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Business contract template

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    • 1. Introduction

      As an entrepreneur it is crucial to fully understand and appreciate the implications and provisions of contracts, and as your business
      grows so should your knowledge of contracts.

      A valid contract not only provides a basis for the start of a new business relationship but also provides a degree of protection for
      the parties involved, which ensures that there is a proper legal channel to follow in the event of contractual disputes. Valid written
      contracts are better enforced than oral agreements.

      A business contract sets out the ground rules for entrepreneurs to be cognisant of when doing business. The contract should provide
      clear terms and clauses regarding what is expected of each party and what the consequences are in the event of the business
      relationship falling apart.
      Hi, I’m Kailash Pillay, an attorney from the city of Johannesburg. My passion for the law
      stems from a desire to improve upon the lives of the vulnerable who fall prey to a
      corrupt system.
      I studied at the University of Johannesburg where I obtained my Bachelor of Laws
      degree, the starting point to the long journey of becoming a legal practitioner.
      This profession has taught me to persevere through the complexities of the law and to
      continually develop my skills as a legal professional.

Best Free Business Agreements 2020

    • 2. A brief background on the types of businesses

      • Choosing the right type of business is one of the first major decisions that an entrepreneur will make. It is important to choose
        the right legal structure and business ownership structure for your business. The different types of businesses have different benefits,
        responsibilities and functions.

        2.1 Sole Proprietorship:
        Sole Proprietorship This involves a single founder who owns and runs the business. It is the simplest form of business entity as the
        business is not separate from the owner.

        2.2 Partnership:

        A partnership entails two or more people who own the business together. The partners will share in both the assets
        and liabilities of the partnership.

        2.3 Proprietary limited company:
        Proprietary limited company Also known as a private company, this form of business is founded and managed by one director. A private company is
        treated as a separate legal entity and the owners thereof are the shareholders.

        2.4 Public company:
        This is a form of business that issues securities through an Initial Public Offering (IPO) and trades its stock on at least
        one stock exchange. Shareholders of a public company can be anyone who purchases the stock.

        2.5 Franchise:
        This involves an owner of a business licensing their business to a third party. The third party then has the right to operate
        the business or distribute the goods and/or services using the business’s name and systems for a certain amount of

        2.6 Personal liability company:
        This form of business can be held jointly by both current and previous directors. The directors are held responsible for all
        liabilities incurred during their position as director.

        2.7 Non-profit company:
        These companies are created to serve a public benefit purpose. The income thereof can only be distributed to the
        founders/members/directors for reasonable compensation for their services. At least three founders must complete and
        sign the Memorandum of Incorporation (MOI).

        2.8 State owned enterprise:
        This type of company is formed by government through legal
        means in order to partake in activities of a commercial nature.

  • Selecting a company name

    • The Companies Act, Act 71 of 2008, determines specific methods of registration of Company names, as well as the use thereof.

      The name of a Company must be registered with CIPC (the Corporate and Intellectual Property Commission) in Pretoria. The Memorandum of Incorporation must first be signed and then the company name, along with other documents are sent to CIPC for registration. To choose a name, you can reserve a name before registration.

      Any company may be registered with or without a company name. If a reserved name is not included in the initial application, the company will be registered with its enterprise number. A name may be added at a later stage through a name amendment. A name amendment requires an approved name reservation and a special resolution to effect a change to the Memorandum of Incorporation (MOI).

      Reservation Process

      A person may reserve one or more names to be used at a later time, either for a newly incorporated Company, or as an amendment to the name of an existing Company, by filing an application together with the prescribed fee with CIPC. Upon receipt of the documents, CIPC must reserve each name as applied for in the name of the person who so applies. If the name is already used for any of the undermentioned, then of course the name cannot be reserved by CIPC:

      (a) if the proposed name is the registered name of another Company, Close Corporation or Co-operative that is already registered;

      (b) if it is the same name of a registered external Company; or

      (c) if the name is already reserved by somebody else.

      If the Reserved Name Does Not Comply with the Companies Act

      If there are reasonable grounds to believe that the proposed reserved name may be inconsistent with the requirements of the Companies Act (the correct abbreviations etc), then CIPC may ask the person who makes the application to serve a copy of the application and name reservation on any particular person, or class of persons, named in the notice, on the grounds that the person or persons may have an interest in the use of the name that has been reserved for the person that applies.

      Also notice can be given to the Companies Tribunal for determination regarding the name (read further on in this article what happens if there is a dispute about a reserved name). CIPC may also refer the application and name reservation to the South African Human Rights Commission (“SAHRC”); and the SAHRC may apply to the Companies Tribunal for a determination.

      Time Periods for the Reservation of a Company Name

      A name reservation continues for a period of six months from the date of the application, and may be extended by CIPC for good cause shown, on application by the person for whom the name is reserved together with the prescribed fee, for a period of 60 business days at a time.

      Normally one does the reservation and if the name is available, one immediately registers the Company, so it is not, in our experience, often that a name is reserved for so long. Most people want to register the Company in any case as fast as possible, but it is good to know that the name can be reserved for 6 months if one needs it to be reserved while you get your affairs in order.

      Transfer of a Reserved Name

      A person for whom a name has been reserved may transfer that reservation to another person by filing a signed notice of the transfer together with the prescribed fee. If CIPC reasonably believes that a person to whom a reserved name is to be transferred, or a person for whom a name is reserved, may be attempting to abuse the name reservation system for the purpose of selling access to names, or trading in or marketing names, CIPC may issue a notice to that person which would state the following:

      (a) requiring the person to show cause why that name should be reserved or continue to be reserved, or why the reservation should be transferred;

      (b) refusing to extend a name reservation upon its expiry;

      (c) refusing to transfer a reserved name; or

      (d) cancelling a name reservation.

      Abuse of the Name Reservation System

      If, as a result of a pattern of conduct by a person, or two or more persons who are related or inter-related, CIPC has reasonable grounds to believe that the person or persons have abused the name reservation system by selling access to names, or trading in or marketing reserved names; or repeatedly attempting to reserve names for the purpose of selling access to names, or trading in or marketing reserved names, then CIPC may apply to a court for an order prohibiting the person or persons from applying to reserve any names for a period that the court considers just and reasonable in the circumstances.

      In considering whether a person has abused, or may be attempting to abuse, the name reservation system, CIPC may consider any relevant conduct by that person or any related or inter-related person, and also the following:

      (a) the reservation of more than one name in a single application or a series of applications;

      (b) a pattern of repetitious applications to reserve a particular name or a number of substantially similar names, or to extend the reservation of a particular name;

      (c) a failure to show good cause for a reservation period to be extended; or

      (d) a pattern of unusually frequent transfers of reserved names without apparent legitimate cause having regard to the nature of the person’s profession or business.

      Defensive Names

      Any person may on application on the prescribed form and on payment of the prescribed fee apply to CIPC register any name as a defensive name for a period of two years; or renew, for a period of two years, the registration of a name as a defensive name, in respect of which he or she has furnished proof, to the satisfaction of CIPC, that he or she has a direct and material interest.

      Disputes Concerning Reservation and Registration of Company Names

      Application to Companies Tribunal

      A person to whom a notice is delivered as discussed in this article under the heading “If the name does not comply with the Companies Act” , then any other person with an interest in the name of a Company may apply to the Companies Tribunal whether the name satisfies the requirements of the Companies Act.

      An application to the Companies Tribunal may be made within three months after the date of a notice that was given by CIPC to the person who so applied for the reservation of the name, or on good cause shown at any time after the date of the reservation or registration of the name that is the subject of the application, in any other case.

      What can the Companies Tribunal Find

      After considering an application, and any submissions by the applicant and any other person with an interest in the name or proposed name that is the subject of the application, the Companies Tribunal must make a determination whether that name satisfies the requirements of the Companies Act.

      The Tribunal can also make an administrative order directing CIPC to do the following or one of the following:

      (a) reserve a contested name for the applicant; or

      (b) register the contested name, or amended name as the name of a Company; or

      (c) cancel a reservation, if the reserved name has not been used by the person entitled to it; or

      (d) a Company must choose a new name, and to file a notice of an amendment to its Memorandum of Incorporation, within a period and on any conditions that the Tribunal considers just, equitable and expedient in the circumstances, including a condition exempting the Company from the requirement to pay the prescribed fee for filing the notice of amendment.

      Within 20 business days after receiving a notice or a decision issued by the Companies Tribunal of this nature, an incorporator of a Company, a Company, or a person who received a notice as discussed above in this article, or an applicant or/and any other person with an interest in the name or proposed name that is the subject of the application, as the case may be, may apply to a court to review the notice or decision.

  • 3. The types of business contracts

    • Contracts create legal rights and duties between two or more parties.

      The types of contracts that entrepreneurs will enter into on a daily basis during the course of running their business are of vital
      importance for legal purposes. These contracts have to be in keeping with the law to ensure its validity.

      Below are certain contracts that an entrepreneur will typically have to enter into at the beginning stages of setting up their business.

      3.1 A Memorandum of Incorporation – this is the constitutional document of a company which sets out the rights, duties and
      responsibilities of shareholders, directors and others within the company.

      3.2 A shareholders agreement – this contract is entered into should the entrepreneur become an owner of a business.
      The contract describes how the business should be operated and outlines the shareholders’ rights and responsibilities.

      3.3 Letters of appointment and employment contracts – these types of contracts are required should the entrepreneur take
      on employees for the business.

      3.4 A lease agreement – this is for the premises where the
      business will operate from.

      3.5 Insurance agreement – this is a contract under which the insurer accepts significant insurance risk from the insured by
      agreeing to compensate the insured if a specified uncertain future event adversely affects the insured. This agreement is
      essential for an entrepreneur to possess.

      3.6 Non-disclosure agreements – this serves to protect the
      proprietary information of the business.

      3.7 Standard terms and conditions with suppliers or service providers.

      3.8 Investment Holding Company

      3.9 Management Company Under Unit Trusts Control

  • 4. The essential elements of a contract

    • In order for a contract to be considered legally valid and binding in South Africa the following requirements must be met:

      4.1 consensus – there must be an agreement between the parties on all material aspects of the contract;

      4.2 capacity – the parties must be capable of concluding a contract;

      4.3 formalities – the contract usually has a certain form which needs to be observed;

      4.4 legality – the contract must be lawful and not against public policy;

      4.5 possibility – the parties must be able to perform the obligations in terms of the contract;

      4.6 certainty – the contract must have a definite content in order for the obligations therein to be enforced. Contracts that are
      uncertain are vague and will not be upheld by a court.

  • 5. Illegal contracts that are void

    • Contracts may be void for illegality for a number of reasons. The overarching consideration is whether the contract is against public
      interest. The specific illegality of a contract may be recognised at common law or in statute, or simply with reference to certain moral
      and constitutional values.

      5.1 Public Interest:
      In most instances a contract is illegal because it is either contrary to good morals or it is contrary to public policy. This
      relates to society’s view of morality, and in both instances, the contract will be unenforceable in law.

      Recognised public interests include:
      • voluntarily concluded contracts should be complied with and enforced (sanctity of contracts);

      • simple justice between individuals should be recognised;

      • parties to a contract should have equal bargaining power;

      • administration of justice should not be defeated or obstructed;

      • the safety of the state should be preserved;

      • the public service should function properly;

      • the full exercise of a person’s legal rights should not be interfered with.

      5.2 The conclusion, performance and object of the contract must be lawful
      Contracts may be void or voidable because the mere conclusion of the contract is contrary to a statutory provision,
      good morals, or public policy.
      Specific examples of contracts that are void:
      • the terms of the contract are impossible to perform or too vague to understand;
      • fraud (false representation of facts) has been committed.

      Specific examples of contracts that are voidable:
      • a party was coerced or threatened by the other party into signing the contract;
      • one of the parties breaches the terms of the contract.

  • 6. Forms of breach of contract

    Forms of breach of contract
    • The parties to a contract must respect their agreement and perform all the obligations imposed under the contract. In the event
      that either party, by an act or omission and without lawful excuse, fails in any way to honour his/her contractual obligations, he/she
      commits a breach of contract.
      6.1 The table below provides a brief overview of the various forms of breach.

      Form of breach

      Committed by

      Relates to

      How is it committed

      Mora debitoris (debtor is culpable)



      Time for performance

      Debtor fails to perform on time

      Mora creditoris (creditor is




      Time for performance

      Creditor fails to cooperate on time

      Positive malperformance



      Content of performance

      Debtor performs badly


      Either party

      Intention to honour the contract

      Party shows intention to be bound by the contract


      Rendering performance impossible

      Either party

      Possibility of performance

      Party makes performance under the contract impossible

  • 7. Remedies for breach of contract

    • When a party to a contract is in breach thereof, the innocent party must make an election as to whether he/she wishes to cancel or
      enforce the contract.

      7.1 The table below provides an overview of the remedies arising from breach of contract.

      Innocent party’s options



      Circumstances availing the remedy

      Additional remedies

      Termination of the contract


      Contract provides for cancellation


      -    Damages

      -    Interest

      Enforcement of the contract

      -  Specific performance including payment


      -  Interdict

      Available in all cases of breach subject to the court’s discretion.


      Available in the case of threatened/ reasonably perceived breach.


      -    Damages

      - Interest

      Claim for money

      -  Damages





      -    Interest






      -        Penalties

      The innocent party suffered actual patrimonial damage.


      Provided for in the contract/ a liquidated debt has become due and payable.


      Penalty clause in the contract.


    • 8. Dispute resolution

      • 8.1 Contractual disputes are usually determined in the following courts:
        • Small claims court for disputes with a value up to R 20 000. 00;
        • Magistrates courts for disputes with a value below R 400 000. 00;
        • High court for disputes with a value of R 400 000. 00 and above.

        8.2 Alternative dispute resolution:
        South African courts generally decline to hear a dispute where the contracting parties have expressly agreed to
        arbitration, this ensures that the parties’ agreement is given effect to.

        It is highly recommended that the parties include an alternative dispute resolution clause in their contract.

        “If any dispute arises out of or in connection with this Contract, or
        related thereto, whether directly or indirectly, the parties must refer
        the dispute for resolution firstly by way of negotiation, and failing
        which, by way of mediation, and failing which, by way of

    • 9. Conclusion

      • It is good business practice to have valid written contracts whenever it is necessitated. This will provide a legal framework in
        which people can do business with the secure knowledge that their rights will be maintained, and if necessary, enforced.

        A contract forms the basis of private initiative and it regulates the standard for fair and honest transactions. The best way to protect
        your business interests is to rely on a well-drafted contract which details your legally enforceable rights and obligations