Legality of using someone else's name to start and run a business

[S_TheGreat]

Hi guys

The title may be confusing, i mean i'm confused myself. But anyway, let me get down to it.
So, this friend of mine decided we should open up a business....at the time, he worked for this technological company, so he had seen a potentially profitable flaw in the business so, he decided to take advantage of it...he then approached me with the idea,(as much as i didn't really understand) and he said we would have to register the company in my name, of which i agreed as long as i got the the specified percentage he had promised when business starts to make profits

A year and a couple of months went on, but to my knowledge, business never picked, and so my friend tells me, he is giving up, because he never anticipated the amount of work he would have to put, being a good friend, i encourage and to keep his spirits up, and that something else will pop up and that was that.
A few weeks ago, i was just browsing the web, and so i decided to look through the old business email we used, and to my surprise, its still very active. going through it, i could see the business bank statement and business actually started booming almost immediately after it was started. however its still in my name and i had not been paid a cent

My question is, what can i do to make him pay for what he has done

[AmithS]

Whose name is the bank account that is being used in? and who has authorised use of it?

Was any partnership agreement or any agreement stipulating profit splits etc... in place?

Are you the 100% owner of the company?

[Andromeda]

Please bear in mind that any shareholders' agreement that varies the provisions of the Act, or that is in conflict with it, must be incorporated in the MOI. In other words there must be a custom MOI which embraces the provisions of any shareholders agreement.

This provision is actually retrospective and even companies that were registered under the "old" Act had a transition period during which they had to amend what were Memorandum and Articles to a customised MOI embracing the provisions of the shareholders agreement.

Agreements that do not vary the Act or that are not in conflict to it, are fine. So any agreement that provides for a share of profits not in accordance with the shares issued and other aspects of the Act, are unenforceable.

The first question I would have for the OP is what do you mean by you registered the "company in your name"? I would presume you are the incorporator and quite possibly the director? Who is the shareholder and did the board of directors (I presume you) properly authorise the share issue?

As far as the bank account is concerned, the shareholders are the owners of the bank account and they determine who the signatories are (usually the directors, but not necessarily so.)

By the way, I suspect the reason the company is "in your name" is because he either has a restraint of trade against him, or has a significant conflict of interest, or there are other legal issues that his employer will enforce. So be careful.

[S_TheGreat]

The bank is in another name, a 3rd party...and they have authorized use of it.
The partnership was agreed upon verbally, however nothing was signed off on..only the fact that i'm the sole proprietor on the company.
Yes i'm 100% the owner

[S_TheGreat]

Please bear in mind that any shareholders' agreement that varies the provisions of the Act, or that is in conflict with it, must be incorporated in the MOI. In other words there must be a custom MOI which embraces the provisions of any shareholders agreement.

This provision is actually retrospective and even companies that were registered under the "old" Act had a transition period during which they had to amend what were Memorandum and Articles to a customised MOI embracing the provisions of the shareholders agreement.

Agreements that do not vary the Act or that are not in conflict to it, are fine. So any agreement that provides for a share of profits not in accordance with the shares issued and other aspects of the Act, are unenforceable.

The first question I would have for the OP is what do you mean by you registered the "company in your name"? I would presume you are the incorporator and quite possibly the director? Who is the shareholder and did the board of directors (I presume you) properly authorise the share issue?

As far as the bank account is concerned, the shareholders are the owners of the bank account and they determine who the signatories are (usually the directors, but not necessarily so.)

By the way, I suspect the reason the company is "in your name" is because he either has a restraint of trade against him, or has a significant conflict of interest, or there are other legal issues that his employer will enforce. So be careful.

1. Yes, When i say the company is registered in my name, i mean i'm the incorporator and the director(the company is registered as (PTY) Ltd.
no share issue was stipulated on pay, everything was agreed verbally...

2. Yes, my friend couldn't be in any way involved with the business, because there would be conflict of interest with the company he works for.

[Andromeda]

Ok. You are only the owner if you own the shares and they were properly issued. The shares are under the control of the director and only he can authorise the issue of shares and determine their issue value. A company without share capital is a bit of an oxymoron, but it happens.

You need to correct this:
For arguments sake the company was incorporated with 100 or 1000 ordinary no par value shares. Normally the first issue would be for a token amount of shares, say 10 at a value of say R100 each, therefore R1000 in total.

So, you should have signed an initial resolution authorising the issue of a number of shares at an issue price of x to either both of you, or to you only, or to him only.

Then the share certificate must be issued and entered in the register; if you don't already have one then get somebody to draw one up for you. Now you are compliant and can properly attend to the matter of a proper bank account.

Be aware that a shareholder can replace a director, so if you are not a shareholder then you are at a distinct disadvantage.

You should also attend to the matter of preparing financial statements. In a nutshell it is your responsibility as director to arrange for an accounting professional to prepare the annual financial statements, whether they are audited, reviewed or compiled depends on on who the shareholder is, and then when he has provisional figures you can consider declaring a dividend, presumably to yourself. You can then also address the matter of funds having been extracted without your permission and knowledge.

The whole point of this exercise is that the Act affords you the protection, but it is your responsibility to assert your rights and authority.

[Dave A]

A few weeks ago, i was just browsing the web, and so i decided to look through the old business email we used, and to my surprise, its still very active. going through it, i could see the business bank statement and business actually started booming almost immediately after it was started. however its still in my name and i had not been paid a cent

1. Yes, When i say the company is registered in my name, i mean i'm the incorporator and the director(the company is registered as (PTY) Ltd.
no share issue was stipulated on pay, everything was agreed verbally...

2. Yes, my friend couldn't be in any way involved with the business, because there would be conflict of interest with the company he works for.

It rather sounds like both your friend's employer and yourself are being properly and willfully done in by this person.

[claassenattorney]

I second with Andromeda. It is always important to sign the agreement on paper with the help from a legal representative or a property lawyer. You should be careful, never do any agreement verbally.

[Akira Livingston]

Sorry to barge in like this, but this is an interesting topic because I find myself in a more or less similar situation. Hi guys, I have a scenario here. So my brother has been working under this advertising company for 7 years now and feels like he has more than enough experience to start his own advertising business, but due to him still being under a company, he says that would be a conflict of interest, so instead he wants to register the business under me, his younger brother, and take it all from there. Then, two years later, after he leaves his job, he'll switch back ownership to his name and continue with it. Is it a safe and good idea to agree to have the business under my name for the time being? Can someone please help me draft a contract or a mere rough sketch of a fair contract that will protect me if things go bad?

[Dave A]

but due to him still being under a company, he says that would be a conflict of interest, so instead he wants to register the business under me, his younger brother, and take it all from there. Then, two years later, after he leaves his job, he'll switch back ownership to his name and continue with it. Is it a safe and good idea to agree to have the business under my name for the time being?

That process does not in any way mitigate the conflict of interest and the legal consequences thereof for your brother. To some extent, it makes things worse as there is now deliberate deceptive methods being used...

Look, I'm not a lawyer and I'm not even going to attempt to say anything about the legal aspects.
However, it is plainly unethical. And that's normally a pretty good sign that it's a bad idea.