, possession of the property is in the hands of a third party who has physical control of the property on behalf of the owner. All three parties must have the same intention for delivery to take place. BUSINESS ENTITIES Types of Business Enterprises Business enterprises are entities that engage in large-scale commercial transactions. These enterprises often involve numerous contracts of sale, with many businesses having employees and complying with labor laws. The Companies Act 71 of 2008 has significantly altered the structure of companies.  The choice of business enterprise significantly impacts personal responsibility towards creditors and the business's survival in case of the owner's death. The types of business enterprises include sole proprietorships, partnerships, close corporations, and private or public companies. A sole proprietorship is the most basic form of commercial trading, with only one owner. The sole proprietor is fully liable for the business's debts and can only have one person working for them. The sole proprietor must pay taxes on all income earned from the business and can only enter into contracts on behalf of the business. A major disadvantage of a sole proprietorship is that the business ends once the owner dies or becomes insolvent. Understanding Partnerships Partnership Agreements Partnerships are agreements between two or more people to contribute money, skills, labor, or property to a business. The agreement can be verbal or written. The maximum number of partners is no longer capped, but it is not advisable to form partnerships with large numbers. Consequences of Partnerships Partnerships can be formed orally, with a minimum of two persons needed. The property of the business belongs to the partners. Partners do not have to contribute equally to the business or share equally in the partnership property or profit. Partners can agree on dividing the profits proportionally or share profits in proportion to the contribution they have made to the business. Legal Personality and Partnerships Both natural persons and juristic persons enjoy legal personality. Property attached to a partnership is seized by the court and sold to pay the business's debts. Discounts are a certain percentage deducted from the full price. Partnership Registration Partnerships are not recognized as a separate legal entity but can be extended or allowed a limited form of legal personality. Partnerships do not usually have to be registered with the Registrar of Companies. Partners can enter into partnership with another company or another partnership. Partnership Dissolution If partners wish to end the partnership, they can dissolve it without formalities or official procedures. If a partner’s personal estate is sequestrated or one of the partners dies, the partnership is automatically terminated. Close Corporations Overview Created in 1984 by the Close Corporations Act 69 of 1984.  Members of a close corporation are owners of the business, not partners. A close corporation can have no more than ten members, each contributing money, services, or property. Members cannot have shares in a close corporation, but their interest shows as a percentage. The close corporation has a separate legal personality from its members, enjoying perpetual succession. The legal personality ends only if the close corporation is deregistered or dissolved in terms of insolvency laws. The corporation is the owner of the property, not the members. When the close corporation falls into debt, it is liable for these debts, not the members. Members can incur liability for debts in limited circumstances: if the member has stood personal surety for the debts, if the name of the close corporation has been used without the abbreviation 'CC' or 'BK' following the name of the close corporation, if there have been more than ten members for a period of six months, if a member fails to deliver his starting contribution, and if the business of the close corporation is carried out in an irresponsible or fraudulent manner. Members owe the close corporation a fiduciary duty, acting in good faith and honesty with the corporation, trusting the corporation and behaving in a trustworthy way themselves. Any member of a close corporation can enter into contracts for the close corporation and incur debt on its behalf if the close corporation clearly authorizes this or if it takes place during the normal course of business. Every close corporation must keep accounting records at its place of business or registered office, showing the corporation’s financial transactions and status. The Companies Act 71 of 2008 has changed the status of close corporations, allowing them to retain their status until their members decide to convert the close corporation to a company or until the Close Corporation is de-registered or wound up. Understanding Companies and Their Legal Personality Company Legal Personality A company is a juristic entity with legal personality from the moment it is issued a certificate of incorporation. This legal personality is separate from that of its directors, members, or shareholders, allowing the company to enjoy its own rights and obligations. A company can own property in its own name and incur its own debts. If a company commits a delict, it is the company itself that will be liable for the damages it has caused, not the directors or members of the company. A third party is someone else, not a person representing the company. If someone wishes to sue the company, they must do so in the company’s name. A company can also sue a third party in its own name. Company Governance The Companies Act 71 of 2008 governs companies, allowing for two types: profit companies and non-profit companies. Profit companies are categorized into four types: state-owned, personal liability, private, and public. Non-profit companies are incorporated to achieve some public benefit and do not need to have any members.